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Broken Benefits: 'A new aristocracy'

The formula for calculating pensions has allowed public employees – especially teachers – to claim generous payments

While he was head of District 300, Norm Wetzel was one of the highest paid school superintendents in the state.

Now retired, Wetzel collected an annual pension of $212,651 this year, making him the most generously compensated public retiree in McHenry County when compared to others who retired this decade.

Wetzel is one of 77 government workers locally who collect six-figure pensions every year and have retired since 2000.

Statewide, thousands of retired public employees are cashing in on similar nest eggs – all on the taxpayers’ dime.

A Northwest Herald investigation revealed that numerous high pension recipients, such as Wetzel, received generous salary bumps during their final years on the job, skyrocketing their annual pension benefits by thousands, and even millions, of dollars.

Although the retirement fund that pays Wetzel cannot and does not measure how salary increases boost a pension, this investigation showed that four late-career salary spikes might have raised Wetzel’s pension by as much as $1.9 million over 20 years.

“That’s where the injustice is,” said John Tillman, CEO of the Illinois Policy Institute. “These are millionaire pensions that are being funded on the backs of the working class and poor.”

INVESTIGATION OVERVIEW

The Northwest Herald reviewed pensions for nearly 3,000 retired judges, police and individuals who worked in municipal or county government, at elementary and high school districts and at McHenry County College.

When it came to top earners, pensions for retired educators were far and away the most lucrative. And interestingly, retirement payouts for elementary and high school retirees stood notably higher than pensions for former McHenry County College employees.

At MCC, some of the highest pension recipients are ousted president Walt Packard, a former psychology and sociology instructor, and a former “Executive Assistant to the President for Organizational Effectiveness.”

Packard – who was paid more than $250,000 during his final year of employment even though he had been relieved of his duties – will be paid $112,274 during his first full year of retirement, according to State Universities Retirement System records. Carol Chandler, the former instructor, collected $105,112 in 2010, while Deborah Patton, the Organizational Effectiveness employee, took home $91,136.

Each of these pensions increase by a compound 3 percent every year until the retiree dies.

By contrast, the retired heads of McHenry County area elementary, high school and unit school districts received much higher pensions this year.

In McHenry, former District 15 Superintendent D. William Dodds was paid $142,311, while Rob Gough, who retired in 2006 from his superintendent job in Johnsburg District 12, was paid $136,977.

These pensions also will increase by a compounded 3 percent every year.

While the disparity between the college and K-12 educators was notable, the most significant gap was between both sets of educator-turned-retirees and the folks who, for decades, funded their paychecks: the taxpayers.

The median income in McHenry County was $85,864 in 2009, according to the U.S. Census Bureau, with about 30 percent of households making more than $100,000.

“[Public employees] have become the new aristocracy,” said Jim Tobin, president of National Taxpayers United of Illinois.

Second to K-12 educators were retired judges, of which there are only a handful locally. The highest-earning judge who retired in the past decade is Ward S. Arnold, who received $147,450 this year.

And all but two retirees under the Illinois Municipal Retirement Fund were eligible for less than $100,000 for pension in 2010. These former employees will receive non-compounded 3 percent hikes every year until death.

CLOSE LOOK: CRYSTAL LAKE

The analysis of pension payouts from various pension systems shows TRS beneficiaries well ahead of their counterparts in other systems – even within the same community.

Consider the following annual pensions for retired personnel from Crystal Lake:

• Ron Sheley, who retired in 2001 from his position as Crystal Lake police chief, was paid $102,138. Former Deputy Chief Dennis Harris, who retired this year, will receive $78,458, in his first full retirement year.

• Kirk Reimer, who retired in 2010 from his role as executive director of the Crystal Lake Park District, will receive $103,300 in his first full retirement year.

• Former District 155 superintendent Joseph Saban, who retired in 2002, received a pension of $168,121 this year. A teacher who retired in 2006 from his district, Frances Zender, was paid $162,738.

SOME HISTORICAL PERSPECTIVE

Ray Mathis taught high school for 33 years. Like others, he’ll tell you he didn’t get into the field for the money.

When he took his first teaching job in 1974, his annual salary was $8,900. His dad frequently reminded him he’d earn more money if he went into the trades. To supplement his teaching income, Mathis delivered milk on weekends for an extra $60 a week.

When pensions came into play for educators, the retirement security was the trade-off for low salaries, Mathis said.

“It was like a way to make up for paying us a little,” the McHenry resident said. “In the old days, you would have to pull teeth to get a raise.”

But over the years, teachers’ union heads entered contract negotiations with school boards and walked out with significant raises and salary perks.

Terms such as “poor teachers” no longer were the norm. They were replaced with “retirement incentive” or “longevity bonus” – and in many instances, these new terms were used as a way to get expensive teachers off the payroll so that lower-salaried educators could take their place, said Mathis, who is 60 and retired in 2007.

“People offered us these things to get rid of us. What kind of fool wouldn’t take them?” he said.

Mathis himself took a bonus in exchange for retiring earlier than he had planned.

When it came to the late 1990s and early 2000s, educator compensation perks rose rapidly. Twenty percent annual raises for a school administrator in the years before their retirement was par for the course, as the boom years generated burgeoning supplies of property tax revenue.

“At that time – six, seven, eight years ago – things were much better than they are today,” said Chris Cardamore, a District 15 school board member from 1987 to 2007. “The economy today would not dictate that at all.”

PATH TO TOP PENSIONS: SALARY SPIKES

The annual pension sums that Norm Wetzel has received since retiring from District 300 demonstrate how late-career compensation boosts amplify pension amounts.

Wetzel started his career in the district in 1969 as a sixth-grade teacher at Lakewood School. He taught for four years before becoming a dean at Irving Crown High School in 1973.

He went on to wear a handful of administrative hats until being selected as District 300 superintendent in 1992, according to district records.

Under regulations set for the Teachers’ Retirement System, pensions for retired educators are based on the average salaries from the four consecutive years of highest pay during the employee’s final decade of employment. Depending on how many years that educators work and a handful of other variables, retirees receive a percentage of their highest average salary during the first year of retirement, TRS spokesman Dave Urbanek said.

For example, a retiree who is at least 55 years old and has 35 years of service could receive as much as 75 percent of her highest, average salary during the first year of retirement.

WETZEL BREAKDOWN: For Wetzel, the years 1998 to 2002 paid the most.

In 1998, Wetzel renewed his superintendent contract, agreeing to work until 2003, according to documents obtained through a Freedom of Information Act, or FOIA, request.

His base salary in the 1998-99 school year was to be $135,000. He was promised raises of at least 4 percent every year, 20 vacation days, and the district would pay his contribution to TRS.

The school board at the time also agreed to pay Wetzel an additional $9,500 every year in the form of a tax-sheltered annuity from a program of his choosing. On top of these perks, he was paid a $600 monthly car allowance for in-district travel, plus reimbursement for out-of-district, work-related travels.

Records from the retirement system confirm that Wetzel’s TRS-creditable earnings in the 1998-99 school year were $138,981.

In fall 1999, Wetzel received a new contract. This one cut his tenure with the district by one year; he would retire in 2002. It also stipulated that he could be reassigned from the superintendent position into “another administrative position” between 2000 and 2002.

Documents received through the FOIA request to the school district didn’t show what kind of raise Wetzel received with his new contract, if any; but TRS records did.

In the 1999-2000 school year – the first year that would be used in the average to determine Wetzel’s pension – his TRS-creditable earnings increased to $234,398, a hike of $49,763 from the previous year.

And although district officials did not provide any contracts beyond the 1999-2000 contract in response to the FOIA request, the TRS records showed this salary spike was the first of several.

During the 2000-01 school year, Wetzel stepped down from his superintendent’s job to become the assistant to the superintendent, district records show. His compensation climbed to $244,334 during that school year.

The following year – which also would be the final one used in calculating Wetzel’s pension average – Wetzel took on a new title, superintendent emeritus. During this year, he also served as principal at a former school site, Huntley South.

At the end of his tenure with the district and as superintendent emeritus, Wetzel’s TRS-creditable earnings climbed to $279,785.

On the pension front, Urbanek said TRS was unable to provide exact calculations of how much these compensation increases would have boosted Wetzel’s retirement payments, since it varies from one individual to the next. So for practical purposes, the Northwest Herald applied the following formula:

(Average of highest four years of salary during final 10 years of employment) X 0.75 = Pension Year 1

Then, since TRS members receive annual raises of 3 percent compounded, Pension Y1 was multiplied by 1.03 to generate Pension Y2. That amount was multiplied to generate Pension Y3, and so forth.

Applying this formula, and then assuming Wetzel will collect a pension for 20 years, he will have earned more than $4.7 million in retirement by the year 2022.

Had Wetzel not received those large raises in the final few years of his employment, his gross pension payments would be decreased by more than $1.9 million over 20 years.

DODDS BREAKDOWN: While Wetzel is the area’s most dramatic example of pension padding, he isn’t the only one who profited from late-career salary increases.

D. William Dodds retired six years ago from his job as superintendent in McHenry Elementary District 15. He is the seventh most well-compensated K-12 educator in the county among those who have retired in the past 10 years.

A FOIA request to the district yielded a handful of contracts, including two that appeared to have been written in 2000.

One contract was for the years 2000 to 2005. It was dated June 20, 2000, but was signed by Dodds on Dec. 22, 2000.

The other contract said his employment would run from July 2000 to June 2004, and was dated June 20, 2000. It was unsigned by Dodds.

The signed contract stipulated that Dodds would retire in 2005. An addendum to the contract offered Dodds a “deferred compensation plan,” which basically would award him a tax-sheltered annuity of $164,057 if he were to work for the district until 2005. This money could not be used to boost his pension.

Dodds didn’t stay until 2005; he retired a year early.

However, in the last month of his employment, he received an extra $226,934 on his regular bi-monthly paychecks.

Dodds said he did not want to comment on his pension or final salaries for this story, but said he didn’t receive the annuity payout during his last year. District officials also declined to comment, since none of the current administrators or board members were with the district during Dodds’ tenure in District 15.

It also was unclear whether any of the $226,934 was vacation or sick day payout. One document yielded by the FOIA request showed that his final compensation was boosted by $40,212 after cashing in more than 60 unused vacation days and another 60 unused sick days.

But wherever the salary bumps came from, they boosted the TRS-creditable earnings for Dodds by $46,732 during his final year of employment, raising his would-be four-year average to $128,584, up from $113,869 (in 2004, TRS would credit only up to 20 percent salary boosts when calculating what was creditable to pensions).

This year, Dodds collected $142,311 in pension benefits. That amount will increase to $146,580 in 2011.

OLD HABITS DIE HARD

Under new regulations set five years ago for TRS, school districts are limited to 6 percent raises during the final four years of employment for retiring administrators.

School districts that award raises higher than 6 percent but lower than 20 percent to boost pensions must pay a fine. For the most part, districts have stayed within the 6 percent range; but some haven’t.

“You still get districts that want to reward someone in the last years of their working career,” TRS’s Urbanek said. “The school board basically just votes and says, ‘Well, we’ll pay the penalty.’ ”

Although 6 percent raises are less dramatic than the compensation boosts awarded to Wetzel, Dodds and others, it’s still a raise that boosts pension payouts as well as salaries.

And while some school districts have laid off staff, cut programming or frozen salaries to cope with the recession, they don’t appear to have stopped awarding the pre-retirement raises.

In Richmond’s District 2, teachers received a 2 percent raise for the 2010-11 school year. But while the northern McHenry County district has grappled with the same tight budgets as others across the state, Richmond Grade School Principal Judi Jones received a 6 percent raise this year because she planned to retire in June.

Her salary this year was $135,295, including contributions to her pension.

And in the high school district that serves Spring Grove and Richmond, Richmond-Burton High School Principal Tom DuBois also received a 6 percent raise this year because he, too, plans to retire soon.

His salary for this school year was $143,618.

While some in the Teachers’ Retirement System believe the 6 percent caps suffice to curtail abuses, others, like Mathis, believe further steps are needed.

“They shouldn’t have a six-figure pension,” he said. “That’s not good for anybody, including people receiving pension.”

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