In only four years, the Illinois State Board of Education itself cost taxpayers an additional $592,619.69 in penalties because of end-of-career pension spiking for retiring staff.
Pension spiking is a practice of increasing government employees’ salaries in the final few years of their careers to boost how much they will receive in retirement.
This can be enhanced further by adding unused vacation and sick day payouts.
Before the new budget took effect for the state, Illinois law required pension funds to charge any local employer, such as a school district, the cost of increasing public employees’ salaries more than 6 percent at the end of their careers.
Beginning July 1, pension funds require the local employer to cover the cost of increasing employees’ salaries at the end of their career more than 3 percent.
An investigation by Illinois News Network found school districts across the state – or their taxpayers – paying millions of dollars extra to the Teachers’ Retirement System because of spiking salaries over 6 percent in the four years before July 1.
TRS records show that
13 years after lawmakers passed a law designed to limit big pay hikes before retirement, many school districts continue the practice and stick local taxpayers with the penalty payments for doing so. Statewide, school districts paid $23.8 million to TRS since fiscal 2014 for excess sick time and pension-boosting pay raises above 6 percent.
It wasn’t only local school districts that had to pay penalties. The Illinois State Board of Education got hit with $329,151 in penalties for hiking 28 employee salaries above the
6 percent limit since fiscal 2014.
The penalties are designed to cover the pension system’s cost of providing additional retirement benefits. The state board paid individual penalties for each employee that ranged from $177 to $71,000, according to numbers obtained from TRS under the state’s public records law.
A response to a records request to TRS showed the spiking of salaries for 28 employees at ISBE totaled $329,151 from Jan. 1, 2014, to March 31, 2018.
Karen Taylor, a principal consultant, earned an average of $50,172 in her last four years of service.
Calculating her salary increase in excess of 6 percent a year, TRS used her age and retirement date and found the spiking cost to ISBE was $177.
Taylor had the smallest individual penalty the state board had to pay, according to figures provided by ISBE in response to a public records request. Twenty-four of the 28 pension-padding penalties were more than $1,000. Nine penalties cost ISBE more than $10,000 extra. Four cost $20,000.
Dora Welker, a division administrator with ISBE, earned $95,000 in 2013. She earned $132,500 in 2017. That’s a 39 percent salary increase. But her 2013 salary wasn’t what was used in the final calculation.
Documents show Welker’s salary of $103,744 in 2014 – about $9,000 more (a 9 percent increase) than the year before – her 2015 and 2016 salary (which virtually was unchanged), and her 2017 salary of $132,490 (a 27 percent increase from the 2014 salary) was used in the calculation.
ISBE averaged the salary from the final four years of Welker’s salary to be $108,175, or $3,124 more than what the average salary would have been if at the 6 percent annual cap. The difference, $3,124, then is multiplied with an actuarial factor of 16.6. The employer, ISBE, owed $52,147.91 for Welker’s 27 percent spike in four years.
Documents show Susan Morrison, a deputy superintendent and chief education officer at ISBE, had a salary of $158,881 in 2011. It increased to $216,940 by 2015. That’s an increase over the four years of 36.5 percent. That’s also $4,769 more than the 20 percent over four years, 6 percent a year, allowed without a penalty to the pension fund. Multiply the difference by an actuarial factor of 14.7, and ISBE had to pay about $71,000 extra into the pension fund.
A spokesperson for ISBE said the reason for the larger than 6 percent salary increase at the end of an employee’s career is “generally the result of the distribution of compensable days, but can also include salary increases.”
“At resignation from the agency, an employee is entitled to be paid for vacation days earned but not taken at the time of separation,” the statement said. “An employee is also entitled to be paid for sick leave in accordance with Illinois law in effect on the date the employment relationship is terminated.”
Another records request from Teachers’ Retirement System showed ISBE’s net payments of excess salary and excess sick leave totaled $574,754 in four years.
State Sen. Elgie Sims, D-Chicago, said he didn’t want to “cherry-pick one or two cases.” He didn’t have the specific numbers in front of him, but said, “What I do know is the vast majority of teachers, their salaries are not in that range. The vast majority of educators don’t make that.”
The average annual pension for a retired Illinois teacher was $54,180 in fiscal 2017, according to Teachers’ Retirement System.
State Rep. Mark Batinick, R-Plainfield, said ISBE should be leading by example.
“Half a million dollars, that’s a half-million dollars above and beyond the 6 percent that is already allowed. That’s a pretty big number,” Batinick said.
As of the most recent audited financial report from the Illinois auditor general for fiscal 2018, TRS’ pension system is not even 40 percent funded.
The American Academy of Actuaries recommends that pension systems should plan to attain 100 percent or more funding ratios. TRS has an unfunded liability of at least $76 billion.
Put all of Illinois’ pension funds together and it’s a
$130 billion unfunded problem.
“That’s using a 7 percent rate of [investment] return,” state Rep. David McSweeney, R-Barrington Hills, said before voting against the spending plan and budget implementation bill in May. “If you use a real rate of return, you have a $200 billion problem. We are insolvent.”
Taxpayer Education Foundation President Jim Tobin said the state’s pension problem is in part because of the 3 percent compounded annual increases in pensions that the Illinois Supreme Court said was guaranteed by the state Constitution.
“Pension benefits double every 24 years,” Tobin said.
Defenders of educator pensions argue that they deserve them because they don’t receive Social Security benefits.
Tobin dismissed that claim, calling it a “scam.”
“The top Social Security pension is only $42,000 if a taxpayer works until the age of 70,” Tobin said. “[Some educators] retire in their 50s and become multimillionaires out of their pension funds, and it’s a crime. It’s legalized theft, that’s what it really is.”