When Illinois revamped its school funding formula in 2017, lawmakers didn’t touch the teacher pension system. That means it’s still operating under the same inequitable framework that led to the push for school funding reform in the first place.
Now, an influential advocacy group is warning those inequities will be compounded if the state doesn’t address the teacher pension system soon.
This story has two parts: First, what’s wrong with the pension system, and second, why it needs to be fixed. We tackled that first part more than two years ago in this interview with Jessica Handy. She works with an advocacy group called Stand For Children, but before that, she was a legislative aide assigned to the Senate's pensions and investments committee.
We began by pretending that she runs a school where I’m applying to be a teacher. How would pensions figure into our employment conversation?
Handy: School districts actually have very little stake in paying teacher pensions. They pay 0.58 percent of teacher salary into the Teachers Retirement System. The actual cost of that teacher’s pension is usually around 8 percent of salary, so most of that cost is paid for by the state.
Rhodes: What about if I’m being hired as an administrator? Once you get to principals’ salaries, you’re talking some serious pension dough, right?
Handy: If you’re a certified teacher and you’re in administration, you are also in the TRS system.
Rhodes: So it’s a benefit — a gift from the state to each school district?
Handy: It’s an in-kind benefit that the state pays on behalf of school districts.
Rhodes: Okay, so let’s look at figures for some of the districts. Take Danville. How much do we pay per student in pension costs for Danville?
Handy: Danville gets about $500 per student.
Rhodes: Where does that put them on the spectrum of how much we pay for pension costs in different districts?
Handy: That’s actually about average. You’ll see that Rondout, which — it’s one of the richest districts in the whole state, and the state is giving them an in-kind benefit of $1,700 per pupil. So Danville gets about $500 per pupil; Rondout gets about $1,700 per pupil.
Rhodes: What about a really poor district, like East Aurora?
Handy: East Aurora gets about $280 per pupil.
Rhodes: You know, anyone who listens to our station has heard many times that the state of Illinois has a very inequitable funding system, because it’s based on property taxes. We talk about the amount of “general state aid” that goes to each district. In that conversation, are we talking about these pensions? Or is that a separate conversation?
Handy: It’s an entirely separate conversation. Lots of the analyses that have been done by national think tanks — people who have said Oh, Illinois, you have one of the most inequitable school funding formulas — most of those studies don’t even count the funding that’s going into teacher pensions. So we are even more inequitable than the studies that say we’re the most inequitable.
That interview was recorded in March of 2017. And a few months later, Illinois adopted a whole new school funding formula, dubbed the “evidence-based model,” designed to channel state dollars to the schools that need it most.
But for the Teachers’ Retirement System, known as TRS, nothing changed. Roundout — that super wealthy district — still gets three times more state pension dollars per student than Danville, or Peoria, or Rockford, which are all close to the state average. Some districts (Taylorville, for example) get significantly less.
Now, Stand for Children is warning if the state doesn’t fix this situation soon, it will get exponentially worse. They’ve published a flip-book promoting a plan they’re calling an “equity boost,” which others might refer to it as a pension cost-shift. But Handy says integrating pensions into the new funding formula would end up costing most school districts nothing. For the 100 districts (out of 852) that could lose some pension funding, Handy suggests the change should be phased-in over a three-year period.
Rhodes: Why are you renewing this push now? What's the reason that there's a new urgency about this?
Handy: So right now we have two tiers in our pension system. The first tier is the benefit levels that we, you know, generally hear about.The second tier is a pretty paltry benefit. You know, teachers have to work for 10 years before they vest in the formula. The cost of providing that benefit is actually quite a bit lower than Tier 1. Employees that were hired after January 1 of 2011 will go into Tier 2 automatically. And what a lot of people don't know is that Tier 2 employees are getting a benefit that actually costs less than they're paying in. Teachers are paying in their 9 percent of salary, and getting a benefit that will probably be worth less than that when they retire.
Rhodes: So (in the interest of) full disclosure, I'm Tier 2 with State University Retirement System, but go ahead.
Handy: So the Tier 2 ... can't stay; the legislature is going to have to fix Tier 2. And in Tier 2, we know that the first employee could have been hired January 1st of 2011, and they needed 10 years before they're going to vest. So simple math will tell us, January 1, 2021, is when we will probably see some people who were hired under Tier 2 getting ready to retire. And those would all be eligible, like, plaintiffs in a lawsuit.
Rhodes: Because teachers and state university employees don't get Social Security.
Handy: And the reason they're allowed to do that is because of this "safe harbor" provision that's available at the federal level that says you don't have to opt your public employees into Social Security, but you have to give them a benefit that's at least worth the value of Social Security. And teachers aren't getting that right now, if they're in Tier 2.
Rhodes: So it's logical to expect lawsuits starting January 1st, 2021.
Handy: I think it's logical to expect that we would need to see some action before January 1, 2021, in order to avoid some pretty serious consequences.
Rhodes: Okay, and so what does this 'equity boost' have to do with that scenario?
Handy: The legislature is probably — hopefully — going to fix Tier 2 and provide a decent benefit level for all those employees. That's going to be good. It's going to be good for the teacher shortage; it's gonna be good for a whole host of reasons. But it's also going to increase the cost to the state, and whatever TRS certifies and says, 'This is our contribution level' — that gets paid, no matter what. That's a continuing appropriation. Whether or not the legislature even puts it in the budget, that gets paid.
So before there's a Tier 2 fix, we want to make sure that we've actually gotten these systems talking to each other, working together, so that any increase goes through the formula instead of going through something regressive.
Rhodes: Your organization proposed this idea of basically a pension cost-shift to school districts. Describe the reception you got.
Handy: It's always kind of been met with a brick wall. And I shouldn't really say that because years ago, both Gov. (Pat) Quinn and Gov. (Bruce) Rauner put it in their introduced budget that there would be some sort of cost shift. And I think that the public perception around that is that it's a kind of pension reform. And what Stand for Children is doing is coming at it from a totally different perspective, that this is really about education funding equity.
Rhodes: How many people have you had this conversation with where you saw a light bulb come on, and they get it? I mean, how much headway are you making with this?
Handy: This is such a hard concept to understand. It's a hard concept to explain. We're trying our best to make this digestible for everyday people, because that's who really needs to understand in order for us to, you know, make change to our government and improve school funding.
Handy is not surprised this idea hasn't caught on yet. Lawmakers had a lot on their plates this year, and Handy has been around long enough to know a pension cost shift — even rebranded as an “equity boost” — will take time.
But as any teacher can tell you: Days are long; years are short. And 2021 will be here sooner than we think.