Underfunded and Undervalued: The Truth About Teacher Pensions

Dunbar High School Teacher Michael Kleine

• Editor’s Note: I usually do not print other people’s work, but this piece about the Tier 2 Problems I just couldn’t pass up. Michael Kleine is a member of the Tier 2 CTU Committee. He is a third-year teacher at Dunbar High School on the Southside of Chicago.

By Michael Kleine, Guest Columnist

From a young age, I knew being a teacher had the makings of a great profession. I loved school, I had teachers I looked up to, so why not? When I told my mom I wanted to be a teacher, she wasn’t worried about the low salary. “At least you’ll have a good pension,” she said.

At that time she was right, but for teachers like me, who started after 2011, that no longer holds true.

At what point do we admit that the perceived stability teachers rely upon, no longer exists?

Illinois offers relatively acceptable salaries for teachers compared to nationwide averages, largely thanks to a strong union presence. Yet lurking beneath the surface is a harsh reality - one that began in 2011 with the introduction of the “two tier pension system”.

To understand Tier 2, we need to rewind a couple decades. The CTPF, established in 1898, was fully funded as recently as 1999. Today, that funding has plummeted to a meager 48%. So, what happened?

Illinois politicians, gripped by “pension fever,” - an obsessive desire to fix budget shortfalls on the backs of state employees, stopped making their legally mandated pensions payments.

Instead, they diverted funds to pet projects. Then came the 2008 housing crisis, which sent the system into a tailspin.

As a result, pensions became an easy political target nationwide, and Illinois politicians, in the heat of “pension fever” created a so-called solution: the Tier 2 system.

The Tier Two system was passed in a fly by night veto session that saw typical allies of education gripped by pension fever at levels never before seen. Progressive technocrats like Dan Biss, who prided themselves on wonky, data-driven policymaking even capitulated to the financial pressure of the 08’ crisis. He later apologized on the gubernatorial campaign trail, which faltered due to lack of Union support. The point is not to decry one person, but the overall environment that willingly sacrificed teachers.

Tier 2 hastily raised the retirement age to 67. It cut the cost of living adjustment so it appreciates at half of inflation, created a ten year vesting period up from five, and forced 9% contributions from teachers, which is more than the value of the actual benefit received. The pension is so poor that it likely violates safe harbor, which means it is worth less than equivalent social security benefits that teachers don’t receive.

The reality is that most teachers now will face one of three outcomes 1) they won’t stay long enough to vest their benefits 2) they’ll receive too little to retire securely, or 3) they’ll forgo social security, creating a retirement blackhole incentivizing quick departures from the profession.

According to the Bellwether policy institute, Illinois has the worst pension system in the country in terms of benefits to teachers, second only to New Jersey.

I’ve observed a tense relationship between how teachers view their job, which they largely love, and discussions about money. We work for the taxpayer, and no one wants to seem greedy. But here’s the reality: You cannot teach until 67, it is not physically feasible. Additionally, teachers are rapidly leaving the profession in Illinois for private sector jobs that pay a competitive wage.

The question remains, do we value education or not? The data is clear. There’s an exodus from the profession, and as uncomfortable as it is, we have to start talking numbers now, before we lose the profession for a lifetime. Once Tier 1 teachers leave, who will be left? 50% of teachers quit within five years. Salaries in Chicago, though ahead of the nation, still lag behind inflation.

Yes, life is about personal choices, you can think teachers deserve less pay, but they are leaving, and quickly, which leaves future generations in the lurch.

Thankfully, there’s a solution that could work for everyone. “We Are One Illinois” launched a “Fix Tier 2” movement, which advocates a reasonable benefit teachers can rely on while keeping our budget safe. It lowers the retirement to a much more fair age of 62, and fixes inflationary concerns with a COLA adjustment.

That said, the CTPF was completely funded before 2000 with only tier 1 retirees? What changed? Why do pension funds across the country consistently get returns lower than the national average for 401ks? These are questions that need to be answered in addition to any pension reform.

At the end of the day, Illinois has a choice: continue to shortchange its educators or make the investments needed to sustain the profession. Because once these teachers leave, who will be left?