Still Confused About How SB1 Treats Teacher Pensions?
It would still be hard not to be. After a press conference two weeks ago and major confusion in the air (to say nothing of last week’s amendatory veto issued by Governor Rauner, which highlighted pensions), there are two big misconceptions that we’ve been hearing quite a bit and we’ll address them both here. But first…
A Crash Course on Pensions in Illinois
First, who pays? For our discussion, there are two key pensions systems: the Teachers’ Retirement System (TRS), which is paid for by the state and serves all teachers in Illinois, except for Chicago Public School (CPS) teachers, and the Chicago Teachers Pension Fund (CTPF), which is paid for by CPS.
Next, what’s a pension payment? Pension payments are best thought of as having two parts: the first is the normal cost payment, which is the cost of keeping up with pensions for the year, and the second is the unfunded liability payment which is essentially a debt payment to the fund to make up for years of smaller payments.
MYTH #1: Chicago asked to pay its own pensions in 1995 as a condition of getting block grants.
THE TRUTH: Chicago has paid its employer costs of its pension fund since the fund began. The State pays the employer cost for teacher pensions outside of Chicago for all other school districts. The State used to include some funding for CPS to use to make its pension payment. In fact, in 1997, a goal was added to state law declaring its intention to provide the Chicago Teachers’ Pension Fund “between 20% and 30%” of the amount it provides to the Teachers’ Retirement System (which covers all teachers’ pensions except Chicago’s). But last year, while TRS got $4 billion in state funds, CTPF got $0.
A 1995 law made major changes to how CPS operated, but it didn’t change who paid teacher pensions. The Chicago Block Grant was enacted as a way to maximize flexibility for CPS. Rather than reporting claims and getting reimbursed like other districts, the block grants were designed to reduce the paperwork. Now, most of us realize they are outdated and we should phase them out going forward, as SB1 does. But there was never any connection or deal between getting a block grant and paying for pensions.
MYTH #2: CPS’s ballooning pension unfunded liability will eat up everyone else’s school formula funds in the future.
THE TRUTH: The portion of CTPF unfunded liability payments that would be incorporated into the Base Funding Minimum is less than 1% of total. It’s also less than 1% of the total TRS payment the state will make this year. CTPF payments from now until 2059 will grow proportional to the cost of education overall; there is no upcoming cliff that would cause payments to jump disproportionally to the cost of payroll.
For more on how SB1 handles teacher pensions, Mike Jacoby from the Illinois Association of School Business Officials discusses it here.