Metro-East News

Region’s schools paid $1.8 million in pension penalties

KRT

School districts in the metro-east region have paid more than $1.8 million in pension penalties since 2005 because they gave end-of-career raises above 6 percent to teachers and administrators.

The districts were required to make the payments to the Illinois Teachers’ Retirement System under a 2005 law that was designed to discourage school districts from spiking the pensions of teachers and administrators by giving them large, end-of-career raises.

In the metro-east, East St. Louis School District 189 leads the way in penalty payments, having forked over $514,787 since 2005. District 189 gave end-of-career raises above 6 percent to 67 employees.

Penalties for other local districts in the region include:

▪  Belleville School District 118: $49,408

▪  Belleville Township High School District 201: $61,762.

▪  Cahokia Unit District 187: $98,783

▪  Mascoutah Unit District 19: $107,311

▪  O’Fallon Community Unit District 90: $58,900

▪  O’Fallon Township High School District 203: $61,898

▪  Bethalto Unit District 8: $124,784

▪  Collinsville Unit District 10: $76,280

▪  Granite City Unit District 9: $211,928

The figures are from a statewide database compiled by the Chicago Tribune.

Lawmakers approved the change in 2005 in response to a common pension-spiking tactic.

Here’s how pension-spiking worked: Educator pensions in Illinois are based on the four highest consecutive salaries in the final 10 years of the educator’s employment. So school districts would give large raises in those final years, jacking up pensions. The cost to the school district was short-term, but the cost to the retirement system fund typically was deeper and long-term.

Legislators sought to rein in the practice by imposing a fee on school districts if they give an employee a raise above 6 percent during any of those four years.

The fee is based on what the educator’s pension would be with a 6 percent raise, versus the raise actually given, over the employee’s entire retirement. Dave Urbanek, a spokesman for the Teachers’ Retirement System, said several factors are used to determine the fee, including the age and life expectancy of the retiree.

“It’s designed to cover the full extra cost of the pension above 6 percent,” Urbanek said.

East St. Louis Superintendent Arthur Culver could not be reached for comment.

Dupo Unit District 196 had to pay a fee of $30,529 for a single retiree. Superintendent Stephen Smith said the district gave a retiree a 6 percent raise in her final four years of employment, putting her salary at $88,038, plus a bonus of $11,627, to encourage retirement. The bonus is what triggered the penalty.

Smith, who was not superintendent at the time, said he didn’t know why the teacher was offered the deal. But he said there was almost immediately a savings for the district, because entry-level salaries are $35,000 to $40,000.

“You make it up pretty quickly on the back end,” Smith said.

No other Dupo retirements have triggered a penalty fee. But Smith said the district has some teachers nearing retirement age, and it might consider similar deals in the future, if they make financial sense for the district.

Dupo wouldn’t be alone. Illinois has 995 school districts, and during the 2014-15 school year, 400 of them were assessed a fee for giving end-of-career raises above 6 percent. That’s about 40 percent of the state’s school districts.

Diana Rickert, vice president of communications for the Illinois Policy Institute, which bills itself as a free-market, liberty-based group, said end-of-career raises might not cause much pain for individual school districts, but they hurt Illinois taxpayers.

“They’ve now put every single Illinois taxpayer on the hook for a pension that the teacher didn’t put enough money in for,” Rickert said.

Rickert said it makes no sense to incentivize teachers to retire, because it appears most are ready to hit the exit door once they’re eligible for their pension. She said 71 percent of Illinois public school teachers retire before age 60.

Rickert said it’s now “pretty much standard” for school districts to give teachers 6 percent raises in their last four years of service.

“I think the 6 percent raises in the final years are wrong, too,” Rickert said. “It’s only a raise to boost somebody’s pension.”

The Illinois Teachers’ Retirement System, which is the state’s largest pension system, currently has about 98,000 retirees. The average annual pension for TRS members who retired before the age of 60 with at least 35 years of service is $70,491.

“What you end up having is a lot of people collecting a pension longer than they were actually on the job,” Rickert said.

Rickert pointed to the Dupo teacher as an example of why the state’s pension systems are in trouble.

The teacher’s salary in her last four years was as follows:

▪  2009-10: $99,666.43

▪  2008-09: $83,055.36

▪  2007-08: $78,354.11

▪  2006-07: $73,918.97

The final year included the bonus, $11,627, which triggered the penalty.

The teacher was about 55 years old when she retired. According to life-expectancy tables, she’ll have about 26 years of retirement. Her starting pension was about $59,700, but it increases annually with 3 percent compounded raises.

Over 26 years, her total estimated pension payout will be about $2 million. The bonus bumped up her total pension payout by about $30,000.

But if her salary hadn’t increased at all in the final year, her total payout would be about $1.9 million, a difference of about $100,000.

How much did she pay into the system? About $131,300.

“It’s not normal, and it’s not mathematically sound,” Rickert said.

At O’Fallon Township High School District 203, almost $35,000 of the district’s total penalty of $61,898 was prompted by the retirement of former Superintendent Russell Clover. Current Superintendent Darcy Benway said Clover had a raise above 6 percent in 2006, because he was paid for some unused vacation time.

Clover’s pay in his final four years ranged from about $151,000 in 2002-03 to about $208,000 in 2005-06.

Clover’s current pension is about $175,000 per year. His estimated total payout in retirement is about $4.04 million.

Clover himself contributed about $213,000 toward his pension.

In Venice District 3, Superintendent Cullen Cullen said school leaders were unaware that the sole employee who incurred the penalties intended to retire. The employee accepted an extra duty assignment that brought his salary increase over the 6 percent threshold.

Then the employee, who had served more than 20 years, informed the district of his intent to retire, Cullen said.

“We had no idea he was retiring,” Cullen said. “If we had known, other actions would have been taken.”

However, Cullen said, administrators also cannot interrogate longtime employees about their intentions or retirement plans, as it could be construed as pressuring the employee or age discrimination.

Granite City Unit 9 Superintendent Jim Greenwald said some of Unit 9’s raises that topped 6 percent are due to terms of teacher contracts or late-career promotions. He said the district has been reducing its penalties over the past few years.

“We have continued to make efforts to minimize these high amounts as much as possible,” Greenwald said.

For example, he said, in 2013-14, the district’s penalty was only $1,700.

Collinsville Superintendent Bob Green said as far as he can recall, Unit 10 has not had to pay the penalty since he took office four years ago.

“What we try to do is make sure we are not incurring penalties now,” he said. “The board takes its fiduciary responsibility very seriously.”

Green said the teachers’ contract stipulates that they need to give a year’s notice of retirement, which allows them to keep an eye on compensation and make sure it does not rise more than 6 percent.

“If someone wants to retire with less notice, we usually allow it,” Green said, but then they make sure the severance package does not incur penalties for the district.

Gov. Bruce Rauner has proposed lowering the 6 percent raise threshold to no larger than the rate of inflation, but the legislation has stalled. The rate of inflation is typically much lower. The idea is to further discourage large, end-of-career raises.

The Tribune found that, of roughly 48,000 educators who have retired since the law took effect in mid-2005, about 4,800 got raises of 20 percent or higher, and some 15,000 got raises of more than 6 percent just before retiring.

Urbanek, of the Teachers’ Retirement System, said the number of districts having to pay the fee has “slowly come down” in recent years.

Urbanek said the state has 995 school districts. Out of the those, here’s the number that have had to pay a penalty fee in recent school years:

▪  2010-11: 420

▪  2011-12: 455

▪  2012-13: 440

▪  2013-14: 416

▪  2014-15: 400

Statewide, school districts have paid about $38 million in penalties since the 2005 law took effect.

The pension funds that cover the state’s judges, state legislators, university employees, state employees and non-Chicago teachers currently have a combined $111 billion deficit.

In Illinois, public school teachers do not pay into Social Security and do not receive Social Security benefits.

Contact reporter Brian Brueggemann at bbrueggemann@bnd.com or 618-239-2475. Follow him on Twitter: @B_Brueggemann. News-Democrat reporter Elizabeth Donald contributed to this report.

How much metro-east school districts paid

Penalties paid by local school districts since 2005 to the Illinois Teachers’ Retirement System because of end-of-career raises above 6 percent given to employees. The number of employees listed are the number who triggered the penalty.

District

Employees

Total penalties

Average penalty per employee

Belleville Area Spec Ed

2

$2,311.60

$1,155.80

Belleville SD 118

13

$49,408.85

$3,800.68

Belleville THSD 201

20

$61,762.04

$3,088.10

Brooklyn USD 188

6

$9,324.38

$1,554.06

Cahokia CUSD 187

34

$98,783.38

$2,905.39

Dupo CUSD 196

1

$30,529.34

$30,529.34

East St Louis SD 189

67

$514,787.33

$7,683.39

Freeburg CCSD 70

1

$1,038.57

$1,038.57

Freeburg CHSD 77

2

$1,630.63

$815.32

Grant CCSD 110

5

$2,318.25

$463.65

Harmony Emge SD 175

1

$430.40

$430.40

Lebanon CUSD 9

4

$35,420.78

$8,855.20

Marissa CUSD 40

1

$204.95

$204.95

Mascoutah CUSD 19

22

$107,311.37

$4,877.79

Millstadt CCSD 160

4

$1,546.54

$386.64

O'Fallon CCSD 90

12

$58,900.99

$4,908.42

O'Fallon THSD 203

5

$61,898.96

$12,379.79

Pontiac-Wm Holliday SD 105

5

$8,841.00

$1,768.20

Shiloh Village SD 85

1

$1,082.83

$1,082.83

Signal Hill SD 181

1

$259.15

$259.15

Smithton CCSD 130

1

$1,219.95

$1,219.95

St Clair Co Reg Educ Programs

1

$1,468.09

$1,468.09

Wolf Branch SD 113

2

$1,581.91

$790.96

Whiteside SD 115

2

$1,021.51

$510.76

Alton CUSD 11

24

$96,988.34

$4,041.18

Bethalto CUSD 8

10

$124,784.37

$12,478.44

Collinsville CUSD 10

20

$76,280.22

$3,814.01

East Alton SD 13

5

$29,796.50

$5,959.30

Edwardsville CUSD 7

14

$19,543.37

$1,395.96

Granite City CUSD 9

29

$211,928.23

$7,307.87

Highland CUSD 5

4

$17,620.65

$4,405.16

Madison Cnty Spec Educ

1

$384.31

$384.31

Madison CUSD 12

6

$32,539.92

$5,423.32

Roxana CUSD 1

6

$13,293.93

$2,215.66

Special Education- Region 3

1

$1,615.62

$1,615.62

Triad CUSD 2

12

$8,539.09

$711.59

Wood River-Hartford ESD 15

2

$1,628.94

$814.47

Venice CUSD 3

1

$13,112.40

$13,112.40

Breese SD 12

7

$8,101.18

$1,157.31

Carlyle CUSD 1

4

$2,009.25

$502.31

Central CHS 71

8

$12,702.55

$1,587.82

Damiansville SD 62

2

$2,586.77

$1,293.39

Germantown SD 60

3

$5,472.73

$1,824.24

Wesclin CUSD 3

1

$256.04

$256.04

Ashley CCSD 15

4

$6,540.50

$1,635.13

Irvington CCSD 11

1

$163.50

$163.50

West Washington CUSD 10

1

$2,688.52

$2,688.52

Nashville CHSD 99

1

$39.64

$39.64

Sparta CUSD 140

2

$3,679.28

$1,839.64

Steeleville CUSD 138

2

$1,657.21

$828.61

Bond County CUSD 2

7

$23,848.54

$3,406.93

Monroe-Randolph Counties ROE

3

$7,542.18

$2,514.06

Columbia CUSD 4

9

$14,935.88

$1,659.54

Valmeyer CUSD 3

2

$11,368.37

$5,684.19

Waterloo CUSD 5

11

$15,806.43

$1,436.95

Madison Co ROE 41

3

$1,594.07

$531.36

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