Even with new pension spiking threshold, some worry taxpayers will still pay extra

Even with new pension spiking threshold, some worry taxpayers will still pay extra

·         By Greg Bishop | Illinois News Network

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The Illinois State Capitol in Springfield, Illinois.

John Spataro | Illinois News Network

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INN investigation: Pension spiking still prevalent despite massive debt

Big end-of-career spikes can significantly boost the annual pension payments an educator gets in retirement and the total amount the taxpayer-supported pension system has to pay out over the term of the benefit.

A decades-long practice of jacking up salaries in Illinois' public education arena has been checked by state lawmakers for the second time in 13 years, but decreasing the threshold of allowable pension bumps may not end the costly practice that hits taxpayers across the state.

The new Illinois state budget addresses pension spiking, when state employees salaries are increased significantly in the final few years of their career, leading to an increase in their annual pension payouts upon retirement.

The enacted budget for fiscal 2019 requires pension funds like the Teachers Retirement System to bill a local employer, such as a local school district, if they spike someone’s salary over 3 percent a year. That is down from a penalty on any bump over 6 percent, where the law was before July 1 this year.

“Three percent is obviously fairly close to inflation, plus considering when somebody is going to make a job change as they go along, it makes perfect sense,” state Rep. Mark Batinick said.

The updated plan capping spiking at three percent is estimated to save $21 million annually, “which really isn’t a lot of money when you’re talking about splitting that over 2 million school children in this state. And that’s between all the [state pension] systems, that’s not just [the Teacher Retirement System]," Batinick said.

“The way our system is set up ... has incentivized the people to do some nefarious things,” he said.

When spiking happens, Batinick, R-Plainfield, said “the pension is based on that much higher amount and there hasn't been enough contributed along the way to the make up for that.”

An Illinois News Network investigation found school districts all over the state having to pay millions of dollars in pension spiking penalties from when the law had a six percent cap. Some examples from the investigation were “egregious (and) extremely costly for taxpayers,” Batinick said.

Pension spiking has been happening for years.

“The career service raises have been a decades-long practice,” said state Sen. Elgie Sims, noting the six percent limit was implemented back in 2005.

“What the career service raises have done,” said Sims, D-Chicago, “they’ve incentivized educators to take lower salaries to back-fill their raises on the backend.”

But Batinick doesn’t think the new change lowering it from six percent to three percent in the current budget will do much.

“There’s still end-of-career massive spiking that’s going on that’s stressing the pension systems and people are just writing checks,” Batinick said of the previous six-percent cap. “So obviously where the abuse is is from the six percent and well beyond that. My guess is that if it was set to zero, we’d still have problems."

Spiking takes taxpayer money away from other services.

“It's going to take away supplies, to hire other people,” Batinick said. “When police and fire spiking happens, then it’s going to take police off the streets and so forth. It’s money that’s taken out of society essentially.”

“That kind of thing is going on around the state,” Taxpayer Education Foundation President Jim Tobin said.

Tobin cited the Chicago suburb of Harvey where more than 40 police and fire personnel were laid off because money from the state meant for the city was diverted into pension funds.

The Taxpayer Education Foundation recently published a report showing 19,000 state government retirees make more than $100,000 in pensions a year, up 15 percent from last year. More than 100,000 retirees get $50,000 a year. The report estimates next year that more than 21,000 state government employees will have $100,000 annual pensions.

“Pension benefits double every 24 years,” Tobin said, giving blame to the three percent guaranteed annual raise in pensions for Tier I employees.

One example Tobin noted is a teacher he said retired at the age of 57.

“His annual pension is $321,000 this year. He’s already received $3 million. He’s a pension millionaire,” Tobin said. “If he lives until he’s 85, he’ll get over $9 million from Illinois” taxpayers.

Tobin said spiking should be criminal.

“The spiking thing needs to end, not be capped. It needs to be terminated and that is the solution,” Tobin said.

Sims advocated for paying teachers a minimum salary of $40,000 by 2022, a bill that sits on the governor’s desk.

“Why don’t we pay them an adequate wage throughout their service so we’re not worried about that,” Sims said. “Let’s pay our educators a salary that they deserve throughout their service and I think you’ll see a drop in the penalties.”

Tobin responded.

“If they’d get rid of these stupid pensions, I’d be in support of higher salaries for government people,” Tobin said. “I think they should get paid what they’re worth in the sector now, but these pensions are out of whack and out of control.”

Batinick urged people to pay attention to local elections and get out and vote.

“We have all these units of government, if we’re going to keep them it’s our responsibility to make sure they run properly,” Batinick said. “We have something like 10 to 20 percent turnout in local races. They make a lot of decisions and spend a lot of your money.”