Teacher pensions: when is it OK to break a contract?

http://finance.yahoo.com/news/Battle-Looms-Over-Huge-Costs-nytimes-252868470.html?x=0&mod=pf-retirement

In Illinois, there are two mantras among teachers:

1. Our pensions are constitutionally protected. No governor or legislator can ever take them away.

2. Plan for your retirement like your pension doesn’t exist, because it is becoming increasingly likely that some younger teachers will never see it.

I think both of them are extremes, though the latter is becoming more and more likely to be closer to reality.  I have always found a certain irony that senior citizens who would take up arms if one dime were taken from their social security checks, have no problems with stripping public sector employees of their equally hard earned pensions.

Go back to the 1930s when social security became reality. The idea was you pay a little in, and when you retire, you are (statistically) likely to get a little more out (since the government has dutifully turned a profit on interest in the meantime).

Then life expectancies increased, and what was supposed to be a reasonable “little bit more” became a lot more.

Public sector employees, as a rule over time, don’t have a lot of incentives, and if history is any indication, public sector employees didn’t have a lot of people make it their life long ambition. Even among teachers, while only something like 50% of new teachers stick it out to retirement, back in the day, that number was much higher. Part of what allowed communities to hold on to teachers was offering benefits like a slightly better retirement (some towns offered their teachers homes and discounts at the local markets on food).

While this article is about Colorado, Illinois is similar: teachers are forbidden from paying into social security, and instead are forced to pay into what we call TRS (Teacher Retirement System). On paper, it works out pretty nice: school districts get away with paying teachers a little less by paying a percent of their salary as a TRS contribution (which is usually a percentage of their now slightly reduced salary). It isn’t school district money: it is a part of the teacher’s salary (this is something a lot of people don’t fully understand … the school pays the money out of the payroll to the TRS, but it is not the school district’s money … it is similar to the Social Security deduction made from your check … it is YOUR money). It is also serious money … I pay in about $5,000 per year (note, this is my money that is never paid to me, of course it is also tax deferred). When a teacher comes up for retirement, they draw an annual pension which is a healthy percent of the average of their last five years teaching.

Like with social security, life expectancy went up, and the amount people were drawing went up, and the amount they were paying in didn’t go up proportionally. But then something else happened:

Back about the time I got into teaching, there was a glut of old teachers making larger salaries, and a lot of young teachers waiting to get in. The solution was simple:

The older teachers, with state approval, were permitted to write checks for some fairly serious money (I think it was like $10,000 or so, but I could be off) to buy a year of their career and move them one year closer to retirement. Some teachers had other ways of doing this: for example, teaching summer school allowed you to get a certain amount of credit (like 1/3 of a year) toward retirement. School districts saw this as a boon: big salaries vanished, and smaller ones came in!

Of course, these older teachers controlled their unions and their negotiating authority (typically), and as a result saw another way to get some money: since the pension was based on the average of your final years salary, there came an opportunity to boost up those salaries.  School districts are not going to offer everyone massive pay increases, and unions could never get away with differentiated pay scales. The solution: offering “retirement bonuses” got around paying every teacher a lot of money, but it still saved the school district (and the local tax payers) money, and got the retirees what they wanted.  The senior citizens were happy, the tax payers were happy, the school district was happy.  The younger teachers were happy because they were glad to get the job in return for not seeing their annual salaries go up as much.

The problem was: that last part was not state approved, because no one saw them coming. The state took too long to put a stop to it. In some cases, teachers collected a few thousand more over the last few years, but some administrators, typically superintendents had golden parachutes put in their contract that saw some of their salaries jump ten thousand plus dollars in their final year or two.

So now you have teachers retiring very early after long careers, and making a lot more money than the actuarials ever thought anyone would be making.

Illinois just rushed a bill through the General Assembly (as in not thinking about the consequences). Teachers hired before 1/1/11 will not see their pensions touched. Everyone after that has to work until 67, period, before touching a dime.

BTW … when I say “not have their pensions touched”, I should really be saying “won’t be having their pensions touched yet”.

I don’t know about you, but I don’t know too many 67 year old teachers that can run a classroom. This means if I am an 18 year old and I am thinking of what to do with my life, I am thinking teaching is out, or that teaching is not a long term profession … maybe something for me to get into and raise money for grad school or something to do on the side while I sell real estate (read: since I am not focusing solely on teaching, I will be a mediocre teacher) … exactly what the profession has been trying to move away from in the past few decades.

More problems: anyone who is anyone in economics will tell you this law will do next to nothing to solve the problem. The pension system is still bleeding like ever before, and the bleeding will continue to increase (and now with the economy down and school districts taking in less, while teachers are being let go, even less money is going into the pension system). I think the only way this is going to work is have all working teachers up their contributions, and decrease the amount being paid out to all retirees … likely by reducing the cost of living increases that each retiree gets.

Any politician suggesting that senior citizens take less money from pensions or social security might as well pack up the office and go try some other profession because the senior citizens will make sure he never gets elected dog catcher in any civilized nation.  However, the fact remains that the current retirees are bleeding the system dry, and unless something is done to stop this, the impact on the state governments, local governments, schools, and future retirees will be monumental.

As I noted above. With all of the lumps education has been taking, a lot of people are avoiding it. I see fewer and fewer of my students showing an interest in education. Seeing that there is now a big push for teachers to pay more and get less, and work longer before retiring … the reasons to go into the profession are getting smaller.

 

Colorado, to their credit, has that idea: despite the fact that it will interfere with some well laid plans of retired teachers who were only being human in taking advantage of a legal system, those teachers need to get less money. Colorado implemented all of those plans.

If you read the article, this amounts to serious cash … one teacher interviewed just retired based on the contractual amount he had been promised by the state. If he lives 30 years to 92, he will lose an estimated $500,000 over that time. Colorado’s stand is: “Sorry, but if we do nothing, we will run out of money and no one gets anything.”

Needless to say, the retired senior citizens are suing to the hilt to get their money back claiming it was a breach of contractually promised money. This lawsuit, and the subsequent elections I suspect will be a big test to see what happens in other states. If electors can take money away from senior citizens (right or wrong … that’s what is happening, and that is what NEEDS to happen), and then survive re-election, other states might be more tempted to go this route.

Things like pensions and social security can work over the course of decades, but in order to work really long term, there needs to be a lot of forethought, and the courage to do unpopular things in advance. Those are two things that our state and federal governments have had in short supply at least for several decades; insisting instead that they can come up with magical fantasy solutions that make all of the bad things go away … and most of the American public loves it and later calls it the “good ol’ days” … back when we could fix things. Nothing really got fixed … it just got stored in the back of the garage for the kids to fix later.

I think it is safe to say, one way or another, those days are all over. Americans are going to have to get used to paying more and getting less. They are going to see higher taxes, and what they get for them won’t be as good. The days of 50 cents buying your family a nice couple of steaks and 50 cents buying a gallon of gas are long gone. In some ways, they were the good old days. I feel bad that in so many ways kids today and those following will live in a much tougher world … how tough … who knows for sure?

But human being are resilient …. they have survived plagues and infestations and progroms and wars (hot and cold) and the collapse of empires and they even survived Barney. Somehow the kids will survive, and maybe (hopefully) will have learned a bit about our mistakes along the way.

addendum:  There is another interesting unintended consequence of this.  As more right wing factions try to keep teacher salaries and pensions low, driving potential new teachers away from the profession, this has, potentially, a significant effect on NCLB.  NCLB bases itself on the fact that every public school will eventually fail, thus allowing schools to fire their entire staffs and replace them.  The assumption being:  there will be plenty of energetic newly graduated teachers coming out of colleges to replace the curmudgeonly old greedy teachers who don’t know what they are doing.  Ironically, this could put a serious damper on NCLB when schools fire their entire staffs, and have no one to replace them with.

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