Chicago Made Its $634 Million Pension Payment, but Still Shortchanges Teachers

Chicago is between a rock and a hard place. In exchange for making its required $634 million pension payment, the Chicago Public Schools announced that it will be cutting over 1,400 staff jobs. While the proposed budget cuts won’t directly impact teaching positions, the pension system itself has been shorting teachers on their retirement benefits for years.

For all the media attention and union fury over the recent cash crunch, there been no mention about the benefits themselves, despite their severe inadequacy. According to Chicago Teacher Pension Fund (CTPF) plan assumptions, over half (57 percent) of new Chicago teachers will leave before the 10-year service requirement, meaning less than half of new teachers will qualify for a pension benefit at all.

Even for teachers who do vest or qualify for benefits, the odds aren’t in their favor. Because of post-recession pension cuts, new teachers were placed in a less-generous plan and will face negative net benefits for the first two decades of service. (Pensions aren’t like 401ks; a teacher’s contributions are completely separate from her benefits, which are calculated using a formula based on years of service and her final average salary.) A Chicago Public Schools teacher who teaches for 15 years accrues negative net benefits because the value of her contributions exceed the pension benefits she will receive in return at retirement. To make matter worse, like all other teachers in Illinois, Chicago teachers do not participate in Social Security.

Currently, the Chicago Teachers Pension Fund (CTPF) is 51.5 percent funded, but unlike the rest of the state, the Chicago school district rather than the state is responsible for paying the majority of the fund’s employer contributions. How the Chicago Public Schools (CPS)—a single school district—got wedged into paying for the city’s teacher pensions has to do with a deal made a decade ago. After a school budget crisis, the state allowed tax money to go into CPS’ operating budget rather than directly into CTPF. In effect, CPS was allowed to collect $2.0 billion in levied tax revenue over 10 years while making no payments to the pension fund.

Meanwhile, pension debt snowballed and Chicago’s taxpayers and teachers, as well as CPS, are now eating the costs. But alongside fiscal negligence, the city has lost sight of the needs of the teachers who are left to subsidize unpaid debt.

Chicago’s funding situation may be an extreme case, but the practice of passing debt onto new teachers isn’t new. Chad Aldeman and I released a report earlier this month that looks at teacher pension plans over the past three decades. We found that while states boosted pension benefits throughout the 1990s and early 2000s, many dramatically cut benefits after the recent recession. The end result is that, in terms of retirement benefits, now is the worst time in at least three decades to become a teacher. For teachers in Chicago, that’s all too real.

-Leslie Kan

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