CAT Tracks for December 6, 2004 ERO UNDER ATTACK

The media has taken serious issue with the renewal of the Early Retirement Option - ERO. Crain Communications and the Chicago Tribune have gone on the attack in their editorial pages...

Crain Communications

Time to scrap teachers' early retirement plan

The STATE OF ILLINOIS is saddled with a multibillion-dollar pension mess, the result of years of failing to set aside enough money to cover what at times have been magnanimous labor agreements.

It's a debt we can't get out of. So, halting the rise of the pension-funding gap should be a priority. One way to get started is to ditch a program that allows teachers to retire early with full benefits.

The 25-year-old program is up for an extension that could cost more than $800 million over the next five years. As reporter Shruti Datéé Singh wrote last week, the state and local governments are arguing over who should pay going forward. The truth is, neither side can afford the program.

Teaching is tough work, and many of our best instructors may be underpaid. Finding ways to attract more talented and dedicated people to the profession is a must.

But the state and its municipalities must also learn to operate on an honest budget. One balanced by kicking retirement costs into the next decade isn't honest. It undermines the state's future.

What's more, buyouts and early retirement plans are notorious in both the public and private sector for inviting an organization's best workers to leave. After all, they're the ones who can most easily get another job. What's left are relatively less-skilled workers. It's called negative selection, meaning such programs help you get rid of the wrong people.

The Chicago Tribune has also reported troubling and widespread instances of school districts giving teachers big end-of-career raises so that their retirement pay is boosted, too. The bigger pension hits the state, not the local districts. This must stop.

Taking pensions into account, the state's budget is in even worse shape than Gov. Rod Blagojevich and legislators acknowledge. It's time to face up to that truth and make some hard decisions.

Chicago Tribune

Perks in need of early retirement

Illinois has added so many end-of-career sweeteners and incentives for suburban and Downstate teachers to retire early it's a wonder they all don't have tooth decay.

It's no surprise, however, that those perks have contributed to a system whose costs have soared out of control. If the state continues these programs, they will add more than $870 million over the next five years to Illinois' whopping $19.4 billion in unfunded liability for teacher pensions. Problems with Illinois’ retirement systems are one of the driving forces behind the state’s ongoing budget crisis.

Illinois' Early Retirement Option was put into place 25 years ago. It was designed to allow suburban and Downstate teachers to quit their jobs earlier than they had planned, but to collect as much in their pensions as they would have if they had worked longer. The idea was to give school districts a quick way to reduce personnel costs by replacing veteran teachers with younger ones who earn lower salaries.

The problem is that the higher pension benefits cost the state dearly.

The Early Retirement Option was supposed to be a temporary fix, but it has become a permanent entitlement. The legislature has routinely renewed the perk every five years. It is set to expire on July 1, 2005, but the Senate already has approved another extension, thanks to pressure from school boards and from clout-heavy teacher unions. All it needs is House approval and the Governor's signature.

But House Speaker Michael Madigan, to his credit, has raised questions about whether the state can afford this. Good for him. It's time to retire this program.

Adding to the burden are various end-of-career tricks that help boost pension payouts. Pensions are based on teachers' final salaries. So school boards commonly dole out 20 percent salary hikes in the last two years of a teacher's career to up their final pension annuity. Teachers also are allowed to count up to two years' worth of unused sick days toward their length of service, allowing higher pension payments.

The ones doling out all this largesse - the local school boards - aren't the ones bearing most of the costs. Chicago taxpayers foot the bill for their public school teacher pensions. But the great bulk of suburban and Downstate teacher pensions are paid by the state. So local school districts shoulder only a few years of increased salaries when they grant such alpine pay hikes. State taxpayers get stuck with years, even decades, of higher pension payouts.

That means Chicago taxpayers get whomped twice, because they're paying for their own teacher pensions through local property taxes, and for suburban and Downstate teacher pensions through state income taxes. As though Lake Purest and Naperville need Chicago's help.

Teacher unions argue that the Early Retirement Option and end-of-career perks merely make up for what they see as the chronic underpayment of teachers. But it's a little like building a backyard igloo to keep the milk cold instead of fixing the refrigerator. They need to address teachers' salaries with the local school boards and the legislature. The answer isn't a pension gimmick that is bankrupting the state.

Unions threaten that if this program doesn't get renewed, there will be a mass exodus of teachers retiring in the coming months to take advantage of the program before it expires.

Isn't that sort of the idea?

Let's get this straight. If the state doesn't renew the early retirement program, tens of millions of dollars will be saved and hundreds of teachers will retire. If the state does renew the early retirement program, tens of millions of dollars will be spent and hundreds of teachers will retire.

Let's risk it.

NOTE: The IEA is currently drafting a response to the above editorials.