The Chicago Teachers Union, or CTU, has threatened to strike as early as April 1 over the issue of teacher pension “pickups,” according to the Chicago Sun-Times.
Negotiations over a new contract to replace the 2012 contract that expired in June 2015 stalled after CTU rejected the most recent offer from Chicago Public Schools, or CPS, in February. In exchange for pay increases and a moratorium on “economic” layoffs, among other CPS concessions, the contract would have phased out CPS’ practice of “picking up” most of the contributions teachers are required to make toward their pension fund.
After years of pension holidays, overly generous pension benefits, a lack of transparency and rampant cronyism, both the CPS system and the Chicago Teachers’ Pension Fund, or CTPF, are now broke.
It’s been almost three and a half years since CTU members walked out on more than 350,000 students in CPS. The bitter strike lasted a full week and left the relationship between CPS administration and the union shattered.
But as long as CPS officials and Chicago politicians meet the demand for more money for CPS and CTPF with a push for increased taxes and a rejection of real reforms, taxpayers will be forced to bail out a broken system that will only become more insolvent over time.
As CTU contemplates a new teachers strike over teachers having to pay more toward their own pension benefits, here are some facts to know about CPS pensions:
1. Since 1981, CPS has paid the vast majority of what teachers are supposed to contribute toward their pensions in the form of teacher pension pickups. Over the last decade, CPS has spent more than $1.2 billion on these pension pickups. Had teachers made their own pension contributions, CPS could have increased the employer’s contribution by that amount.
2. Teacher pension contributions are out of sync with payouts. The average career teacher currently receives an annual pension of $73,350 and will receive a lifetime payout of over $2 million.
The pension payout formula is based on Chicago teachers paying 9 percent of their salaries toward their pensions. In practice, CPS “picks up” 7 of the 9 percent required employee contribution. Teachers contribute an additional 2 percent of their salaries themselves. Therefore, Chicago teachers’ true ratio of contributions to benefits received is significantly lower than it appears at first glance.
3. Higher salaries and generous pension rules are causing teacher benefit costs to soar. Since 1997, teacher pension benefits have grown at a breakneck pace of 6 percent a year. Had benefits grown at a more modest rate of 4 percent, CTPF’s unfunded liability would be at least $5.3 billion less than it is today.
4. The CPS system is a behemoth.Given the size of CPS, any CPS-related bankruptcy would have a serious impact on the credit of the city of Chicago, which has already been downgraded to junk.
5. CTPF debt has grown to more than $9 billion since 1999.Without pension reform, this shortfall is likely to grow, pushing teacher pensions closer to bankruptcy.
6. A well-managed pension fund should be fully funded. CTPF is just 51.5 percent funded.CTPF’s funding level has collapsed due to pension holidays, which shorted the pension system by almost $3 billion over the course of two decades.
7. To restore the health of CTPF, CPS must make significantly higher contributions to the fund.That leaves less taxpayer money for classrooms.
8. Chicago teacher salaries ramp up quickly. With 10 to 14 years of service, a Chicago teacher’s average salary equals more than $84,000 a year. Overall, CPS payroll growth from 1998 to 2012 resulted in average covered payroll, or “annual average reported salaries for all active participants,” growing by 80 percent, almost twice the rate of inflation.
This salary growth has made Chicago’s teachers the highest paid in the nation when compared with teachers in the U.S.’ 10 largest school districts. Had CPS salaries simply grown at the same rate as median household income in Illinois over the last decade, CPS would have needed $3.2 billion dollars less for payroll expenses.
9. CTPF is actuarially upside down. There are now more inactive employees and beneficiaries in CTPF than there are active workers paying into the pension fund.
10. Current CTPF retirement rules must be reassessed. The current pension formula has led to unaffordable pension costs.
11. Almost 40 percent of teachers retire before age 60. CPS teachers can retire far earlier than workers in the private sector, who have to wait until age 67 to collect full Social Security benefits.