Below, we present the retirement annuity calculator for Illinois educators. You see, it’s not just teachers in District 73 that will be getting this huge retirement windfall; this scenario is playing itself out in many of the collar counties as well. Everyone will be multi-millionaires on the taxpayer dime – again, not just a talented few, it’s every single soon-to-be-retiring Illinois educator with 33.5 years in, making $95k or more now (note that there are 45+ individuals making $100k+ at just Hawthorn District 73 alone…).
Is there any wonder as to why Illinois is going broke? Use the mini-scroll bar immediately to the right of the spreadsheet to scroll down to retirement age row, then further on down to observe how quickly the annuity grows:
Compare the amount contributed in to the amount expected out. Yes, it’s 20x as much(!).
The H73PG editorial below was originally posted in Sept 2011. We reprint here since this page highlights retirement incentives:
There is a popular TV show called Mythbusters, where various popular beliefs or myths are put to the test to assess their veracity.
Let’s examine one in our own backyard: we need to give 26% raises to our teachers to encourage them to retire, in order to replace them with lower cost educators so that we as a district can save money.
Hmmm. Where to start on this one? The first thought that comes to mind is “if they’re good at educating, why would we want to encourage them to leave?” But that’s a post for another day.
Ok, our second thought, are we as a district really saving money with this practice? With a guaranteed-4yrs-at-6%-you-can’t-be-let-go-either retirement clause, it seems to us that we are paying above market rates at least 10-14% of the time during an educator’s career. (By the way, that 26% raise referenced above is simply the 6% compounded over 4 years.)
Rather than guaranteeing them 6% for four years, what if you simply gave raises in the 1-2% range after 30 years in? Given that all those at that veteran level currently make $100,000 or more, and thus will be receiving on average well north of $3 million from Illinois taxpayers in retirement, why do we need to add another $500,000 or so to the windfall by bumping up their salaries an average of $14k at the end of their careers? (Note for every $1k in salary, the full-time teacher can expect 30-37x that amount in retirement.)
But our school board (and other school boards) would argue that this misses the point; it’s all about incentives. Ok, then. Let’s look at it from the teacher’s perspective. If you are a 29-yr veteran (and thus eligible for retirement in 4 years after cashing in two years’ worth of sick days) making $105,000 right now, you are currently paying ~$9,500 into the Teachers Retirement System (TRS) for your pension. Out of the remaining $95,500, the individual has to pay state income taxes on this at a rate of 5%, so net is $90,725. Assume federal taxes are roughly $15,000, so you’re left with $75,725 take-home.
Now, if that same teacher retired four years later after consecutive 2% raises, let’s take a look at the numbers:
-final salary is $113,655; using same math as above, take-home pay is about $81,200
-average salary over those four years (for TRS purposes) is $109,250
-multiply by 75% to arrive at initial annuity of $81,937 (5x average SS payout by the way)
-the retiree no longer has to pay state of Illinois income tax and
-no longer has to pay into TRS fund
-and the 3% compounding will start to kick in (short delay if they retire before age 60 but it’s still cumulative)
-subtract an estimate for federal income tax and thus in the first year take-home is about $69,250 for the retiree
Note the difference in take-home pay is only $12,000. (And in a few short years, with 3% compounding, the retiree’s take-home will soon exceed what she or he took home in their final year of employment.)
So, the question is: Would someone really put in 1500 hours a year (actual instruction time performed by each educator is ~850 hours per year but many teachers assert its more like 2500 hours with prep time, grading, etc.) to collect an additional $12k? We don’t think so. As they say on the Mythbusters show, myth… busted.
To our District 73 school board and to Illinois school boards everywhere: we don’t need to spike salaries (thus spiking pensions) in order to convince teachers to retire. The incentive is built into an already more-than-generous system. Take that extra money and give a portion of it to the younger teachers. Take the rest and give it back to the taxypayers.
tags: pension, spiking, school board
Below, another editorial reprint – this time from April, 2011:
Editors’ note – thanks to ll for forwarding. To readers of H73PG, here’s the main reason why our Hawthorn district didn’t get a timely payment on the $2 million promised it from the State of Illinois. Public pensions -teacher pensions in particular- are crushing the state’s finances:
The graph above was forwarded to firstname.lastname@example.org, along with supporting data. The individual who prepared this (Ken H) apparently has been in contact with our state legislators and is trying to spread the word about our spiraling pension costs. Nothing tells a story like a picture. (TRS stands for Teacher Retirement System.)
Unfortunately, this pension problem will only get worse. Tough choices are required, the sooner the better.
The following was written 4th qtr 2011. Updates on these figures will be posted on an annual basis.
Statistics for District 73 (Hawthorn) retirees:
(1) 154 total retirees, collecting an average of $53,200 apiece. Total payout for 2011 is $8.2 million – this is an important number in and of itself but becomes really critical in case legislators ever ‘put back’ this amount to the respective districts that created them; they have threatened this previously and given the financially precarious situation our state faces, these warnings shouldn’t be taken lightly. After all, the powers-that-be in Washington D.C. just told Illinois to forget it in terms of looking for a federal wrap on Illinois bonds – what’s to stop the lawmakers at our state level from doing the same and pushing these debts back onto us?
Ok, back to the data. Average years worked is 23.55 but this figure needs to be adjusted by ‘teacher years’ (9 mths) vs ‘administrator years’ (12 mths), so true figure is ~18.25 full years put in -> $53,200 annuity, to be increased by 3% annually, compounded, for life.
(2) For full-time, full-career D73 educators, defined by us as 30 years or more, there were 42 retirees in this group. The average annuity for this subset is $75,000 apiece (as of 2011, it’ll go up). The unadjusted average career figure is 32.85 years worked – though adjusted for, again, ‘teacher years’ vs ‘administrator years’, it’s actually 25 years on average worked. So, for this population, 25 full years gets one -> $75,000 per year, to be increased by 3% annually, compounded, for life. See below (instructor initials; annuity as of 2011, years worked):
PJ $130,014 39
HM $113,540 33
MJ $98,417 32
KJ $98,412 30
WB $95,609 35
WP $78,630 30
HM $78,075 32
GJ $77,808 34
ES $76,350 30
TL $75,893 31
SD $75,428 35
DM $75,309 34
DK $75,148 36
CB $74,907 34
DB $74,687 39
BB $74,361 32
GD $74,177 30
SM $74,120 33
SW $73,984 33
FI $73,537 30
MT $73,082 32
VM $72,912 31
MJ $72,625 30
DS $72,304 35
GJ $72,115 31
KE $71,902 32
YC $71,852 30
ZB $71,055 30
SL $71,037 33
SW $68,255 39
GM $68,127 30
MK $67,741 39
MJ $67,315 32
SR $67,308 37
BM $67,045 31
TT $66,565 33
DI $66,339 33
DE $65,835 33
GP $65,414 32
AL $61,981 31
DC $60,019 31
NA $41,151 32
(3) There are another 13 retired individuals who made > $70k per year that were not listed in point #2 above. They were not included because they worked less than 30 years (24.85 years avg yrs worked; adjusted to 23.50 ‘full’ years).
(4) The very scary part is that there are another 25+ (28, maybe?) teachers in the D73 retirement pipeline, and they will soon pull up this average considerably. When they retire in two/three/four years, their respective starting annuities will range from $80,000 to north of $100,000 (exempt from Illinois state income taxes, remember). And, again, that intial figure is to be increased by 3% annually, compounded, for life.
There are many fine individuals in this group, and we wish them the best in their retirement years. From the taxpayer standpoint -be it at the district level or at the state level- however, we’d have to set aside $50 million***, today, in order for their annuities to be truly guaranteed (yes, just for these 28 people!).
This is why there is a battle taking place right now in Springfield. This is also why your taxes have gone up and why they will inevitably go up even further.
***Depending on discount factor used, this set-aside could range from $40 million to $60 million.
Tags: pensions, district 73, Hawthorn 73, unsustainable