Schools working to curb pension penalties
By Jenette Sturges email@example.com April 17, 2012 12:18PM
A report of penalties paid to the Teachers Retirement System, the pension fund for the state’s 362,000 teachers, showed that six school districts across the Fox Valley have paid penalties in recent years, stemming from large raises awarded to teachers in the years prior to retirement. Those penalties, which pay for the extra pension costs incurred by the state when employees get large raises before retirement, totalled more than a half-million dollars among the Fox Valley’s school districts over a two-year period. | Photo illustration by Steven Buyansky~Sun-Times Media
Updated: May 19, 2012 8:07AM
School districts last week took a lashing after reports that they were paying thousands of dollars in penalties for giving educators big raises.
A report of penalties paid to the Teachers Retirement System, the pension fund for the state’s 362,000 teachers, showed that six school districts across the Fox Valley have paid penalties in recent years, stemming from large raises awarded to teachers in the years prior to retirement. Those penalties, which pay for the extra pension costs incurred by the state when employees get large raises before retirement, totalled more than a half-million dollars among the Fox Valley’s school districts over a two-year period.
But, said school districts, many of those payments were either unavoidable or crafted to save money in the long haul.
In 2005, the state legislature passed a law aimed to curb the practice of giving large raises to educators just before retirement to boost pension payouts. Under the law, school districts that award raises in excess of 6 percent must make an extra contribution to the Teachers Retirement System to cover the additional cost of the employee’s pension, which is based on their last few years’ salary.
Among Fox Valley schools, West Aurora has paid the most in extra pension payments, totalling $362,524 between the 2009-10 and 2010-11 school years.
But those raises and their corresponding pension incentives saved the district money in the long term, said spokesman Mike Chapin.
“A couple years ago, we had to cut payroll and we didn’t want to fire teachers, so we reduced payroll costs by incentivizing teachers to retire early,” Chapin said.
Chapin said eight teachers ultimately took a 20 percent pay increase for their last year with the district, then left. The district was then able to hire entry level teachers in their place.
Even after paying for the raises and the additional contribution to the retirement system, the district saved $200,000 and was able to save the positions of four teachers who might otherwise have been laid off.
“This was us being frugal and fiscally responsible,” said Chapin. “And it’s basically just incentivizing high salary employees to leave early.”
The early retirements account for the majority of the $362,524 the West Aurora School District paid in extra contributions to the Teachers Retirement System. Chapin said a smaller portion of those penalties were paid because teachers took on extra responsibilities, like coaching, or earned their masters degrees. Either could result in a raise of more than 6 percent.
Most districts, in fact, said their pension penalties were incurred because of teachers taking on extra responsibilities or taking an early retirement option, not because the district handed out large pay increases.
“When a teacher earns an advanced degree, they receive a salary increase,” said Janet Buglio, spokesman for the Indian Prairie School District. “TRS (Teachers Retirement System) looks at the last several years of employment before retirement. A teacher might earn an advanced degree and then notify us they are putting in for retirement a year or two later, which then puts them over the 6 percent.”
Between the 2009-10 and the 2010-11 school years, Indian Prairie paid $60,565 in extra pension payments, according to Buglio. That amounted to payments for 21 staff members.
While school district representatives said the extra contributions to the pension system were often smart financial decisions or unavoidable, they said districts were working to eliminate the payouts.
The East Aurora School Board, which paid out $80,746 over the past two school years, is reviewing its accounting and business system so that the board will be alerted when stipends or early retirements would cause the district to incur penalties.
“The calculation of the penalties is so intricate. With our new payroll and business system, we are going to make sure that if a penalty is triggered we’re aware of that,” said East Aurora School Board President Annette Johnson. “The state is thinking of increasing the penalties, so we need to be even more vigilant.”
Kris Monn, assistant superintendent for finance at the Batavia School District, said the $8,851 the district paid resulted from two retiring administrators, and that the district had never intended to exceed the 6 percent cap and even attempted to renegotiate with the administrators.
“Most of our contract language going forward has the intent of expressly capping any increases before they would incur a penalty,” said Monn.
At West Aurora, a teacher can now declare she’s retiring four years prior and lock in a 2 percent annual increase.
The Kaneland School District, which paid out $35,722 in additional pension contributions for two teachers, has also written in provisions for the maximum salary increase an educator can receive in the years before their retirement, according to Superintendent Jeff Schuler.
“Generally speaking, we try to avoid paying into the system,” said Schuler. “We’d rather pay to hire people to work.”