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How Illinois cut teacher and public worker pensions without a fight

Jim Vail - June 07, 2023

[This article was originally published on May 23 at Second City Teachers.]

The typical deal that screws working people and benefits the rich in Springfield gets done behind closed doors.

Former Illinois Speaker of the House of Representatives Mike Madigan who was indicted on corruption charges and is awaiting trial got the House to pass a bill known as Tier 2 Pension in which he sold out all future teachers and public employees hired after 2011.

It was passed to solve the state’s pension funding problem. Except, it didn't. Not by a long shot.

Former Speaker Mike Madigan helped to destroy teachers’ pensions.Mike Madigan was known as the ‘union guy’ who stopped Gov. Bruce Rauner’s attacks on unions when he wanted to turn Illinois into a Right to Work state with reduced pay and benefits for its public workers. The Chicago Teachers Union gave him tens of thousands of dollars so that he would sponsor pro-teacher legislation.

But they made one deal with the devil that has divided the CTU and its younger members who got sold out. In an article published ironically enough on May 1, 2023 - otherwise known as Workers Day - on Yahoo News entitled “New Chicago Mayor Brandon Johnson Inherits America’s Worst Teacher Pension Mess,” it was noted that Chicago’s pension contributions have risen substantially over time despite not contributing what its actuaries recommended.

“The result is that the Chicago Teachers’ Pension Fund is in worse financial health than it was a decade ago, despite the ramp-up in contributions and very strong decade of investment returns.”

The Tier 2 law passed in 2010 raised the age at which new Chicago teachers and all state employees could retire from 55 or 60 to 67, and drastically reduced the cost-of-living adjustments (COLA) for retirees.

The Tier 2 hired on or after 2011 would now need to work at least 10 years before qualifying for any retirement benefits. But in today’s onerous teaching climate, how many Chicago Public School employees make it to 10 years? According to the article, pension experts estimate that 30 percent of new employees will leave the district in the first year and less than 1 in 3 will make it to 10 years.

When I read the following, my eyes started spinning:

“In other words, the majority of Chicago employees in Tier 2 won’t qualify for any pension from the system. Of course, some long-term employees will still qualify. But on average, the city estimates it’s not spending any money at all on Tier 2 member benefits.”

Holy cow, as Harry Carry the Cubs announcer would say!

So that state law Madigan and the Democrats rammed down the throats of legislators not only screwed our young teachers out of receiving any pension, but it didn’t do anything to solve the pension crisis!

Who’s your daddy?

The other incredible piece to this disgusting puzzle is the silence of the unions over the past dozen years in the face of this unbelievable crime on its members.

This was a classic play by the ruling class to destroy union solidarity. Force your younger members into a horrible deal in which they essentially get no pension, but the older members get a great deal, provided they can last in today’s crazy conditions. I’ve been a Chicago teacher delegate for over 15 years, and in the beginning we would hear reports from our pension trustees about how the Pension Fund was performing. But in the last six or seven years there have essentially been no reports, aside from a political stunt from CORE to get the House of Delegates to vote to endorse two teacher trustees candidates who won their last elections - President Jefferey Blackwell and Vice President Jacqueline Price-Ward.

The CTU finally started the ball rolling to stop this injustice on its own members. They created the Tier 2 Committee that I joined. And they sponsored a Lobby Day in Springfield recently. And there are plans to sue the state because you can’t just stop providing any retirement benefits. There’s a federal law against that. Another incredible fact from the article - Tier 2 members contribute 9 percent of their salary, but their benefits are just 8.99 percent, so they’re getting negative 0.1 percent in retirement benefits. Chicago teachers are part of the 40 percent of teachers in the country who don’t get Social Security. Someone could teach for nine years in Chicago and have no retirement at all outside their personal savings.

The federal law states that employees qualify for retirement benefits after five years, but there is no protection for public-sector workers.

This reminded me of the massive school closings in 2013. Not only did it help destroy the communities that were anchored in the schools on the South and West Sides, but it did little to save money for the City. There were over 900 comments on the alarming Yahoo News article, and a few in the beginning were intelligent enough to talk about the problem. But it soon turned into teacher and union bashing, reminiscent of the period of time in 2010 when the Tier 2 law was passed as the billionaire education reformers did everything to demonize public school teachers and their unions and the schools they taught in.

“How about freeze their pensions and switch to 401(k) or 403(b) plan, with a 4% match, like those in the private sector. Fund your retirement like the rest of us. BTW, 32% of workers in the private sector don't have access to a 401(k) or pension from their employer,” wrote Samurai.

The late great founder of Substance News George Schmidt made it a policy to not allow people to comment if they didn’t use their real names. These comments did not have real names attached, so I suspect anti-working people and pro-business groups like the Civic Federation and Illinois Policy Institute trolled the comments section because they all followed the teacher and pension bashing line to a T after about the 40th comment. Remember, there were over 900 comments.

So how did our legislators get everyone to swallow this horrible life-threatening pill for the public?

The legislative director of the Illinois Federation of Teachers (IFT) said the Tier 2 bill was rushed through the General Assembly in about nine hours, with little or no notice to groups who would be affected. This reminded me of how Mayor RIchard Daley got the disastrous parking meter deal done in the City Council, a quick and dirty deal the councilmen in his pocket voted yes to that essentially gave a private bank consortium 9 or 10 billions of dollars for a measly one billion. You gotta work fast to fool the people! Funny enough, it was the Republicans who complained, not the Democrats. One said he was hearing from people who felt that their money was being stolen that they will never see in retirement. Another one warned that this would violate the “Safe Harbor” provision in which federal law states that Illinois teachers do not have to participate in Social Security as long as the benefits paid out are at least equal to what Social Security pays. That would put school districts on the financial hook to enroll in the Social Security Fund and pay back whatever retirement money they stole from their teachers. That could mean school districts, not just Chicago, would have to make as much as 10 years worth of back payments into Social Security.

Which leads to another glaring problem. Employers such as state universities and downstate firefighters told the lawmakers this is what would lead to staffing shortages, which we see today, because it will be difficult to recruit new employees with no decent pension to offer.

One of the biggest gains of the last Chicago Teachers Strike in 1987 before the CTU historic strike in 2012 was getting CPS to pay 7 percent into the pension.

Some people are now saying that young teachers do not know what a pension is and that is not why they entered the profession. But it is damn awkward to phrase it mildly for two sets of employees to be working side-by-side, doing the same job, and earning vastly different pension benefits, with one group of employees paying a premium to subsidize pensions for the other group.

“When are we going to start being honest with the people that you folks work for and tell them they’re getting screwed by Tier 2 and pretty soon there are going to be chickens all over the place coming home to roost,” said Republican Rep. Steven Reick during the Tier 2 hearing in Springfield, according to the State Journal Register in the 2019 article “Illinois Tier 2 pensions continue to anger teachers, other public employees.”

This reminds me of Donald Trump stealing the working class thunder and Hillary Clinton calling the working poor “deplorables.” According to Forbes, the Tier 2 Pension hearing had no actuarial review. “And why didn’t the law have an actuarial review? Because it was created behind closed doors." They noted too that it was only the Republicans questioning the bill that they had no time to talk to their constituents about because it was a “take it or leave it” bill to supposedly save the pension system.

It didn’t. It made it worse.

“This bill was dumped out today as an Amendment,” said Republican Rep. David Reis. “We barely had time to look at it in committee. Teachers are in school all day. What a perfect way to do this. I think it’s shameful.”

The unions complained that they were cut out of the negotiations, with the IEA President saying at the time they were willing to discuss making sacrifices but worried about future pension holidays.

Reis asked Speaker Madigan at the time, according to Forbes, how much money would the state save with Tier 2. Madigan told him, with a straight face I assume, “We don’t have actuarial numbers relative to this Amendment. We would say that we would expect that the savings would be over a hundred billion dollars.”

Quite the opposite, as we reported above, the pension debt has only grown since then, and if you’re keeping score, Madigan is about to go to prison. Democrat Senate President John Cullerton, whose cousin went to prison but now lobbies this very same legislature, even threatened the reps to vote in favor of Tier 2 or else there would be a bond downgrade “if we don’t show that we’re trying to address our structural deficit.”

Just like the parking meter scandal, screw over the people in favor of the rich and pray the people and their unions say nothing if you do it fast enough in the middle of the night, with a few threats thrown in. No analysis, wow! Just, wow!

The CTU now got religion and wants to fix this. They first sent out emails at the beginning of the school year with the headline: “You deserve your retirement. Let’s fix Tier Two and anti-teacher social security provisions.”

They wrote that they are determined “to beat back the Tier Two provisions that divide CTU members and undermine our retirement funds.” They encouraged people like myself to join the Pension & Insurance Committee Tier Two Subcommittee. They said the law was passed during the “drumbeat of anti-teacher and anti-pension rhetoric that had been allowed to build up both nationally and in Illinois."

The unions, they noted, did little to challenge these attacks. CORE was elected in 2010 just as the law was put into place (did they work quickly on this so that CORE would not be organized enough to fight it?). They further wrote that the goal of the legislation was to drive a wedge between those already paying into the pension and those who would pay later, encouraging members to drop out, which they are doing. The Chicago Teachers Pension Fund said that is a big worry with the new teachers leaving the system and taking their pension contributions with them, and rightfully so!

“The district is saddled with debt because they raided our pensions and they still owe that money they snatched away from their own retiring employees. After politicians and CPS cheated the CTPF for 15 years, the funding level had dipped dangerously low - providing politicians with an excuse to cut benefits for future pensioners by establishing the Tier Two plan."

Even the big business anti-pension class realized they got caught with their hands in the cookie jar. The Illinois Policy Institute is pushing hard for public workers and teachers to go to a defined contribution pension plan which is the 401(k), not a pension at all, but pretending to be one. All risk is on the teacher to make the payments and pray there is no downturn in the markets when they retire. Illinois Policy notes that pensions take up 26 percent of the Illinois budget, which is more than double the national average.

The Civic Federation is “concerned” about recent bills in the legislature to rectify the Tier 2 problem, including two that would increase benefits for Chicago firefighters hired after 2010, which passed the Senate unanimously. They’re concerned because of no analysis done (hmm, that’s funny, neither was there an analysis done when Tier Two was first passed in 2010!) and about how much they would cost “responsible governments” and taxpayers.

The Civic Federation does not give a rat’s ass about the common Joe taxpayer, they are concerned first and foremost with corporate profits, which come at the expense of Joe and his pension if he's lucky enough and his standard of living. Funny also that the Civic Federation is calling for an actuarial analysis when the recent CTPF actuary said the state is not contributing enough into the pension funds which will hit like a neutron bomb in the not too distant future!

But the Civic Federation denies reality - they say the sky's not blue but actually purple - because “as the number of Tier 1 employees hired before 2011 continue to age and retire and as Tier 2 employees hired since 2011 continue to represent a larger share of the workforce, governments’ pension costs are expected to decline over time.”

The latest actuary report as we stated ordered by the CTPF claimed the exact opposite - the costs have increased! I guess if you repeat the lies of the Civic Federation enough, people will …

The CIvic Federation, which liberal media outlets like WBEZ and reporter Sarah Karp claim are neutral and “bi-partisan” (how about anti-people, Sarah?) keeps close tabs on our pensions. Why? Because they do not want corporations to pay taxes, only loser taxpayer deplorables like us who they suddenly care about when it comes to having to finance working people’s retirement. Say yes to millions for CEOs and Crest commercials everywhere! No, to working people living above the poverty line if it conflicts with the corporate bottom line!

The Civic Federation claims that of the City of Chicago’s four pension funds, about half are in the Tier 1 and the other half in the Tier 2 or 3 (which was added to some Chicago funds in 2017, not the teachers).

But dang it, they admit, there is an IRS law known as safe harbor where if Tier 2 benefits do not meet the minimum benefit standard, then yes, damn it again, either the benefits might have to be increased or employees might have to pay 6.2 percent of their salary to Social Security, matched by an equal employer contribution.

Gulp!

They wrote that there are several pending proposals in Springfield to enhance Tier 2 benefits, but without that suddenly crucial analysis needed. Senate Bill 1629 would change the calculation of the final average salary from the highest eight consecutive years within the last 10 years of service to the highest four consecutive years of service. SB1630 would bring back the Cost of Living Adjustment so cruelly ripped from our younger teachers hired after 2011. They noted that union reps are arguing that there should not be two tiers of benefits at all. “However, it is clear that such an outcome would jeopardize the hard-won financial stability attained over the last several years by Illinois and Chicago and result in the “reversal of recent bond rating upgrades for both governments.” A complete lie!

In other words, we rich people will no longer invest in the city if you do not let us destroy the state and city pension system. “Benefit enhancements are likely necessary to meet Safe Harbor requirements, but the solution should be thoroughly vetted, actuarially sound and the most cost effective of all possible options.”

Amen to that!

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