A primer on Chicago’s teacher pension

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Last week, CEO Ron Huberman started his doomsday budget press conference by saying, “You are going to hear me talk a lot about the pension.”

Pension costs have long been an issue for CPS, and costs have now skyrocketed to $587 million—three times what the district was required to pay into the teacher’s pension fund just three years ago.

As a quick fix, Huberman hopes to convince lawmakers to simply reduce Chicago’s additional payment by about $300 million, which would cut the nearly $1 billion deficit by about a third.

But Laurence Msall of the Civic Federation says Huberman is proposing a “slippery slope” for an already shortchanged pension system. Even under current requirements, he notes, the fund won’t be funded at the required 90 percent level for another 35 years.

Last week, CEO Ron Huberman started his doomsday budget press conference by saying, “You are going to hear me talk a lot about the pension.”

Pension costs have long been an issue for CPS, and costs have now skyrocketed to $587 million—three times what the district was required to pay into the teacher’s pension fund just three years ago.

As a quick fix, Huberman hopes to convince lawmakers to simply reduce Chicago’s additional payment by about $300 million, which would cut the nearly $1 billion deficit by about a third.

But Laurence Msall of the Civic Federation says Huberman is proposing a “slippery slope” for an already shortchanged pension system. Even under current requirements, he notes, the fund won’t be funded at the required 90 percent level for another 35 years.

“That’s an awfully long time,” Msall adds, noting that the latest actuarial report estimated the fund’s ratio of assets to liabilities at 76 percent.

State law requires CPS to ensure pension assets total at least 90 percent of what’s owed to retirees by the year 2045. To meet that goal, a licensed actuary has to tabulate Chicago’s bill every year based on the performance of pension investments and the shifting demographics of retirees. The district’s tab has spiked recently because the fund lost money in the stock market and more retirees are drawing pensions.

In the final tally, the city’s regular pension contribution of about $173 million (teachers put in 2 percent of their salaries and the district tacks on another 7 percent) is simply not enough. Groups like the Civic Federation want reforms to fix the problem, including a bigger contribution from employees’ checks and a later retirement age.

Marilyn Stewart, president of the Chicago Teachers Union, issued a statement last week saying she was against any changes in the way the pension was funded. She has fought such changes before. Lawmakers can make the change without union agreement, although the CTU has strong backing in key quarters of the General Assembly.

Union politics

Huberman says he needs major union concessions to balance the budget this year, and that sets up a scenario in which the district will ask teachers to pick their poison: Agree not to fight pension changes, concede to larger class sizes or give up their 4 percent raises. Eliminating contractual raises would save about $169 million; increasing class sizes to 31 would mean a loss of 600 teaching positions and save only $40 million.

But Stewart faces a tough re-election campaign this spring. In fact, her union caucus recently lost two seats on the Pension Board to the new, hard-line caucus called CORE (the Caucus of Rank and File Educators). It was a major victory for CORE, whose members say the Pension Board needs better watchdogs to protect it from a cash-starved district administration and prevent mismanagement. CORE still lacks a majority on the Pension Board, however.

CORE Co-Chair Jackson Potter says the Pension Board has already made several important changes under new leadership. Lawsuits have been filed to recoup losses from some investment groups, he notes, and the board is squashing investments it has with companies that support charter schools.

In Potter’s book, Huberman’s budget announcement amounts to little more than scare tactics. That position suggests a tough political road ahead for district officials seeking concessions from the Pension Board and elsewhere.

Before asking teachers to support pension relief or any other compromises, Potter wants the district to cut a number of controversial reform programs, such as the Office of School Turnarounds and Huberman’s signature performance management initiative. Such cuts could save the district upwards of $70 million, he estimates.

He also wants Huberman and Mayor Richard Daley to consider directing tax-increment financing revenues toward the deficit. (TIF funds are diverted from schools and other local taxing bodies to stimulate business development, but critics say the creation of TIF districts has contributed to budget problems facing the schools and the rest of the city.)

Potter admits more savings are needed, but “the fact that [Huberman] hasn’t put any of this on the table shows you what his priorities are.”

At the least, the teachers union will be sure to join hands with district officials to plead for extra school funding down in Springfield. The two parties will also continue to push for greater parity between Chicago’s teacher pension program and state’s teacher retirement system.

Like Chicago, the state is on a plan to fund its Teacher Retirement System at a 90 percent level. The state is under no legal obligation to contribute directly to Chicago’s pension system.