Big end-of-career spikes can significantly boost the annual pension payments an educator gets in retirement, and Illinois school districts have had to pay $23.8 million in penalties since fiscal 2014.
The county's school districts have had to pay $619,833.92 directly to the Teachers' Retirement System of the state of Illinois since 2014 for giving out raises and sick time allowances, according to TRS data obtained through the state's open records laws.
Johnsburg District 12, which serves about 1,900 students, has had to pay $199,874.43 to TRS since 2014 to make up for the excess sick time and pay raises given to employees. Other districts in McHenry County ended up paying far less. Huntley Community School District 158, which serves 9,500 students, paid $20,300.22 to TRS during the same period.
The five highest penalties were paid by Johnsburg District 12, McHenry Community High School District 156 ($115,604.55), Community High School District 155 ($52,259.25), Cary Community Consolidated School District 26 (49,579.18) and McHenry School District 15 ($49,448.10).
Of the 20 public school districts in McHenry County, 17 districts had to pay what TRS refers to as "excess costs" for salary increases or giving out more sick time than obligated by collective bargaining agreements. Three districts – McHenry County Regional Office of Education District 44, Riley Community Consolidated District 18 and Harrison School District 36 – avoided the penalties altogether. Community Unit School District 300, which is based in Algonquin and serves more than 20,000 students in 15 communities, has paid penalties of $412,875.51 since fiscal 2014, according to TRS records. Most of the communities the district serves are in Kane County, outside of McHenry County.
Johnsburg District 12's penalties to TRS were largely the result of a benefit offered to educators that district administrators did not think would trigger excess cost payments under the law, said Annie Mulvaney, the district's business manager. The district offered $1,200 to educators who opted not to take the district's health insurance. TRS recognized the $1,200 benefit as a creditable earning to all TRS-covered employees, not just those who selected the option. Because retiring teachers were already getting 6 percent salary increases under terms of the district's contract with the teachers union, the $1,200 cash-in-lieu of benefit pushed them over the 6 percent threshold.
TRS officials are in the process of auditing the district's bills and annual reports for multiple years. Mulvaney said she was "very confident" that the final bill would be less than $199,874.43. She said the total won't be known until the audit process is completed and creditable earnings are adjusted for all employees.
TRS records show that 13 years after lawmakers passed a law designed to curb big pay hikes before retirement, many school districts continue the practice and stick taxpayers with the penalty payments for doing so. McHenry County school districts are by no means outliers. Statewide, school districts paid $23.8 million to TRS since fiscal year 2014 for excess sick time and end-of-career pay raises.
Pensions for educators are based on their final salary in the years just before retirement. Big end-of-career spikes can significantly boost the annual pension payments an educator receives in retirement and the total amount the taxpayer-supported pension system has to pay out over the term of the benefit.
At one point, 20 percent annual raises were common for educators preparing to retire.
A 2005 state law discouraged salary hikes of more than 6 percent for outgoing educators. School districts could still give out raises of more than 6 percent in the years before retirement, but they must pay extra for doing so. TRS requires districts to pay for the full actuarial value that the pension system expects to incur from the higher salary. Since the law was passed, school districts have had to pay more than $50 million in penalties to TRS, including $23.8 million since fiscal 2014. Districts used exemptions to avoid paying tens of millions of dollars more in penalties.
Illinois faces a growing pension problem. It has the worst-funded public sector pensions in the country. Illinois' five pension systems have combined unfunded liability of more than $130 billion, though Moody's Investors Service places it at more than $200 billion. TRS alone had an unfunded liability of $73.4 billion at the end of fiscal 2017.
The 6 percent threshold is well known. Teachers unions often bargain with school districts for the maximum increase before retirement. In Crystal Lake Elementary School District 47, board members approved a four-year contract with teachers in 2017 that provides eligible, retirement-track teachers with 6 percent increases over three consecutive years, or raises of 6 percent, 6 percent and 5 percent, depending on age and years of service at retirement. A teacher contract approved in Palatine School District 15 in 2017 provides back-to-back 6 percent salary increases for the four years leading to retirement for eligible teachers. The Palatine contract was for 10 years.
Because many districts agree to teacher contracts that mandate end-of-career raises at or near the 6-percent cap, some end up paying many small penalties to TRS for things like sick days, extra duty pay, and other nominal salary adjustments. Those small payments add up. In District 47, a series of small TRS penalties have cost taxpayers $30,309.53 since 2014, according to data from the pension system.
“We currently monitor employee absences to avoid unwarranted compensation," District 47 spokeswoman Denise Barr said. "This is a practice we will continue in the future."
Other local districts have been working to try to avoid all such TRS payments. For example, Huntley District 158 has put a clause in recent teacher contracts stipulating that no raises should be given above 6 percent in the final years before retirement and that any earnings above that limit would be forfeited.
Mark Altmayer, the chief financial officer and treasurer for the Huntley district, said the district made changes to monitor earnings and work to stay within the 6 percent limit.
The state budget enacted this summer for fiscal 2019 requires pension funds like TRS to bill a local employer, such as a local school district, for salary increases of more than 3 percent for any year that will be used to calculate the employee's pension. Lawmakers estimated the change would save the state $21 million.
Altmayer said the 3 percent cap will require additional steps to ensure the district continues to abide by the new limit.
"We're going to tighten controls because it will be very easy to go over 3 percent," he said. "We look at this as a penalty and as such, will monitor it very closely."