One out of every four dollars that Illinois taxpayers send to Springfield goes toward pensions. The teacher pension system alone makes up over half of the state’s pension debt, with a total unfunded liability of $57.9 billion. Legislators have already passed cuts to teacher retirement plans and will need to continue funneling revenue to pay off the debt.
But what policymakers and others have failed to ask is how well the current pension system is serving its workers, particularly teachers. While many assume that the current problems lie solely in the state’s failure to properly manage its finances, few consider the design of the current plan and the impact it has on teachers. Consider:
- A teachers must serve at least twenty-six years in order to “break even” and earn a pension worth more than her own contributions.
- Over three-quarters of Illinois’ new teachers are expected to leave with negative net benefits. Moreover, Illinois teachers do not receive Social Security, and a stingy refund policy results in a penalty for teachers.
- Illinois teachers would fare better under an alternative retirement plan such as a smooth accrual cash balance plan, which would allow all teachers to receive a positive return no matter how long they stayed.
Illinois’ dire fiscal situation demands that the state take immediate action. By adopting an alternative retirement plan for teachers, the state could improve its financial situation and provide better benefits for teachers.