Taxpayer contributions to teacher retirements have gone up by 400% since 1998 and are expected to go up another 261% by 2045.

 

By Ted Dabrowski, Vice President of Policy Illinois Policy Institute

Teacher contributions to the Teachers’ Retirement System, or TRS, have gone up by 100% since 1998.

But taxpayer contributions to teacher retirements have gone up by 400% since then.

In 2012 alone, Illinois taxpayers contributed $1.6 billion more to TRS than teachers did.

And the disparity between taxpayers and employee contributions is projected to get worse. Between 2013 and 2045, taxpayers can expect their annual contribution to TRS to increase by 260%, to $9.8 billion. Employee contributions, on the other hand, will rise only 142%, to $2.4 billion.

Taxpayer contributions to TRS will increase 261% between 2013 and 2045
TRS taxpayer vs. employee pension contributions, 1998 – 2045

source: Commission on Government Forecasting and Accountability, TRS Actuarial Valuation Reports

 

The increase in taxpayer contributions occurs because taxpayers, and not the employees, are required to pay for any shortfalls in the teachers’ pension system.

These shortfalls are largely a function of the pension system’s defined benefit structure. Defined benefit systems are chronically underfunded due to poor investment returns, changed actuarial assumptions, overly generous benefits and structural underpayments.

For example, taxpayers have to make up the difference when the fund’s investment returns are lower than projected. From 1996 to 2012, missed investment targets added $9.5 billion to the retirement system’s shortfall, according to the Commission on Government Forecasting and Accountability.

Similarly, changes in actuarial assumptions since 1996 mean taxpayers will have to cough up an additional $5 billion.

Teachers, however, continue to pay a constant percentage of their payroll to the pension system, regardless of shortfalls or growing liabilities. This situation creates the massive disparity between employee and taxpayer contributions.

Ultimately, politicians have proven they can’t manage defined benefit systems.

Illinois must move away from defined benefit plans and embrace 401(k)-style plans if it wants to avoid a fiscal disaster.

A defined contribution plan, such as the one the Illinois Policy Institute has developed, does just that.

 

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