Fabrizio Costantini for The New York Times
Claire J. Murray retired in 2002 with a pension of about $42,000 a year, based on 34 years as a teacher and middle-school counselor.
One of the most vexing problems for Chicago and its teachers went virtually unmentioned during the strike: The pension fund is about to hit a wall.
The Chicago Teachers' Pension Fund has about $10 billion in assets, but is paying out more than $1 billion in benefits a year — much more than it has been taking in. That has forced it to sell investments, worth hundreds of millions of dollars a year, to pay retired teachers. Experts say the fund could collapse within a few years unless something is done.
"There's a huge crisis," said Laurence Msall, president of the Civic Federation, a nonpartisan research organization in Chicago that works on fiscal issues. "The problem does not get easier by waiting. The problem gets bigger, and starts to become an insurmountable obstacle."
Having skipped its pension contributions for many years, Chicago is supposed to start tripling them in another year under state law. But the school district has drained its reserves. And it cannot easily turn to the local taxpayers, because of a cap on property taxes. Borrowing the money would be difficult and expensive as well, because of a credit downgrade this summer. One of the few remaining choices would be to make deep cuts in other services.
Like Chicago, many cities and school districts now face pension pressure after reducing their contributions in recent years to save money. Among the funds for different types of workers, teachers' plans tend to be shortchanged more often, according to research done by the Center for Retirement Research at Boston College for The New York Times.
The reasons are unclear, but in many states — California, New Jersey, Rhode Island and Illinois, among others — pension contributions must be set by state legislators every year. And since teachers' pension costs are blended with other education spending, lawmakers sometimes decide to withhold money from pensions to allow more direct state spending on the schools. The teachers' pension fund for the State of Illinois is in even worse shape than the Chicago teachers' fund.
What many Chicago residents may not realize is that their school district also has been paying $130 million a year to cover most of the pension contributions required of the teachers, a practice known as a "pickup," which became a flash point last year in the collective bargaining battle in Wisconsin. Wisconsin's public workers have agreed to make their own contributions, as a concession.
Officials in Chicago know they have a pension problem, even though it has not been front and center in the strike. Mayor Rahm Emanuel has focused on trying to improve the quality of public education, with a longer school day and more meaningful teacher evaluations. The Chicago Teachers' Union, meanwhile, has been intent on reinstating a 4 percent pay increase, and protecting those who are laid off when failing schools are closed.
Mr. Emanuel has made it clear that he wants to address teachers' pensions, too. Earlier this year, he tried to curb at least some of Chicago's ballooning costs by seeking to raise retirement ages, increase employee contributions and trim the 3 percent yearly pension increases that the city's retirees now receive. He called those increases "the single greatest threat to the retirement security of city employees," because they drain money from pension funds very quickly.
The State Legislature, which must approve such changes, has said pensions must wait until next year. But Mr. Emanuel says the system is broken and he is not willing to make any increased contributions until it has been fixed. The mayor said earlier this year that making the larger contributions would lead to "direct cuts in our classrooms."
"Those cuts mean the average class size will jump to approximately 55 students," he warned.
The teachers union has blasted Chicago for failing to set aside enough money for the pensions, but it has reassured workers and retirees that their benefits are protected by the State Constitution and cannot be reduced. A state law bars strikes in Chicago over pension issues.
Retirees say they are dismayed at the way their fund has been neglected, though they generally believe their benefits are safe.
By JOYCE WADLER 19 Sep, 2012
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Source: http://www.nytimes.com/2012/09/20/business/teachers-pension-a-big-issue-for-chicago.html?partner=rss&emc=rss
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