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Pension Sustainability: Illinois

Retaining Effective Teachers Policy

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Goal

The state should ensure that excessive resources are not committed to funding teachers' pension systems.

Meets a small part of goal
Suggested Citation:
National Council on Teacher Quality. (2011). Pension Sustainability: Illinois results. State Teacher Policy Database. [Data set].
Retrieved from: https://www.nctq.org/yearbook/state/IL-Pension-Sustainability-9

Analysis of Illinois's policies

As of June 30, 2010, the most recent date for which an actuarial valuation is available, Illinois's pension system for teachers is 48.4 percent funded and has a 35-year amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, it would take the state 35 years to pay off its unfunded liabilities. Neither the state's funding ratio nor its amortization period meets conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.

Illinois does not currently commit excessive resources toward its teachers' retirement system. The mandatory employee contribution rate to the defined benefit plan is 9.4 percent, and the current employer contribution rate is 12.73 percent. Both rates are reasonable, considering that teachers and local districts are not also contributing to Social Security.

The employer contribution rate is paid by the state and determined according to statutory requirements, which mandate that contribution increases are phased in until they meet actuarially determined levels with the goal that the system is 90 percent funded by 2045. However, the state altered this phase-in to allow a two-year funding reduction of 50 percent for fiscal years 2006 and 2007, but the schedule has been resumed. 

Citation

Recommendations for Illinois

Ensure that the pension system is financially sustainable.
The state would be better off if its system was over 95 percent funded and had an amortization period of less than 30 years to allow more protection during financial downturns. However, Illinois should consider ways to improve its funding level without raising the contributions of school districts and teachers. In fact, the state should work to decrease employer contributions. Committing excessive resources to pension benefits can negatively affect teacher recruitment and retention. Improving funding levels necessitates, in part, systemic changes in the state's pension system. Goals 4-G and 4-I provide suggestions for pension system structures that are both sustainable and fair.

State response to our analysis

The Teachers' Retirement System of the State of Illinois declined to respond to NCTQ's analyses related to teacher pensions.

    • Best practice
    • Meets goal
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    • Meets a small part of goal
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  • Illinois

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Delivering Well Prepared Teachers
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Research rationale

NCTQ's analysis of the financial sustainability of state pension system is based on actuarial benchmarks promulgated by government and private accounting standards boards. For more information see U.S. Government Accountability Office, 2007, 30 and Government Accounting Standards Board Statement No. 25.

For an overview of the current state of teacher pensions, the various incentives they create, and suggested solutions, see Robert Costrell and Michael Podgursky. "Reforming K-12 Educator Pensions: A Labor Market Perspective." TIAA-CREF Institute (2011).

For evidence that retirement incentives do have a statistically significant effect on retirement decisions, see Joshua Furgeson, Robert P. Strauss, and William B. Vogt. "The Effects of Defined Benefit Pension Incentives and Working Conditions on Teacher Retirement Decisions", Education Finance and Policy (Summer, 2006).

For examples of how teacher pension systems inhibit teacher mobility, see Robert Costrell and Michael Podgursky, "Golden Handcuffs," Education Next, (Winter, 2010).

For additional information on state pension systems, see Susanna Loeb, and Luke Miller. "State Teacher Policies: What Are They, What Are Their Effects, and What Are Their Implications for School Finance?" Stanford University: Institute for Research on Education Policy and Practice (2006); and Janet Hansen, "Teacher Pensions: A Background Paper", published through the Committee for Economic Development (May, 2008).

For further evidence supporting NCTQ's teacher pension standards, see "Public Employees' Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans." The Segal Group (2010).

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