Thursday, March 02, 2006

Yet another reason to vote no on referenda. Officials try to reform complicated state- funded pension system

The story below appeared in The Southern

Officials try to reform complicated state- funded pension system

BY JIM MUIR and Caleb Hale
Perhaps the best word to describe the myriad of state-funded pension systems in Illinois is "complicated."

The state has 15 retirement systems. All but two are set up to allow employees to mix services from different government agencies such as school districts, universities and other state employment. The retirement plan also allows an employee to move his or her years of service into the most lucrative plan available in order to garner the highest possible monthly pension.

In other words, there are numerous loopholes state employees can and do use to pad retirement benefits.

Jon Bauman, executive director of the State Teacher's Retirement System, recently discussed a retirement package that will pay James Hintz, a financial officer at Adlai Stevenson High School, more than $200,000 annually as long as he lives. Hintz received end-of-career stipends and pay raises of more than $100,000, which ballooned his final year salary that is used to determine his pension benefits.

Bauman called the retirement package "legal, but devious."

"In Mr. Hintz's case, the district has taken a small opening and driven a truck right through it," Bauman said.

And driving a truck through a small opening has been a common practice of schools and a drain on taxpayers for years according to Becky Carroll, a spokeswoman for Gov. Rod Blagojevich. However, Carroll says new pension reform measures adopted by the Illinois General Assembly last session will put a stop to the end-of-career pay hikes designed to significantly boost the final pension benefits for teachers and administrators, that leave the state solely responsible for covering those benefit increases.

In some of the most egregious cases, these end-of-career increases have boosted salaries anywhere from 40 to 60 percent, sometimes doubling salaries, Carroll said.

A recent story in the Chicago Sun-Times reported some of the more glaring pension "sweeteners" that resulted in huge costs to taxpayers backed up Carroll's assertion the loopholes in the pension systems are being exploited.

The story reported Arlington Heights Superintendent Robert Howard received pay raises of $78,370 over the last two years prior to retirement, plus $45,500 for 91 sick days. In the Palatine Township Elementary District Superintendent John G. Conyers received a 60 percent salary increase over his last four years prior to retirement. This boosted his final pay to $350,000.

And in the New Trier Township High School District, Superintendent Henry Bangser received a series of 20 percent pay increases over his last five years before retirement, nearly doubling his salary to an estimated $346,000, not including other bonuses he was set to receive.

"Taxpayers are already paying incredibly high real estate taxes to cover school funding but some of these folks act like there is this hidden pot of money in Springfield," Carroll said. "And as long as the local school district isn't paying for it, then its okay."

Under terms of the new legislation that will go into effect in 2006, there will be a cap on salary increases at six percent which Carroll says will save the state billions of dollars over the life of the 1995 pension funding plan.

This means if school districts vote to increase salaries above the six percent cap, taxpayers of that district will be responsible for covering any of those additional costs. The legislation also eliminates the use of lump sum awards from unearned sick leave for pension credit beyond what is normally earned for contracts signed after the effective date of the legislation. This will also provide significant fiscal relief to the state, Carroll said. Additionally, a moratorium is now in place on any new benefits without a full funding source.

Carroll said another sweeping reform will take place in what is labeled as the 'alternative formula.' She said this formula was created for individuals in state law enforcement and correctional officers and other special risk jobs.

"Because the individuals in these positions operate in dangerous and life threatening situations, they deserve a more generous pension benefit," Carroll said. "This formula has been expanded through the years to include too many administrative positions that do not meet this kind of criteria."

Carroll said the new legislation will exclude all future hires in certain administrative positions that currently participate in this formula.

A pair of retirement agreements recently approved by two area community college boards has raised some eyebrows throughout the region.

The John A. Logan College Board, by a 5-1 vote, recently approved an early retirement for longtime JALC President Robert Mees - albeit a short retirement.

Under terms of the unique agreement, Mees will retire effective Sept. 30 and then be rehired Dec. 1 at a reduced salary. When the deal was approved by the board it was announced Mees will draw a salary of $78,750. The board, however, failed to specify that the $78,750 amount is only for the seven month period between Dec. 1, 2005 and June 30, 2006. Beginning July 1, 2006 Mees will be paid $140,400 annually for a two-year contract.

Mees defended the agreement calling it "a positive thing."

"It's allowed us to approve a $4 increase for students in tuition, instead of a $7 increase," Mees said. "Our main focus was not to impact the students that much and not impact programming. It's a way to benefit the college."

Don Brewer of Carbondale has been on the JALC board for 32 years and cast the lone dissenting vote. Brewer emphasized that his vote was not against Mees or his fellow trustees.

"It was an honest difference of opinion," Brewer said. "It wasn't a sweetheart deal, but nonetheless, I felt it was professionally and ethically wrong and couldn't condone it. It was the most difficult vote I've had to make."

Brewer said Mees is one of the best presidents in the college's history.

"Bob and I are good friends and have discussed this," Brewer said. "Bob's intentions were honorable, and so were those of the board, which wanted to save money and looked at the bottom line."

College officials said Mees' contract change is part of an overall plan to cut back on upper administrative expenses while at the same time benefiting students and instructional programs on campus. The board also emphasized the total savings gained is $230,000. However, the brunt of that savings doesn't come from the Mees retirement package and instead comes from the elimination of three other administrative positions that had a combined annual salary of $210,000.

Mees was making $178,039 prior to his retirement meaning that he will draw 85 percent of that amount ($151,300) in an annual pension. Coupled with the newly negotiated salary of $140,400, taxpayers will foot the bill for a total annual salary of more than $290,000 for Mees.

The Rend Lake College Board also approved a unique pay hike/retirement package for two longtime administrators earlier this year.

The board approved pay hikes totaling more than $46,000 for its two top administrators, President Mark Kern and Vice President of Finance and Administration Robert Carlock. The 20 percent pay increase came after the two longtime RLC employees announced prolonged retirement plans. Kern will retire on June 30, 2008, while Carlock plans to retire on Dec. 31, 2007. The pay hike will raise Kern's salary from $128,109 to $153,730 and Carlock's from $103,604 to $124,324. Not factoring in any future pay raises the increase will raise Kern's pension by about $22,000 per year and Carlock's pension by $17,000 per year.

Noting Kern is the longest-serving president in the history of the college, board chairman Randall Crocker said the pay increases are justified and actually brought the two administrators much closer to industry standards for community college administrators. Kern has served as president for 14 years and has 36 years with the Ina-based community college.

"There are a lot of ways to look at it but when you look at the numbers statewide they (Kern and Carlock) are both far below salary-wise what those positions pay," Crocker said. "Throughout the years they have always taken a modest pay increase and this just gets them closer to what everybody else is making."

The average salary for community college presidents statewide in 2004 is nearly $146,000 while those holding the same position as Carlock average a salary of $100,000, according to statistics released by the Illinois Community College Board. Prior to the salary hike, 31 of 39 college presidents in Illinois made more annually than Kern and 18 of 34 holding the same position as Carlock made more money.

Factoring in the increase, Kern is now the 12th highest paid community college president and Carlock is the third highest paid dean of finance.

The state contributes $10 million annually to fund the pensions and health benefits of retired lawmakers or their surviving spouses - a number that is expected to increase dramatically during the next decade, according to state officials.

Each member of the General Assembly with 20 years or more of service receives health insurance free while others are pro-rated based on the amount of years of service they had. Each member is required to pay for each dependent.

Legislators who have 20 years of service can draw a pension of 85 percent of their final salary.

Factoring in an automatic 3 percent increase each year, state records show that more than half of the 250 retired lawmakers are currently paid more annually in their respective pensions than the final salary they received as a state legislator.

According to state records former Sen. William L. O'Daniel of Mount Vernon was drawing a salary of $57,619 when he lost a re-election bid in 2002. O'Daniel is currently receiving a monthly pension of $5,309 or $63,715 per year.

Regardless of previous salary the pension amount is based on the final salary and allows employees to take an average of the top four years from the final 10 years of employment.

Along with feeling a financial strain, the pension system for retired legislators is also open to loopholes - a practice that has been referred to as 'double-dipping.' And several lawmakers have taken advantage of those loopholes.

As an example, former Sen. Jim Rea of Christopher retired in 1999 with 20 years in the General Assembly. According to state records, in 2004 Rea received a pension of $5,752 a month or $69,024 a year.

However, when Rea left the General Assembly he wasn't through working for the state. Only weeks after resigning his Senate seat, Rea was hired by longtime friend and political ally Secretary of State Jesse White as a contractual employee who is paid an additional $5,000 monthly. His total yearly income from the state is $129,024.

Former Gov. Jim Edgar is also taking advantage of the process. Edgar draws two state-funded salaries that more than double what he made as governor. Edgar's state pension is $9,411 per month or $112,937 annually. After Edgar left office he was hired by the University of Illinois, where he is paid $152,000 annually as a lecturer. In all, Edgar makes $264,937 per year.

Illinois lawmakers can retire at age 55 with eight years of service or at age 62 with four years of service. The retirement benefit is based on the last day of service, another loophole that many lawmakers used to their advantage.

As an example, former Sen. Larry Woolard retired last year after more than 18 years in the General Assembly and was immediately appointed by Gov. Blagojevich to head up the Illinois Department of Commerce and Economic Development.

According to state records Woolard's final base salary as a state senator was $57,619. Based on his 18½ years of service Woolard's final salary would have resulted in a monthly pension of $3,841 or $46,095 annually. However, since being appointed to his new position - a position with an annual salary of $100,000 - his pension will now be 85 percent of that amount. And Woolard would only be required to work 12 months in his new position in order to be eligible for the increased benefit.

The increase will bump Woolard's annual pension to $85,000 or nearly $40,000 per year more than he would have received if he had remained in the General Assembly.

Former U.S. Glenn Poshard retired last July as vice chancellor at SIUC and receives a pension based on his $162,000 annual salary. According to state guidelines, Poshard receives 75 percent of his final salary, or $121,500.

State records also show that Poshard is listed as an inactive member of the General Assembly Retirement System, where he has 84 months of accrued service. Based on those 84 months, Poshard would also be able to draw 23 percent from his final salary as a state legislator and will also draw a federal pension from his 10 years as a U.S. Representative.

All state workers in Illinois can qualify for a pension that equals 75 percent of the average salary they earned during four of the last 10 years they worked on a job but must have 30 years total to receive the full benefit.

Legislators and judges must work only 20 years to receive a maximum benefit of 85 percent of their final salary.

The state's convoluted pension system has been under-funded since its inception in 1970. Despite a constitutional guarantee, state lawmakers didn't make the required contribution to the pensions a single time during a 25-year span. In fact, the state not only didn't pay enough to cover the annual contribution, it didn't pay enough to cover the interest.

In 1995, the General Assembly attempted to address this problem - a $19 billion deficit in the pension systems- -and passed legislation requiring the state to make annual contributions. The legislation also required the state to continue to make the normal annual contribution on top of repaying this debt. This debt repayment plan would stretch out over 50 years - through 2045.

The new legislation didn't change anything regarding the pension systems as the state failed to make contributions. Between 1995 and 2003 the state's liability increased an additional $24 billion bringing the total amount the pension system is under-funded to $43 billion.

Carroll listed four examples why the state's pension liability grew by another $24 billion from the time 1995 law was passed to 2003:

· Pension "sweeteners" added $5.8 billion to the pension liability during this time - and were added without a revenue source in which to pay for them.

· An early retirement incentive package passed in 2003, ended up costing the state $1.8 billion more than was expected when the initiative was passed.

· The state's annual contributions were $10.6 billion short from 1995 thru 2003.

· Investment losses, despite generous gains in the late 1990s, added $6.4 billion to our pension liability between 1995 and 2003.

Carroll said when Blagojevich took office in 2003 the state's pension system was the worst funded in the nation and steps were taken to "stop the bleeding."

"The governor worked to get a $10 billion Pension Obligation Bond passed to help shore up the pension funds and ensure that the state would make its required contribution to the pension system for the 2003 and 2004 fiscal years," Carroll said.

Carroll said when Blagojevich took office the state's pension system was only 48 percent funded and it has now increased to 61 percent funded, however that's still worst in the nation.

"That's just how bad things were," Carroll said. "People want to criticize the legislation that was passed in terms of pensions, but the governor and the Democratic leaders looked at this as a unique opportunity to pass something rather than do nothing. What we got passed is still the most significant pension reform ever passed in the state. When it's all said and done, we still save more than $2 billion through pension reform."

- Caleb Hale contributed to this report

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