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Set the record straight on teachers pension fund problems

We know that excessive benefits didn’t cause this problem, and cutting benefits alone won’t solve it. We need to balance the pension equation and only responsible action from the employer can accomplish this.

The Chicago Teachers’ Pension Fund found itself at the center of controversy in recent days as dramatic headlines blamed pension payments for the Chicago Public Schools’ budget shortfall and the subsequent layoff of thousands of employees. Dramatic headlines may grab attention, but they obscure the truth. It’s time to set the record straight and ask CPS to accept responsibility for past mistakes — so that they are not repeated.

CTPF is a $9.5 billion pension plan that serves 60,000 teachers, administrators, and retirees of the CPS, including charter schools. Our members do not contribute to or receive Social Security, so their pension is their primary retirement security. All teachers are required to live in the city. More than 85 percent of CTPF beneficiaries live in Illinois, and 50 percent of these beneficiaries continue to live in the City of Chicago. CTPF benefit payments generate more than $1.5 billion in economic impact for Illinois and help create more than 11,500 jobs. In 2011, the average annual benefit was $41,584.

Our teachers have pensions for a reason — they provide stable retirements at less cost than other retirement programs. The pension equation is a simple one, which works when all sides are in balance. Teachers and employers contribute revenue, and our fund invests revenue and pays benefits. CTPF has invested prudently and has a 30-year rate of return of more than 8 percent. Our members have never missed a pension payment, investing 9 percent of their salary from each paycheck toward retirement.

CTPF currently owes members about $17 billion in future pension costs.  With $9.5 billion in the bank, it means we have about 54 cents for every dollar we owe. As recently as 2001, CTPF had more than $1 in assets for every $1 it owed.

So how did the equation fall out of balance?

Diverting pension funds

To understand this we need to examine the critical component of the pension equation — revenue. From the late 1920s until 1995, CTPF received a dedicated property tax revenue from the citizens of Chicago. CPS didn’t have a pension payment. CTPF invested the tax revenue and created one of the strongest retirement funds in the state.

Facing a budget crisis in 1995, CPS convinced the Illinois legislature to divert the dedicated CTPF levy into the CPS operating budget. Removing that guaranteed revenue source, however, fundamentally changed the structure of our fund and knocked the pension equation out of balance.

What happened next is the little-known yet critical part of our story. Instead of making the “normal” cost of pension payments, CPS used the money that would have gone to pensions for other purposes.  For a period of 10 years, 1996-2005, CTPF received no employer contributions.

Professional actuaries have determined the amount that the employer should have contributed during those years totaled more than $2 billion.  

Even with the strong investment returns CTPF earns, a fund cannot survive without stable revenue. When our funded ratio fell below 90 percent in 2006, CPS was forced to make payments for the first time in a decade. Instead of taking responsibility and paying the bills, CPS returned to Springfield in 2010, asking to reduce payments through a euphemism called a pension “holiday.” Legislation passed in 2010 allowed CPS to pay less than they owed, underfunding pensions by an additional $1.2 billion for three years from 2011-2013.

With the “holiday” ending in 2013, CPS returned to the Illinois legislature on May 31 to ask for an additional $350 million in relief. The measure failed, but no other solution was offered.

Call it a holiday or relief, but these euphemisms really meant that CTPF didn’t receive enough money to keep the pension equation in balance.

Sadly, the State of Illinois also has failed CTPF.  When CTPF lost the tax levy in 1995, the state agreed in principle to support CTPF at a rate proportional to the downstate teachers — but that funding failed to materialize. Instead, state funding for CTPF has fallen dramatically.

In 1995, we received about 23 percent of the funding provided to the Teachers’ Retirement System of the State of Illinois.  Today, we receive less than 1 percent — even though we have 18 percent of the state’s teachers. Funding promised from the state should have amounted to about $2.7 billion since 1995. Chicago’s taxpayers continue to fund downstate and suburban pensions, yet the state has failed to support Chicago’s teachers.

So what can we do? Much of the focus on pension funds has been on so called benefit reform — meaning the call has been to reduce benefits for members. Yet excessive benefits did not bring us to this point – a lack of revenue did. The CTPF Board of Trustees has taken the position that revenue reform must occur before benefit reform. We have seen the damage that a lack of revenue has done to our fund, and we need to remedy the situation.

Revenue reform could follow many paths, including increasing taxes, restoring our dedicated tax levy, refinancing the pension debt, or eliminating funding schemes that have caused artificially lower historical payments. The employees, employer, retirees and state must work together to come up with a plan that will stabilize CTPF.

CTPF has done — and continues to do — its part to solve the pension problem. We have acted cautiously and invested prudently. We have built a diversified investment portfolio which has exceeded our expected rate of return, but we can’t invest our way to financial security. We need revenue.

We know that excessive benefits didn’t cause this problem, and cutting benefits alone won’t solve it. We need to balance the pension equation and only responsible action from the employer can accomplish this. Teachers have looked at the past and learned difficult lessons. We hope CPS will do the same.

Kevin Huber is executive director of the Chicago Teachers’ Pension Fund.


One more Principal wrote 1 year 15 weeks ago

Thank you Mr. Huber.

Shame on CPS and state legislators. They took a great fund and continue to beat it to death. Retirees, be a part of RTAC, it is the only 911 we have.

Barbara Hamilton,retired teacher wrote 1 year 15 weeks ago

CPS Pension Problems

CTPF President Huber described the plight of the CPS teacher pension fund with excellent detail -it's the best explanation yet! Political deals, CPS difficulties, and. education bashing aren't needed. Tax reform so that the upper income 2% pay their fair share of taxes is probably mainly, painfully largely an answer!

Rodestvan wrote 1 year 15 weeks ago

Kevin Huber's article

Overall Mr. Huber's article was factual and correct. But then he got to the issue of State funding for CTPF. As we know the Speaker of the House is now calling for all school districts to fund their own teachers pensions instead of the State. So any hope for additional State funding for CTPF is highly unlikely at this time or in the near future.

Mr. Huber states " The CTPF Board of Trustees has taken the position that revenue reform must occur before benefit reform." However, the Mayor of Chicago has taken the exact opposite position, revenues should not be discussed before pension reform. Isn't possible to discuss both issues at the same time as part of a legislative solution?

Rod Estvan

northside wrote 1 year 14 weeks ago

Private Industry

Let's take an engineer at Boeing for example..if when he/she retires ajd he sells their shares for HUGE profit, much of their profit is Government money, do they get biffed on Social Security? Answer: No....

Yet I DONT EVER SEE ANYONE bashing government contractor employees? I don't think they should, but they don't.

McGuest wrote 1 year 14 weeks ago

Informative but slightly misleading

Informative article but there is something missing and, somewhat, misleading I feel. You note that the funding ratio was over 100% as of 1995 and through 2001; there is no need for the state/city to make funding payments when the liability matches, or is over, the available assets. However, the 100% funding ratio is misleading because current actuarial pension analysis, as used by governmental entities, assumes a rate of return of 7-8% when actual returns, especially considering the previous 10 year, has been much lower than that. The actual funding ratio, if we use a more realistic rate of return, such as 4-5% (being that pensions are, essentially debt, this is appropriate and ballparks current bond rates) would indicate that they are less funded than current accounting for pension funds would lead us to believe. This would also relate back to the time period of 1995-2001 when it was assumed to be 100% funded. In reality, it was much less funded than that, but this is a problem of pension accounting rules as defined by governmental accounting standards; private company accounting standards require more realistic rates of return, which are around 4-6%. Yes the city contributions weren't made, but based on misguided return assumptions, it didn't have to. When the market tanked twice during the aughts and asset values plummeted they were required to make up the difference when returns did not equal the expected 8%, and make contributions to make up for any shortfalls. If we modify our actuarial analysis it'll require a larger contribution from employees and employers and a reduction in promises but at least it'll be sustainable. Lets not fool ourselves that the pension funds were adequately funded at any point in time though.

Bill Colson wrote 1 year 14 weeks ago

Media complicity in political misdirection

The pension issue, while legitimate, has become a tool used by city and state political leaders to misdirect popular attention away from other causes of budget shortfalls. Because the economics are complex and involve data analysis which is often more predictive than solid, discussion in the media more often than not is based on the passing along of common wisdom, whose origin is often the spin found in press releases from politicians and conservative "reform" groups. When the Chicago Tribune does any real education reporting, it is usually after the fact, and promptly ignored by their editorial board. As I've said in this forum in the past, the only genuine, skeptical investigative reporting to be found in Chicago seems to be in Catalyst, the Reader, and on Chicago Tonight.

On the subject of veteran teachers vs. newer, cheaper ones, I have yet to see a detailed explanation of how pension analysis estimates future costs. If it is based on past methods, these estimates are flawed. For example, as veteran teachers retire, they are increasingly being replaced by ones from Teach For America and other such programs, a large percentage of whom don't stay in the system long enough to qualify for a pension, either due to burnout (especially in charter schools) or because they mainly came to fulfill student loan requirements or perform a public service before moving on to their "real" careers. Also, I've yet to see anyone point out that when Rahm eliminated the 4% raise in the last CTU contract, it not only meant that the raises in the new contract were based on a lower figure than they would have been, but that future pensions would also be based on a lower average. I'm sure none of this escaped the attention of the mayor and CPS.

Joan Staples wrote 1 year 14 weeks ago

This is an excellent analysis

This is an excellent analysis by Mr. Huber, and some interesting comments. I have tried to explain the funding of the CPSPF as being similar to the funding of Social Security. Technically, that is not entirely correct, according to Mr. Huber, who explains that the employer's share used to come directly from property taxes. I also was not clear on the State funding promise,nor what happened after the original 10-year "holiday." Bottom line, CPS needs to do its share, but, most important, the truth about the CPS fund in contrast to other pension funds needs to be told. This is not being done, and the New York Times article of August 5 is an example.

Mr. Anonymous wrote 1 year 13 weeks ago

VERY misleading!!!

The average return for the last 10 years is only 5.7%, and the only reason it is that high is because they made some extremely risky investment this past year, that luckily paid off.

Also, even though you claim the city/state have not contributed their sharer during the pension holiday - they have contributed more than employees have during that period of time.

and why should teachers get a 4% raise, when the CPI is at 1.1%?

northside wrote 1 year 13 weeks ago


Does anyone want to get a raise that only keeps up with iflation? are teachers not allowed to imporve their station in life? are you saying teachers have caused our country's ecomomic problems. Reg employees give 6.2% and so do their employees to Social Security..on top of it I would guess most employees who have a college degree get some type of 401k with a match....also if an employee dies his 401k goes to his estate. employees on pensions lose half and then the other half when their spouse is not so black and white like you portray. and you know as well as I do that REAL INFLATION is more than 1.1%......

Mr. Anonymous wrote 1 year 13 weeks ago

Black and white - yes

Everyone who works want the biggest raises, the best benefits, the shortest workdays, the most money, the least responsibility, .... In the private sector, the profit motive keeps all that in check. In the public sector, unions and the threat to strike throw it all out of balance.

Compound 4% raises over a 30 year career. I would love an annual 4% raise!!!!

Most employers match 3% 401k and 6.2% SS. CTU teachers put in 2%, CPS puts in 7%, then the CPS puts in an additional 10 to 30%, and the state puts in some more. Pretty good deal for teachers!!!

Joshua Dwyer wrote 1 year 13 weeks ago

Misleading analysis

Mr. Huber makes it sound like the CTU were innocent bystanders of rogue CPS administrations. However, a closer look at the facts showed that they played a role in creating the large unfunded pension liability to now exists.

(1) CPS teachers only pay 2 percent of their salary toward their pensions, not 9 percent. They only paid 2 percent the entire time that CPS did not make the employer contributions. What did they get in return? An 80 percent increase in salary -- before taking into account step and lane increases.

(2) The CTU did not actively oppose the pension holidays because they were getting increases in salaries that would eventually entitle them to hire pension payments in the future.

Jeff Karova wrote 1 year 13 weeks ago

RE: State Funding

Chicago has for decades been diverting revenue for the schools (and other public services) into TIF, approx. $5.5B depending on the source, of which CPS would get ~50%. Tax revenue destined for the schools should be exempt from TIF. Perhaps the pension payment holidays would not have happened had CPS had this revenue.

Mr. Anonymous wrote 1 year 13 weeks ago

TIF is a Red Herring

Don't believe everything you read about TIFs. You could funnel every TIF dollar into CPS, and CPS would still be broke.

Also - Pension holiday doesn't mean CPS didn't have to pay anything into the pension fund, even during the pension holiday the CPS put in more money than the employees did. They just capped their contribution. Teacher put in 2%, the district put in 7% for the teachers (this is the 9% employee contribution), then the district put in another 10%-20%, and the state put in some on top of that. That is what we are calling the "Pension Holiday".

If that is a Holiday, I need my employer to do a 401K Holiday!

muntz wrote 1 year 12 weeks ago

Start taxing pensions

Illinois is one of only 10 states that EXCLUDES state pension income from taxation. At the very least, the difference between the average citizen's SS benefit (which is not taxed) and a pensioners' state pension benefit should be taxed at the same 5% rate as everyone else.

northside wrote 1 year 12 weeks ago


I agree it should be taxed like any other salary.......but we also should raise the capital gains a few percentages too!

Pension Fund goldminer wrote 1 year 12 weeks ago

Funding Illinois State Teacher Pension Plans

Gold Mine: Tax pension and retirement payments.

Illinois does not tax retirement income no matter how much you make. That is crazy. You could even exempt $25,000 and social security and tax the rest of the retirement income. Those funds could fund teacher pensions.

R. Wohl wrote 1 year 10 weeks ago

Teacher and principals contribute 9%. Someone told you a lie

Teaches and Principals contribute 9% of their salary every pay period. Someone told you a lie if you believe that teachers and principals only contribute 2% each pay period to their pensions. The board chose an accounting practice, years ago, to not put the full contractual salary into the pay CPS withdraws the 2% on the face of the check, and the other 7% is contributed directly from CPS. But the 7% is salary...not a CPS contribution. CPS is fond of spinning this lie, even its Board members tell this "story" when they are in public. But,
The NORMAL Cost, the normal employer cost is CPS's responsibility...just as any other Employer in Chicago is required by law to make a contribution to the retirement of its employees. Your information is false, someone lied to you and now you are passing this misinformation on. Please stop.

R. Wohl wrote 1 year 10 weeks ago

Mr. Emanuel and his backers need to be honest about TIF

The TIF has robbed students and families across Chicago from tax dollars for schools, parks and libraries. Schools lose a quarter of a billion dollars each year in tax revenue siphoned from schools to TIF. Teachers and Principals get paid a salary. Some is paid directly (a payroll check), the rest is deferred contractual compensation in the form of a Pension.
CPS has been involved in underpaying its employee pensions since 1995 when CPS stopped making its full pension payments. Over 3 billion is owed to teachers. In addition, CPS owes interest on its Pension Default. The mayor wants to default again this year on the Chicago Public Pensions.
CPS voted to pay its contractual pension bill this year, unfortunately, the amount barely pays the interest due because of past pension Holidays, state legislative pension relief, and Board of Education pension defaults.
Some call this a Pension Heist. I don't go so far, but a Pension is a Promise.
It is time to Release the TIF's back to the schools. Restore the pension contributions that have been provided teachers since 1895. And restore the dedicated Tax Levy for teachers pensions that Chicagoans contributed since the 1920's. Chicago is willing to fund its schools; the BOARD just doesn't always respect its teachers and principals retirement promises.

Dan Rothbauer wrote 1 year 7 weeks ago

Teachers Pensions

Who you kidding lady??? If you took all of the 2%'s money there wouldn't be enough. Too bad you don't live in the real world. Blame crooked politicians and triple dippers. Too late to fix it now!! Bye Bye Pensions!!!!!

Raymond wrote 1 year 7 weeks ago

Your facts are all incorrect and wrong.

Your facts are not correct.
Nothing you wrote is accurate.
Teachers contractually contribute 9/ of their salary to their pensions. CPS has underfunded the pension forover13 of the last18 years. Billions of dollars were not paid and the state has mandated that it is time for the Board to pay what is due. Fair deal.

George N. Schmidt wrote 26 weeks 8 hours ago

Andrea Zopp's hypocrisy... Pension lies from CPS continue...

Let's update this story, since the pension fund is still facing the challenges brought on by lack of adequate revenue to Chicago public schools. And part of that story is no further than the Chicago Tribune editorial page of May 22, 2014. But there is a strange bit of disinformation right there: An Op Ed by the "CEO of the Urban League" asking for better funding for public schools like Chicago's -- while ignoring the ways in which the writer, in other capacities, has worked against the public schools of Chicago.

Anyone who might miss it should note that Andrea Zopp, who is featured as an Op Ed person in today's Chicago Tribune, is also a member of the Chicago Teachers Pension Fund and a member of the Chicago Board of Education. While Zopp talks as if her only job was "CEO of the Urban League," she has been as instrumental as anyone in Chicago in helping to destroy the public schools she now claims need better funding from Springfield. Zopp's voting record since she became on of Rahm's minions on the Board of Education is around 98 percent for privatization and decimation. On April 23, 2014, she voted against two of the three "reconstitutions" on the agenda, but for reasons she didn't state voted for the destruction of Gresham Elementary School. And over the past three years, she has voted (as I watched) in favor of every destructive CPS policy: Closing 49 elementary schools one year ago today; expanding charter schools as fast as she possibly can; and purveying "turnaround" until finally in April 2014 she had some second thoughts...

One of the biggest hypocrisies on the Zopp record is her willingness to preach, as a pension trustee, about how CTPF should hire more minority and women and local pension groups, while, wearing her hat at the Chicago Board of Education, she has voted to hire almost nothing but out-of-town executives (beginning with Barbara Byrd Bennett, from Detroit) and to pay them "relocation expenses" as high as $30,000! She votes as if there are no talented school administrators in Chicago, then preaches local hiring etc. when she dons her "trustee" hate.

This is not simply doubletalk -- it's tripletalk.

Anonymous wrote 15 weeks 5 days ago

Teachers' payout at early age retirement.

How come teachers can retire so early and get so much money? Not being sarcastic - just want to know. I know they get lesser benefits since 2011 - but still .... Also I thought in 1981 the CPS agreed to contribute 7 percent of the contributions of teachers in exchange for no salary hikes. That means teachers only contribute 2 percent - not the 9 percent usually stated. However, as I understand the Chicago Teachers Union has negotiated 4 percent salary hikes every year across the board - how come, given the prior agreement on no salary hikes? I am not a teacher, I am just trying to cut through all the conflicting statements.. Social Security takes about 6 percent from contributors - boy, a $42,000 pension (average usually listed) sounds awfully good to me.

Tier 1 includes all teachers who began working in Chicago Public Schools, a related charter school or an Illinois reciprocal system before Jan. 1, 2011.

Full pension:

Age 62 with at least five years of service
Age 60 with at least 20 years of service
Age 55 with at least 33.95 years of service

Reduced pension:

Ages 55 to 59 with at least 20 years of service (your pension is reduced by 6% for every year you are under age 60 and is not recalculated when you turn 60)

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