Public Pensions Problem: Paying for time not actually served

Bill Zettler at Champion News looks at one of the little-known issues with public pensions — the service time used to calculate the benefit is not the time actually worked.

As he notes, there are two ways this happens in the Illinois Teachers plan:

Why is that? Well teachers get pensions paid on “Service Credit” not actually on the years worked in Illinois. “Service Credit” is a concept that boosts pensionable years worked in IL with giveaways that have been added over the years to increase teachers’ pensions for no reason other than they are teachers.

I know of no private sector system where the workers receive pensions based upon more years than they have actually worked.

Service Credit scam 1: pensions paid on 75,000 years of sick leave never worked.

The major way to get Service Credit is via sick days. Every teachers’ contract contains an allowance for “sick days” averaging about 12 days per year. If the teacher doesn’t take the days off as sick leave (most of the suburban schools have 2-3 personal days on top of sick days so they can use those for real sick days) they can accrue them for up to 2 years Service Credit when they retire.
Service Credit scam 2: “Optional Service Purchase”: Pay $63,000 get $1.2 million.

Teachers may also “purchase” Service Credit, at an extreme discount, for teaching previously in other states.

Retirees have paid nominal amounts for 82,700 out-of-state work that by definition is not Illinois work. If it’s not Illinois work why do Illinois taxpayers have to pay pensions for it?
Why do Illinois taxpayers have to pay pensions for work not done at all or done in another state?

Very good questions.

These features are not necessarily restricted to Illinois. “Air time” (buying “Service Time” in a new job based on a job worked elsewhere) is something all over the place, and it can be abused in a big way. The amount “charged” for air time is usually well below what it will actually cost (esp. given the low retirement ages).

With regards to sick time being accrued for pension benefits, in many private companies there is a maximum number of sick days allowed to be rolled over from one year to next…and if you don’t use them, they’re gone.

Zettler also has some more questions related to the TRS plan.

With benefits like is, even with generous assumptions and smoothing to dampen effects, is it any wonder the funding ratio is below 50%?

About Meep
Meep is a member of the Irish Catholic mafia, having a suspiciously high number of green-eyed, red-haired friends. While she doesn’t have red hair herself [except when she goes into the sun (rare for any vampire)], she does have green eyes. She’s a raving Papist and is a life actuary on the side [i.e., she counts dead people]. An amateur pain-in-the-ass [willing to go pro!], she likes covering retirement, mortality, math, and education issues.

1 Comment on Public Pensions Problem: Paying for time not actually served

  1. You know, I really don’t mind so much something “straight up”, like folks being able to retire a few months early, at no penalty, based on sick days they had never used during their career; it seems to me to be a reward for being industrious and committed to being on the job every working day.

    But I’m not down with this freakishly low cost buy-in scheme, where they can buy this “service-time”. It’s one thing to live up to the promises made for benefits extended over a lifetime of employment to the state, and another altogether to be able to purchase that same benefit based on time worked in a different state. Let the state only be responsible for time served in that state…

    All this is, of course, outside of the larger discussion of why government employees are getting benefits the private sector doesn’t; especially when their total compensation is no longer much lower that comparable private sector employess, but, in some cases are higher!

    You can’t have it both ways. If the benefits are going to be fantastic, then salaries paid have to be much lower; since regardless of compensation there will always be the reality that it takes an act of Congress nearly to fire any government employee. Which, such “job security”, as it’s often referred to, would seem to be a very valuable thing right now with our near-Euro-zone unemployment rates.

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