John Dillon. When do you break even on your pension? Man. You are SO wrong.

Urban_Pension Versus Employee Contributions-2

– John Dillon. John blogs at Pension Vocabulary and will be joining us as a guest on Hitting Left with the Klonsky Brothers, episode #27, airing live August 11th at 11am on 105.5fm in Chicago and streaming Podcast

Have you ever wondered just how many contributions to your retirement plan it would take before you broke even?  Breaking even would be that point in a teacher’s career where her contributions would match the value of her benefits in retirement?

If you read the Chicago Tribune, listen to the administrative support team of Governor Rauner (Illinois Policy Institute), or have a family member or neighbor who works in the private sector and abhors taxes of any kind – well, you’d think you would get a sweet return which would always wash over what you put in, wouldn’t you?

But you’d be wrong.

Nearly 3 out of 10 teachers leave the profession within the first five years, and we can expect their contributions to the pension systems will never match any real return. In fact, they’d be wise to take it with them.

Pension contributions are back-loaded.  That means that teachers put in increasing amounts as they gain experience and value (salary) in the classroom.  In Illinois, 9% of $25,000 starting salary is much less than the later multiple-degree salary of $60,000.  In fact, only about half as much.

Somewhere out there in the future, the meeting between what teachers have given and what they will earn crosses.

According to a recent research paper looking at all states, that moment of equivalence may be longer away than any teacher thought, and it will be VERY dependent upon the specific state’s retirement program.

Read the entire blog post here.

5 Replies to “John Dillon. When do you break even on your pension? Man. You are SO wrong.”

  1. Indeed, Illinois State politicians will use Tier III as a “consideration” to diminish the Pension Protection Clause. Nevertheless, this is just another end run around Article XIII, Section 5 of the Illinois Constitution.

    Changes to the formula for calculating pensions is just another attempt to breach a constitutional contract to obtain a better financial deal for the unethical liars and thieves in the Illinois General Assembly.

    New teachers who are placed in Tier III, and those Tier II teachers who unwittingly opt out to go into Tier III, will be making less money and paying down the State’s unfunded liability.

    Consider: the Tier III Pension Plan:

    1.25% X 35 years = 43.75% (age 57)
    1.25% X 45 years = 56.25% (age 67)
    (And there is no compounded COLA)

    Remember: The Pension Protection Clause was intended to insulate public pensions from the danger that government employers would claim that funding shortfalls or other fiscal exigencies required diminishments or impairments.

    Remember: The Pension Protection Clause mandates a contractual relationship between the State of Illinois and public employees. The Clause also mandates the Illinois General Assembly not to impair or diminish public employees’ and retirees’ rights and benefits.

    To repeat: The Clause is an “enforceable contractual relationship.” In other words, the State and public employees can choose to renegotiate their agreement. This is called “a modification of contractual principles” or consideration. Of course, with Tier II and Tier III members, the State hopes public employees are ignorant of what John Dillon is stating in his post.

  2. That chart looks about like an Illinois Tier 1 pension. As for Tier 2, the two lines on the chart may never intersect, and Tier 3 would have an even wider gap.
    The chart appears to be a average or typical teachers pension for all public school teachers nationwide, and the Illinois Tier 1 pensions were about average. Other states with teachers pensions similar to Illinois Tier 1 TRS do not have as great a problem with underfunding, which proves the underfunding at TRS was caused completely by the state of Illinois not putting in their employer contributions, no other reason. IL TRS teachers have never skipped or missed a payment into TRS, it is taken out of their paycheck.

  3. This is from John Arnold’s site. He is trying to convince teachers they should switch to 401ks.It is trying to get teachers to go along with dumping their DBs. Their data is very questionable.

  4. Fred,
    So you average compensation over your teaching career huh?
    Also, forgot to factor tax savings into equation on teacher contrib.
    What else did you conveniently forget to factor in? Only items that “prove” your point?

  5. Fred and Glen, as the saying goes, “your mileage may vary,” but I would suggest a break even calculation should include some investment earnings on the member contributions and even perhaps an assumed employer match. Depending on several factors, this could move the payback date up or down. Interesting post for us number crunchers.

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