Chicago Tribune: Teacher compensation is a perk.

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It has been just a few days since the Chicago Tribune embarrassed itself by publishing the ghoulish op-ed by Kristen McQueary which called for a devastating natural disaster like Katrina to hit Chicago.

Only “water gushing through manhole covers” could bring school reform to our city wrote McQueary, praising the privatization of New Orleans schools that followed Hurricane Katrina.

This morning they publish another one of their patented bull poop articles on teacher pensions, claiming a district’s pension pick-up is a “perk.”

They write that this perk is “little noticed.”

That’s because to most observers of collective bargaining agreements between labor and management it is not normally considered a perk to receive compensation for your work.

A point about the contract language: If someone were to read the collective bargaining agreement (CBA) between the Park Ridge board of education and the Park Ridge Education Association (of which I was a member for 30 years) it says, “the Board shall pick-up the teacher’s required contribution to the Illinois Teachers Retirement System (TRS).”

What does this mean?

It means that the board will take the 9.4% our of our check  and send it to TRS. We paid the entire amount but the board transferred the money. That is all that they did. It was nothing more than an electronic transfer of our money so that we didn’t have to mail in a check to TRS ourselves.

Yet someone might read that and think the board paid our contribution. They would think wrong.

Are there districts in Illinois that pay all or a share of the teacher contribution?

Yes.

In the course of negotiations both sides of the table understand that there is a finite amount of money to be bargained. How that money is divided up is what the bargaining is about.

Some goes directly to salary. Some goes to benefits such as health insurance. Some goes to pension payments.

If you look at collective bargaining agreements between teachers and school boards state-wide you will see that some are heavily weighted towards salaries. Others are weighted more strongly to the benefit side.

It’s all bargained compensation.

Compensation is not a perk.

No matter what the Trib thinks.

80 years of Social Security, but we teachers don’t get ours.

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Yesterday was the 80th anniversary of Social Security.

It was an important victory for working people during the Great Depression.

Today, the average worker who depends on Social Security as their sole retirement pension lives below the poverty line.

Teachers in 15 states receive no Social Security, or they have it reduced significantly.

As a teacher in Illinois who contributed into Social Security until I was 38 and began teaching, this is a major financial loss.

Why do I lose a major part of my Social Security benefit?

Because of two Federal laws called The Government Pension Offset (GPO) and Windfall Elimination Provision (WEP).

In the view of Congress, being paid the Social Security I am owed is considered a “windfall.”

The Government Pension Offset (GPO) and Windfall Elimination Provision (WEP) penalize people who have dedicated their lives to public service by taking away benefits we earned.

I  lose my entire spousal benefit, even though Anne has paid into Social Security for her entire working career.

Many people who enter the teaching profession late in their working lives are not aware of the GPO and WEP. They are too old to earn maximum state pension benefits and yet they lose most of their earned Social Security benefits.

Happy 80th birthday, Social Security.

Maybe one day we teachers will get ours too.

“You’re harming retirees,” Judge tells Mayor Rahm. She refuses to stay her ruling.

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Charles Lomanto, a 28 year employee of Chicago’s Streets and Sanitation Department speaks at a news conference Friday, July 24, 2015, in Chicago after Cook County Judge Rita Novak issued a written ruling stating that a 2014 law aimed at reducing multibillion-dollar shortfalls in two of Chicago’s pension funds is unconstitutional.

Last Friday, Cook County Judge Rita Novak overturned a 2014 state law that reduced cost-of-living benefit increases for retired city workers and laborers and increased contributions by current employees. Those changes were coupled with increases in taxpayer payments to their pension funds.

Today Judge Novak refused Mayor Rahm’s request for a stay until the Illinois Supreme Court might rule.

Of course, the ISC may not want to rule. The Justices could refuse to hear the case and say they have already decided this issue.

The two city pension funds would have to restore higher benefits to retired city workers, issue checks to make up for reduced benefits since Jan. 1, take out less money from current workers’ paychecks and return the money already collected to workers who have been paying more into the retirement accounts.

Mayor Rahm’s lawyers begged Judge Novak to put a hold on things in case the ISC overturns her decision.

“I don’t see there is much likelihood of success on the merits at all once the case reaches the Supreme Court,” Novak said in denying a stay on her ruling.

She also said retired workers, more than 40 percent of whom get less than $29,000 a year in benefits, were being harmed.

Indeed. As comments from city workers on this blog show.

In ruling against the city, Judge Novak rejected arguments that the deal had been bargained between the City and employee unions.

The Judge responded by saying the unions, such as SEIU, had no standing to bargain a contractual obligation involving employees not formally represented by SEIU. And further they had no standing to bargain a diminishment of constitutionally protected benefits, particularly benefits of current retirees who do not belong to the unions.

This was exactly the case in the failed SB2404, which was bargained between the state’s public employee unions and Senate President John Cullerton.

They joined together to include current retirees in a the bill, reducing COLA benefits, even though many current retirees were not members of those unions and were not represented by those unions’ leaders.

AG Madigan ready to piss away more taxpayer money on pension appeal.

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Attorney General Lisa Madigan, the same Lisa Madigan who came up with the legal argument that all seven Illinois Supreme Court justices rejected with a written opinion that all but openly and personally mocked her, says she may not be done with pension theft quite yet.

Some are claiming this is the woman who will save us from Bruce Rauner in the next gubernatorial election.

From Amanda Vinicky:

Illinois has until August 6th to appeal to the nation’s highest court.

While Attorney General Lisa Madigan hasn’t quite done that, it may well be on the horizon. Her office on Monday asked the U.S. Supreme Court for an extension, so it’ll have until Sept. 10 to do so.

John Fitzgerald, an attorney for retired public school teachers, says they’ll fight it.

“This is entirely a matter of Illinois State Law. There is no basis for the U.S. Supreme Court to intervene.”

The Attorney General’s petition says the pension case “raises important questions” about states’ rights to use police powers to modify contracts, like public pensions.

My God. “States’ rights,” “police powers,” “modify contracts” and “public pensions” all in one sentence.

Another pension win in the courts. Rahm loses big time.

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No matter how many times they try to say the law doesn’t mean what it says, the courts say otherwise.

And so it was today when a Cook County judge overturned the city’s changes to two pension funds, declaring them “unconstitutional and void.”

The issue was a 2014 state law Emanuel pushed through the legislature that aimed at shoring up the financially imperiled pension funds by reducing cost-of-living increases and requiring workers to kick in more money.

The ruling was not only a rejection of Rahm’s plan, but another slap at the legislature’s irresponsibility and ignorance of the pension protection clause of the Illinois constitution.

How many ways can we say it?

You cannot cut benefits to solve the problem. You must raise revenue.

The story is just breaking.

More later.

Pension perk for Illinois’ new school boss.

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Illinois state school superintendent Tony Smith.

In 2010 the state legislature under the direction of Speaker Madigan created a Tier II for teacher pension system.

Any teacher hired after January 1st of 2011 would pay less into the system and get less as a pension when they retired and must work longer to be fully vested.

Not a big plus for those working as teacher recruiters in Illinois.

It created a mess, as most pension ideas coming out the legislature do.

It is very likely that current Illinois teachers in Tier II will not even get what Social Security provides. That would be in violation of a federal requirement called Safe Harbor.

When the governor ordered the Illinois State Board of Education to hire a new school superintendent named Tony Smith without interviewing anyone else, he also was placed into Tier II of TRS.

He was given a $225,000 salary.

But unlike his Tier II colleagues, Smith is getting a special perk: The Illinois State Board of Education is giving him a stipend each year, expected to be worth thousands of dollars annually, to make up for his reduced pension.

The extra cash is in addition to his $225,000 salary, according to Smith’s first contract to oversee Illinois’ public school system. The Tribune found the perk in a single paragraph in Smith’s eight-page contract, signed in May and obtained through an open records request.

Smith’s perk comes at a time when Illinois Gov. Bruce Rauner is pushing for savings to help Illinois dig out of its pension crisis, and controversy continues over the lower-tiered pension plan created in a 2010 law.

Smith, a recent transplant from California who was Rauner’s choice for state school superintendent, by law was placed in the Tier II plan, just like most educators hired after Jan. 1, 2011.

State Board of Education spokesman Matt Vanover said Smith’s exact stipend has not been calculated, but it is intended to match retirement benefits provided to his predecessor, who was a member of the more generous Tier I plan of the Teachers’ Retirement System of the State of Illinois, known as TRS.

“The board … decided to structure the contract so that the payment to Dr. Smith would be the same amount as if he were a Tier 1 employee,” Vanover said in an email to the Tribune.

And they pay his 9.4% TRS contribution.

And he has no teaching or administrative certification in Illinois.

The answer to my pension question isn’t that I should exercise more.

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Since I retired three years ago I have been focused (not focused enough, my trainer Mike will say), on exercise.

At first I dropped about 25 pounds, but gained about ten back.

And that is where I have stayed in terms of my weight.

A recent article in the New York Times supports my own experience.

Want to lose weight?

Eat less.

Exercise more is the answer to the question, “How should I get and stay fit.”

“Eat less,” is the answer to the question, “How should I lose weight.”

Matching answers to question is important.

When I posted yesterday about the Times’ and other reports on hidden fees, high-risk investment strategies and hanky-panky by investment firms using public employee pension funds, former Illinois Teacher Retirement System Executive Director Jon Bauman and TRS Chief Investment Officer Stan Rupnik responded.

Jon, who has been a friend of this blog, took issue with many of my concerns.

The 10-year annualized return for private equity is 13.1%, TRS’ most successful. Real estate returned 7.4% per year over the period, about the same as stocks’ 7.9%. (The 2008-9 market crash took a severe toll on our real estate investments.) Hedge funds’ 5-year return of 9.8% substantially outperformed their benchmark.

Finally, it’s worth noting that TRS’ Investment staff initiated a reduction in the number of private equity managers several years ago. It’s good to see CalPERS follow suit.

As of June 30, 2014:
$ 5.639 billion or 12.4% of TRS/ Real Estate

$ 5.039 billion or 11.1% of TRS/ Private Equity

$ 2.650 billion or 5.8 percent of TRS/Absolute Return.

Also, the correct 5-year return is 8.8 percent.(Source-TRS CAFR available at TRS Website)

And TRS board member Bob Lyons, also a good friend, forwarded to me Rupnik’s response.

Fees are an important focus and we absolutely support the efforts to improve and maintain transparency. That said, the recent string of news has been particularly slanted (as are the recent hearings). Amazing how everything is now compared to the S&P 500 over the past five years…after it has done nothing but shoot straight up. Recall a few years ago we were all naive for investing in stocks because the ten year S&P return was flat or negative. Now it’s the best and cheapest investment ever.

The shorter version of these responses is, “Our investments have good returns.”

And that’s true.

But exercise more is not the answer to the question how do I lose weight.

We’re getting good returns and making money is not the answer to the question why isn’t information about fees, charges and returns more transparent.

Information is hidden for a reason.

Somebody doesn’t want us to know.

We quoted this from Pensions and Investments:

With more than $40 billion in commitments, CalPERS runs one of the largest private equity programs in the world. For the five-year period ended April 30, CalPERS’ private equity holdings earned an annualized 14.4%, making it the pension fund’s best-performing large asset class.

The problem, says board member Mr. Jelincic, is during the asset distribution process, when private equity managers deduct their portion of the carry — the profit split between the manager or general partner and limited partners like CalPERS. The issue arises because there is no information on what deductions were taken and how the ultimate fee charged to CalPERS was determined, he said.

He said that makes it impossible to determine if the manager is keeping too much from the sale of portfolio companies and could potentially result in CalPERS paying higher fees because it is not getting the right payout.

“It’s like selling your house and having them say, “here are your proceeds,’” he said. ”But we’re not saying how much we sold the house for, how much we charged you in commission, how much we charged you in fees.”

Let’s follow up on the selling-your-house analogy.

If the broker tells me he sold the house we have owned for 25 years for $500,000 but really sold it for $600,000, pocketing the extra $100,000, we still will have made money.

But the broker will have stolen $100,000 of my money.

Telling me I made money doesn’t really address the concern.

Catalyst’s interview with Chicago Teacher Pension Fund’s Executive Director Charles Burbridge.

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Catalyst: Where does the pension fund stand on the upcoming $634 million payment?

Burbridge: We’re expecting the payment. …We have not been told that we won’t get it or that we’ll get some discounted portion of it. Last year we got it.

Catalyst: What happens if it’s not paid?

Burbridge: If it’s not, then we’ll have to explore options that are available to us, see what the Board of Trustees is interested in pursuing. We’ll have to cross that bridge when it comes.

Catalyst: Explain what’s included in the outstanding payment.

Burbridge: One component is the money that should be paid for the benefits current teachers are earning. Last year that amount was about $145 million and it is similar this year. The second component, much larger, is the [amount] required to make the annual contribution toward the debt that’s been run up over the past 10, 15, 20 years. That total [debt] is now almost $10 billion.

Catalyst: Why such a huge unfunded liability?

Burbridge: Pension funding works when the employer pays for benefits as they are earned. When the employer doesn’t pay for those benefits, you get into problems.

Catalyst: What would happen if the district somehow in the next couple of weeks was able to get a ‘pension holiday’ again?

Burbridge: It would exacerbate the current situation. The unfunded liabilities – the benefits that the employees are earning – would not be paid and [there would not be] a contribution to reduce the outstanding debt.

Catalyst: Does that have an impact on current teachers or current retirees?

Burbridge: Not directly, because the benefit is a defined benefit. There’s not a direct connection between whether an employer payment is made and the benefit that’s being paid out to the individual member. The indirect impact is that there are a lot of conversations about threatening to change statutes and [cut] benefits somehow. The state Supreme Court has indicated that [lawmakers] probably don’t have that ability.

Catalyst: How would a non-payment affect your ability to invest?

Burbridge: It typically means that our ability to invest is impaired. We need to keep more of our assets in a cash position to pay out benefits. … We’ll get a reduced rate of return because we will have to use assets to pay out benefits that we could otherwise have invested.

Catalyst: So at some point, you might run out of money if the district doesn’t pay?

Burbridge: Yes, long-term, if the district stopped paying altogether, at some point the pension fund would run out of money. I couldn’t give you a date, but it’s a long time from now.

Catalyst: Is there a broader economic impact to this issue?

Burbridge: The pension fund and, more importantly, the pensioners have a significant impact on the local economy. We have around 30,000 retirees and approximately half of them live in Chicago. These retirees are often anchors of their local communities. The average [annual benefit] is around $47,000. Probably altogether you’re talking close to $500 million annually being spent in neighborhoods by Chicago Public Schools pensioners.

Catalyst: Is there anything you wish people better understood about this puzzle?

Burbridge: People tend to try to look to who’s to blame and often they try to say, ‘Well, it’s the teachers.’ The teachers came to work. They had a benefit package just like you had a package that was offered to you when you took your employment. And they made a decision to work based on what you offered them. A lot of people don’t know that our teachers generally don’t get a Social Security benefit and somehow they think this is something on top of it, and if this was taken away there wouldn’t be a problem.

Catalyst: How do you see the fund moving forward through this moment?

Burbridge: I see the fund continuing to fulfill its role and responsibilities – that we will continue to invest assets prudently and administer our benefits efficiently and effectively. We cannot determine the outcome of the discussion and the whirlwind of issues surrounding us.

Jon Bauman: The jury is still out on hedge funds.

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– By Jon Bauman. Jon is the former Executive Director of the Illinois Teacher Retirement System.

Fred,

I have to disagree with your premise here, at least as it pertains to TRS.

I find no correlation between the growth in unfunded liability and duplicitous behavior by PE general partners.

If the Times’ allegations are founded, these firms ripped off public and private limited partners without regard for their balance sheets.

In short, everyone got screwed.

Allegedly.

To the broader issue of “chasing returns” by increasing allocations to alternative investments, the facts show that TRS has been rewarded over the long haul for its private equity and real estate investments.

The jury is still out on hedge funds.

The 10-year annualized return for private equity is 13.1%, TRS’ most successful. Real estate returned 7.4% per year over the period, about the same as stocks’ 7.9%. (The 2008-9 market crash took a severe toll on our real estate investments.) Hedge funds’ 5-year return of 9.8% substantially outperformed their benchmark.

Finally, it’s worth noting that TRS’ Investment staff initiated a reduction in the number of private equity managers several years ago. It’s good to see CalPERS follow suit.

As of June 30, 2014:
$ 5.639 billion or 12.4% of TRS/ Real Estate

$ 5.039 billion or 11.1% of TRS/ Private Equity

$ 2.650 billion or 5.8 percent of TRS/Absolute Return.

Also, the correct 5-year return is 8.8 percent.(Source-TRS CAFR available at TRS Website)

Andy Rotherham’s pension advice: Be a woman.

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Years ago I would actually read a blog written by corporate school reformer Andy Rotherham.

The guy never saw a charter school he didn’t like. At one time there was a brief thought that he would be Obama’s Education Secretary instead of Arne Duncan.

I even ran a periodic post mocking Rotherham.

After a while nobody seemed to care and I dropped it and him.

Today I came across a Tweet from Rotherham. It was a link to an article on a web site he is associated with called TeacherPensions.org.

It is funded in part by the millionaire former Enron executive and pension basher, John Arnold.

Penned by Chad Aldeman, the article is called 8 Ways that Teachers Can Maximize Their Pensions.

If you read it note that none of the 8 ways include the state paying what they owe or the state following the law.

It does include, “Be a woman.”

Well, see. Women live longer.

And it suggests earning less.

Aldeman explained that one, but I still don’t get it.

Although I am sure my board of education members would agree.

He also suggests moving to the suburbs, which is kind of a no-brainer if all you care about is making more money.

Aldeman also suggests retiring when the state tells you to. He suggests this because he says that if you work longer than you are losing money.

Maybe he doesn’t know that in Illinois they have raised the retirement age before you can collect a pension.

He’s also wrong about the be a woman advice.

Even in the teaching profession women often earn less than men.

And get less pension.