Monday, December 28, 2015

Vocabulary "VESTED"

What is “Vested?”

Simply put, vested means “secured in the possession of or assigned to a person.”

In public education, the term vested for a future retiree means a pension fully and unconditionally guaranteed as a legal right, benefit, or privilege – although any Tier 1 or Tier 2 educator in Illinois realizes that save for the Illinois Supreme Court, the General Assembly would have ignored any guarantees morally or legally implied.

In the private business world, the full benefit(s) of being vested may include different remunerations in lieu of a defined benefit or pension.  Those would include but not be limited to profit sharing, stock options, 401K matching contributions, etc.  

The benefit to any company or school district in providing an accumulating vesting schedule is to retain the talent and productivity of employee(s) at a firm or in a district over an extended period of time.  Workers who decide to leave a company may find themselves losing access to thousands of dollars or tens of thousands in investment instruments.

According to, “This strategy (vesting employees) can backfire when it promotes the retention of disgruntled employees who may hurt morale and simply do the minimum required until it is possible to collect previously unvested benefits.”

You already know this person – you teach next to him/her.

Seriously, this may also explain just one reason why the concept of tenure – the right to due process in the dismissal of a public worker – seems so strange for the private world to comprehend.  It appears on the surface a too-good-to-be-true deal.

Keep the talent.
On the other hand, without social security or matching retirement savings plans, educators in Illinois are doubly dependent upon their defined benefit at the end of a career. 

Likewise, Illinois public pension schedules require a considerably longer vesting schedule than normally found for private sector benefits: Illinois pension participants do not qualify for retirement benefits until completing between eight and ten years of service, while those in the private sector are vested usually after seven years. 

Regardless, in both cases, public or private benefits for an employee become fully vested as prescribed by a schedule of accrual, often at a gradual pace over a period of time.  In the public sector (and often in the private), age rules also establish a minimum age at which a participant can begin drawing those retirement benefits. 

Retirement benefits may also be capped at maximum levels or at a percentage allowable as a final retirement benefit.

If you are a current active watching your older colleagues figuring out whether or not to retire, you’ll begin to understand why they all carry calculators.  A considerable number of items go into figuring out the numbers – and pity the poor English teachers, who have acquired an expergefacient  phobia for all things math. 

Complicating all of this was the addition of a Tier 2 in 2010, changing the retirement qualifications for those hired after January of 2011. 


Pension Code Section
Age & Vesting Rules
(Pre-2011 Hires)
Age & Vesting Rules
(Post-2011 Hires)
Teachers’ Retirement
40 ILCS 5/16-133
·      62 with 5 years of service
·      60 with 10 years of service
·      55 with 20 years of service
·      55 with 35 years of service (full annuity)
·      67 with 10 years of service
·      62 with 10 years of service for a reduced benefit

In Illinois, there are more than a fifteen different public sector pensions, each establishing separate and unique requirements for vesting, in establishing age requirements, and providing maximum annuity pay-outs. 

Accrual Rate

In every Illinois public pension plan – teachers’ retirement to judges – the Pension Code provides for a method to determine the benefits of a pension over the course of an individual’s career in public service.

In sum, the benefit accrual rules follow two paths: the percentage of pension benefit an employee accrues per unit (annual employment) of service and the average pay rules – calculating pension benefits based on average of final years of employee service.  This calculation provides the ultimate or highest amount (percentage) of an ending salary/average that can be earned as retirement benefit.

Pension Code Section
Current Accrual Rate
Maximum Percent of Final Salary
Teachers’ Retirement
40 ILCS 5/16-133
40 ILCS 5/18-125
Years 1-10: 3.5%
Years 10+: 5.0%

Pension Codes in Illinois also regulate what contributions are made by various employees, what caps may be in place, what percentage of salary is required for contribution to retirement. 

It’s a mixed bag, and one that is complicated, but it is worth the time for a current teacher to know a little bit about before it closes in – especially for you English teachers.

More to come.

Saturday, December 12, 2015

Pension Pickup Explained

"Pension Pickup" Explained.

The Illinois Policy Institute is angry once again with what their editorialist Diana Sroka Rickert considers another unnecessary handout to Chicago teachers:  the Pension Pickup. 

In her December Tribune editorial last week, Rickert urged Chicago’s besieged Mayor Emanuel and CPS CEO Forrest Claypool to end the current practice of providing pension pickups for the Chicago Teachers Union. 

“While (they) have busied themselves asking state taxpayers to send hundreds of millions of dollars Chicago’s way, they’re unwilling to use the $174 million that’s already available for them to use for teacher’s pensions.”

But they’re not the peculaters.  The real culprit?  Read on, please.

Chicago teachers are supposed to pay 9 percent of their salaries toward their own retirement savings.  But instead, teachers pay just 2 percent; the rest of the “teachers’ contribution” is picked up by taxpayers, thanks to a clause negotiated into their contract6s in the early 1980s.”

As a retired educator from a suburban district I suppose I could feel a little miffed with having paid 9.4% of my salary each paycheck, instead of 9% like those in the CTU.  Adding to that, if CTU paid only 2% of the 9%; well, why didn’t I get such a deal?

And that’s exactly what Rickert and the IPI want all of us to do.  Let’s not think it out or look into it.  Let’s just be blind angry. 

The “deal” that Chicago teachers got in the early 1980s was actually a mandated law by the General Assembly in 1983.  And this statute (40  ILCS 5/17-130.1) provided the opportunity for retirement contributions to be considered part of the negotiating process in salary and benefit settlements during collective bargaining.  In fact, all districts in Illinois got the same deal.

“An Employer or the Board may make these contributions on behalf of its employees by a reduction in the cash salary of the employee or by an offset against a future salary increase or by a combination of a reduction in salary and offset against a future salary increase.” 

Teacher’s Union:  We’d like to ask for a 2% increase in our wage benefits across the board this next contract.

Board of Education:  We’d like to find a way to do that.  How about a ½% increase across the board, and we’ll pick up 1.5% of your contribution costs per person?

If` you’re still not sure how this works, it means that my union never debated with the Board over my 9.4% payment.  But just down the highway at another district near the airport, they did and paid only 4% of their 9.4% requirement. 

What Rickert is not telling us – and I believe on purpose – is that the statute in 1983 was not a prosperous honeyfuzzle by the unions.  The statute was a smartly designed legal mandate for flexibility for negotiators on both sides, one that might have prevented strikes.  Think of it as an offer to use pension contributions as one part of a package of benefits for working in a specific district – and in Chicago.

And if you were lucky enough to get “such a deal,” you were still on the hook for the required taxes and costs so associated.  The amount negotiated could never “exceed the employee contribution required by Section 17-130 for all employees…”  Likewise, such contributions by a Board or Employer were also to be treated “as employer contributions in determining tax treatment under the United States Internal Revenue Code.“

Now that I know a bit more, maybe the grass wasn’t so much greener over by the airport.  Or even for teachers in the city of Chicago. 

And Union leader Karen Lewis?  She knows that regardless of a Supreme Court unanimous decision acknowledging the thievery of the state and the city, they’ll still keep coming.  She knows that Claypool and Emanuel want to take the pickup away, even after it has been an integral part of contract negotiations for over 30 years.

She knows, like Rickert doesn’t want us all to know, that that 7% in contribution pickup has been traded over the three decades for give-ups in salary, benefits, and working conditions. 

And this is why the Chicago Teachers Union is taking a vote this week on whether they will strike. 

They know the Mayor, Claypool, the IPI, and they understand what a pension pickup is.

Now you do too.

Saturday, November 28, 2015

End-Of-The Year Charitable Giving & the Loss of the Local Economy

The Myth of the Local Economy (or “Brother, can you spare a dime?”)

 Been begging lately?  I have.

When I seek donations and contributions for a small, local animal shelter, I don’t call it begging, but that’s what is it. 

Hard work, begging – especially in this cold and especially in this economy.  Some shelters are experiencing up to 400% increases in the amount of dogs and cats left abandoned in foreclosed homes or given up by owners who have lost their jobs. Sometimes their poor pets are just tied to the front door when we get there.  

But what really makes finding money for food and medical treatment for animals such an uphill climb is the changed nature of the economic landscape in which we all now live.

The Middle Class is struggling to survive after the Great Recession. 

And if you are non-white, it’s been even more difficult.  Hispanics have lost nearly 37% of purchasing power as contrasted to whites since 1980. 
And African-American families?  They’ve lost nearly 200% of purchasing power in wages (from the Center for Tax and Budget Accountability). 

There’s not much disposable income around – especially to help the voiceless & homeless. 

The business geography has changed too. 

“Too big to fail” an economic disaster also means many were too small to survive. 

At the shelter, we used to be able to depend on the many local shops and businesses to provide a few dollars or an item suitable for a fund raising auction or raffle. 

Not so anymore.  Not so local anymore. 

What used to be trickle down from our local mom-and-pop shops is no more.  Instead, it has become decidedly trickle up.

“Hi, I’m from Peoples Animal Welfare Society in Tinley Park.  We’re trying to solicit assistance in any way from local businesses like yours to help us pay for the thousands of abandoned animals we vet, feed, care for, and adopt out each year. Would your business, here in our town, be willing to help?”

“Sorry, you’ll have to go through corporate for that.”

Corporate will be in Idaho, Minneapolis, California, or somewhere else usually far away. 

And corporate, even in a closer place like Chicago, usually has a program of giving on a national not local scale.  It’s part of the boardroom budgeting process; FY16 is already in the hopper.  And, honestly, the last target (pun intended) for their obligatory corporate giving would be a small, local shelter. 

You see, giving on a national or international scale provides advertising, which is of value to corporations – it is revenue generating.  Even a thank you from a charity on a corporate level (like United Way) can assure a full page of company icons and solicitous appreciation in a newspaper like our Chicago Tribune.  In addition, in the lower corner it will read “With thanks to our media partner Chicago Tribune.”  See, more feel-good advertising.

Gregory Marcus
Of course you won’t believe who makes this full page spread in the enormous “thank you” and collection of icons in pages of the Tribune.  Here’s a partial list of the 24 corporate Samaritans fro last holiday season, and I’ll just highlight the companies with membership in the Civic Committee of the Commercial Club of ChicagoNorthern Trust, Illinois Tool Works, AT&T, UPS, Deloitte, Exelon, Bank of America, Ernst & Young, Illinois Blue Cross and Blue Shield, KPMG, PWC, William Blair, Wells Fargo, GE, Nicor, Allstate, Kelloggs, Sargent and Lundy, HSBC, Harris Associates, Pepsico, Aon, Walgreens, and US Bank.  They all appreciate the spirit of giving on the mammoth scale to national and international charities because beyond the good citizen-type appearance…well, it pays back.  Helping people is profitable (except when they desire to bargain collectively).  Go to a movie this holiday season, and you'll see CEO Gregory Marcus pushing United Way as well as popcorn.  

Brian Gallagher
And this corporate giving and getting is a two way street, you know.  The CEO of United Way is Brian Gallagher, whose 2010 reported annual salary is $375,000, “plus so many numerous expense benefits it’s hard to keep track as to what it is all worth, including a fully paid lifetime membership to 2 golf courses (1 in Canada and 1 in the USA), 2 luxury vehicles, a yacht club membership, 3 major company gold credit cards for his personal expenses…and so on.  This equates to about $0.51 per dollar of income [going] to charity causes” 

In the case of corporations, the amount of bang for the buck isn’t nearly as important as the public fawning and media attention that comes with it. 

And let’s not forget the connections or the possibility of playing golf this summer, let’s say in Canada? “Hello, Brian, maybe I can fly up on your company plane?”

Abandoned animals?  How about abandoned local communities?   

Hey, have a great holiday season.  Gotta go untie some dogs.