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.