Public worker compensation is a major factor in the debate over pension reform.
Teacher’s salaries are particularly important because the Teachers’ Retirement System, or TRS, is a major driver of the pension crisis. The total unfunded liability for TRS is $53.5 billion, more than half of the state’s total shortfall.
TRS maintains more than 130,000 active members in downstate and suburban schools, most of whom are teachers. Chicago Public Schools has its own separate pension fund.
So exactly how much do downstate and suburban teachers make?
TRS’s 2012 actuarial report shows that the average salary for teachers is nearly $70,000.
Ultimately, these salaries drive the state’s total pension costs.
Teacher pensions are based on a retirement formula that consists of several factors, including the following:
- 2.2 percent of final average salary for each year of service credit earned.
- Maximum pension: 75 percent of final average salary.
- Final average salary: average of the four highest consecutive annual salaries a teacher earned over the past 10 years of service.
- Cost-of-living adjustment, or COLA: 3 percent compounded annually.
- Retirement age:
- Age 62 with five years of service credit.
- Age 60 with 10 years of service credit.
- Age 55 with 35 years of service credit.
Teachers with 30 or more years of service eligible for retirement today will receive, on average, a $75,000 starting pension. And with the benefit of a 3 percent compounded COLAs, in just 10 years those retirees’ pensions will exceed $100,000.
That means that these retirees will receive more than $2.4 million in pension payouts, assuming they reach the average life expectancy of 81. If they live longer, they will continue to collect their pension and the 3 percent COLA.
For a private worker to purchase an annuity that provides the same retirement benefits, she would need to have more than $1.7 million at the time she retires.