Pension Buster’s Playbook: Union Executive Bootleg


Breaking down one of the ways you can take Illinois’ mere 3 Mile Island of pension plans and turn it into a Chernobyl…

Play #1: Union Executive Bootleg

Prior to the November election, my local paper ran an opinion piece written by a local retired teacher – let’s call him Ralph – who had taught for over 30 years. To summarize, Ralph was pro-Quinn and believed in making the temporary state income tax hike to 5% permanent. And I thought, “Wonderful, another state retiree clamoring for a higher income tax when his own retirement income isn’t taxed by the state at all.”  Curiously, I went on the BGA website to check out Ralph’s pension. It was well above $100,000, even though he had retired a number of years ago. I thought that didn’t seem to jive with the story of 30 plus years of teaching. So I dug a little deeper and discovered that, included in those 30 plus years of teaching, he was an executive for 6 years in one of the state teacher unions (side note…I’m not sure who or what he was teaching as an union executive, unless it was “Intro to Politician Palm Greasing”). Wondering if that tenure as a teachers union executive had anything to do with his pension, I set out to reconcile his retirement.

By taking his current pension from BGA and subtracting 3% compounded COLA for every year of retirement, then applying TRS rules for calculating pensions, I was able to estimate what Ralph’s final salary would have been at the time of retirement. Then, through some FOIA requests and LM-2 Reports provided by U.S. Department of Labor, I had Ralph’s final salaries as both a teacher and union executive. From that data, I determined that Ralph’s pension was indeed calculated not on his teacher’s salary, but on his salary as a union head.

At this point, you’re probably wondering how a union executive – whose salary is 100% determined by the union, 100% paid by union dues, with zero taxpayer input, and whose responsibilities are more closely aligned with collecting club dues and purchasing large inflatable rats in bulk than educating children – can collect a pension in the Teachers Retirement System and have both his salary AND tenure as an employee of the union count towards a taxpayer funded retirement? Simple…

The Illinois Constitution!

That’s right, from the document that brought you such classics as “Pensions Cannot Be Diminished or Impaired but Forever Increased” and “Mo’ Mo’ Mo’ COLA” brings the taxpayer this wonderful nugget under 40 ILCS 5/16-106 as one of the myriad ways our state defines a teacher:

Any officer or employee of a statewide teacher organization or officer of a national teacher organization who is certified under the law governing certification of teachers…

I can only imagine how many IEA/NEA/IFT/AFT/WTH (ok, I made that last one up) lobbyists it took to get this added to such a sacred document, but it’s there. So while these union executives contribute into the state pension program during the time they work for the unions, they also leverage their larger salaries AND time spent as employees of the union to calculate their final retirement eligibility. It’s the unions’ gift that keeps on giving, much like a Chia Pet or STD.

How much does this cost? Well, that depends on tenure and salary. In Ralph’s case, his first yearly pension was nearly $25,000 more than if he would have received had he remained a teacher. Due to COLA, that number escalates quickly. By the time he reaches 80, that amount will be nearly $50,000 more. By 90? Over $60,000 more per year. By my estimates, Ralph has already withdrawn nearly $400,000 more than his “fair share” in retirement due to this provision. And remember, that’s a conservative estimate because we’re still including Ralph’s time employed by the union in his overall tenure calculation. If you remove that, you can increase all those numbers by 50%. Just another way for the union to insert the blade AND twist it while embedded in your abdomen.

This is no secret to the unions or TRS either. When confronted about this, the boilerplate response is that it only affects a small number of retirees and is a tiny fraction of the overall pension balance. Funny how that always seems to be the unions’ opinion with anything regarding OPM (other people’s money). A few million here, 20 million there…who’s really hurt? But there’s a bigger mystery lurking below…something even far more interesting than these inflated pensions or union ambivalence in this matter…

Who’s paying the employer portion?

You know, the “state portion” that is under so much scrutiny? Because these union execs are not state employees. They are union employees. So if the unions are outsourcing their own employees’ retirement to the taxpayers, how much are they reimbursing the state pension system for the employer portion while these execs are employed by the union? I set to find this out as well…

I filed a FOIA request with TRS, asking for the breakdown of pension contributions received from the Illinois Education Association (IEA) since 2000 on behalf of their employees. Here’s a sample from 2013:

IEA Pension Contribution Breakdown 2013

Pension ProjectionAs you can see, the union is indeed picking up the Employer Retirement (school district portion) and Normal Cost (taxpayer/state portion), but only a very small portion of the true liability. As I stated above, the union would have to contribute substantially more to compensate for the end-of-career salary bump and tenure. For Ralph’s 6 year tenure with the union, in order to fund his retirement to the age of 90, I estimated the union would have had to provide a 65% employer contribution each of those six years to properly compensate the taxpayers for Ralph’s salary and tenure while employed by the union (see insert right). That’s right, SIXTY-FIVE PERCENT of Ralph’s salary! And I’m being generous here because I’m projecting Ralph’s salary had he stayed a teacher and not his actual final salary before he went to work for the union (those numbers project to a 100% match!). This is what happens when you double someone’s salary near the end of their career, base their retirement calculation solely on those end-of-career earnings, and don’t allow enough time for interest to compound. The union’s 9.09% contribution more closely resembles a bad tip than a proper match.

So the union’s employer contribution is a mere pittance of the true cost of the benefit offered, the equivalent of throwing a few crumbs to a starving hyena. In essence, the unions are treating their executives like they’ve been executives, compensated like executives, and under union employment their entire careers. And on and on this goes as the unions cycle through their presidents, VP’s, and treasurers. A continuous cycle of taxpayer supplemented corporate-type welfare at the union level. No matter how many times they lather, rinse, and repeat, this still stinks.

But wait, there’s more! These unions have their own separate retirement plans for their own employees (see excerpt from IEA’s Labor Organization Annual Report below).

LM2 snapshot

Yes, you saw that correctly…they even offer their employees 401(k) plans! (Now is the time for the reader to soak up that sweet, sweet irony. The irony of a union arguing against the inherent evil of 401(k) plans for their members yet offering those same plans to their employees is not lost on me, nor should it be lost on you either).

But if they already provide a pension plan for their own employees, why not include their union executives? Could it be that the unions themselves offer inferior retirement plans for their own employees that are dwarfed by the taxpayer provided pension? Or how about letting the state sell back the union executive’s pension accrued as a teacher and let the union worry about their retirement through infinity and beyond? We all know the real answer…the unions want to pawn off the true cost of their fat cat retirements onto the unsuspecting public because, well, they know the true cost. OPM, remember?

So what do the retired teachers think of all of this? This blatant money grab by wealthy, politically-connected union retirees that makes their precariously funded retirements even more precariously funded? What do they think of Ralph, my muse for this story?

They elected Ralph as their Retired Delegate to represent them in their union. <insert long, awkward pause here>  Yes, that same wealthy retiree gorging on their own underfunded pensions is their chosen representative to defend those same underfunded pensions. Truth is, indeed, stranger than fiction.

Union President…it’s a good gig if you can get it. And our Constitution makes it even more lucrative. By far, becoming a union executive is the best way to game an already gamey pension system. But there are others…

Next installment: The Pension Spike


One thought on “Pension Buster’s Playbook: Union Executive Bootleg

  1. Pingback: The Not-So Center for Tax and Budget Accountability | Citizen vs Machine

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