CPS Pension Pick-Up – Was this trip really necessary?


Ms. Lewis, your chariot awaits…

Many important things were happening in 1981. Rick Springfield was beginning his unmitigated ascension on the pop charts that would transcend both space and time…for 3 years. The White Sox were on the verge of trading in one pair of pajamas for another. And in a smokey, dimly lit office in Chicago Public Schools headquarters, some city employee thought the pension pick-up was a good idea.

In 1981, CPS was broke and embroiled in yet another contentious contract negotiation with the Chicago Teachers Union.  Same as it ever was. It was then when someone in CPS HQ offered, “Instead of giving the teachers a raise we surely cannot afford, how about we pay 7% of their retirement for them…an amount we surely cannot afford.” And thus began the infamous “7% pension pick-up” benefit that stands to this day.

What did CPS accomplish with the pension pick-up?  Did they actually save money? Was this used as consideration in future contracts? Or did it devolve into something else? Let’s take a deeper dive and find out.


CPS teachers are required to pay 9% of their gross salary towards pensions. CPS pays 7% of that 9% on behalf of the teachers – henceforth known as the “pick-up” – thereby requiring teachers only pay 2% of their gross wages towards their own retirement. CPS teachers, like all other teachers in the state, are not eligible for Social Security benefits – as they are wont to remind you, to which I calmly retort – because they do not pay into Social Security. So the pension is their retirement nest egg.

The terms of the pension pick-up are outlined in each contract under Salaries.  While the wording has changed over the years, the main takeaways are as follows:

The BOARD shall pick up for each teacher and other bargaining unit employee a sum equal to seven percent of the amount due each such employee…

This pension pick-up will not constitute a continuing element of compensation or benefit beyond fiscal year <end date of current contract>.

All terms and conditions of employment for future years, including without limitation, salaries, benefits, pension pick-up and staffing formulas, are the subject of negotiations for those years.

The pension pick-up is not a benefit in perpetuity. It is subject to negotiation each and every contract, a fact oddly absent in CTU diatribes, considering how keen they are in observing contract terms <cough, day of action, cough>. That’s important to note as CPS attempts to discontinue the benefit altogether as they are not legally bound to offer it once a contract expires. But rolling it back is not that simple, both psychologically and mathematically, as we shall see.

The Math

To understand how much the pick-up is worth, let’s go back to 1981’s 1-year contract and view the benefit as it was first offered and conceived: in lieu (instead) of a raise:


The ‘Employer Cash Outlay’ is the out-of-pocket cost to CPS. As you can see, the cost of CPS picking up 7% of the employee (EE) pension contribution is equal to giving a 7% raise on base salary.  This is true for 1-year contracts, which were quite common back in the day: 1982, 1983, 1984, and 1989 were all 1-year contracts. This is where CTU derives their “7% pay cut” argument as CPS has threatened to end this practice in current contract negotiations.

The big takeaway from 1981 is the following concept: wage suppression. Since teachers did not receive a raise that year, their gross wages were essentially frozen for one year and, therefore, so was the salary schedule (also known as “Steps and Lanes”) that determined their wages that year and going forward. While teachers would proceed to the next “step” in that schedule, that next step’s wages remained the same as it was in 1980.

As I stated previously, the value of the pension pick-up can change based on the length of the contract. For example, here’s how the pension pick-up stacks up for a 2-year contract, which happened in 1985, 1987, and 1993:


So if CPS froze salaries over 2 years and paid 7% of the employee pension, the cost to CPS would equate to a 4.5% yearly raise for the employee had they continued to pay their full pension contribution. Once again, in theory, wages would be suppressed over those 2 years and that the following contract’s steps would start at a lower salary. In theory…

Same rules for 3-year contracts, such as 1990 (the first 3-year contract ever for CPS…even the CTU bragged about it) and 2012:


So as the length of the contract increases, the value of the pick-up decreases, as does the yearly raise required to cover the difference. Think of the yearly raise as a “premium”, as in the example above, if teachers instead received a 4% COLA raise every year and the pension pick-up, it would equate to a 7.3% yearly raise (4% + 3.3%). Clear as mud?

Enough theory. Let’s see how the pension pick-up played out in the field…

Remember that one time…

The only year in which CPS teachers received the pension pick-up in exchange for a raise was in 1981, the first year it was offered. Each contract after that included the pension pick-up on top of a raise (more on that later). But if wages were suppressed for only one year, could CPS still have saved money? Let’s see:

PPU 1 year over career v2

The following example is a 34 year CPS career in which wages were frozen for one year (Year 10), upon which the pension pick-up began and continued through retirement. For simplicity sake, let’s assume the same 3% raise every year and that no consideration was given to the pick-up in compensation (more on that later). In other words, the teacher received the same raise he would have received anyway, pick-up or no pick-up. As you can see, while the one-time wage freeze does indeed suppress total wages over a career, it is more than outweighed by the pension pick-up. Over the final 25 years of this career, the CPS teacher in this particular example came out $55,423 ahead than if he had paid his entire pension contribution his entire career and never received the pension pick-up.

Now, CPS might benefit since the pensionable salary at the end of a career is lower. But that pension savings is a tiny faction compared to the actual cost over a career. And this assumes wages were suppressed all along. So even in a perfect, theoretical world, CPS comes out behind in the pick-up. <I thought you said we were done with theory?>

Back to the real world…

Let’s run through an actual real-world example of a teacher – let’s call her Jenny – that begins her career in CPS in 1982. Jenny knows no world other than one in which CPS picks-up 7% of her employee pension contribution. By referencing salary schedules from each CPS contract from 1982-93, let’s track Jenny’s salary as she progresses through each salary step for the first 11 years of her career in CPS (Level 1 – BA degree):

PPU Jenny example

Some notables:

So even without including the pension pick-up, Jenny received average yearly raises of a more-than-generous 10% over the course of a decade while inflation averaged 4% annually. Perhaps double-digit raises were common across school districts in the 1980’s or among the working class in general (my bag boy wages certainly did not reflect that). But if such large raises were common practice, I doubt they included a pension pick-up as well. And if they weren’t, how were CPS teachers getting by before the pick-up?

All things considered…

With such significant raises, it makes you wonder if the pension pick-up was even considered in contract negotiations. “Consideration” is an argument often brought up by the CTU and other pick-up defenders who claim that the pick-up was earned in lieu of other intangibles such as classroom size or housekeepers for each of Karen Lewis’ three homes. But there is no way to prove that. To the contrary, I find evidence of other so-called considerations given, but by CPS, such as:

  • 1983:  CPS offered a 2.5% bonus on top of a COLA increase that was on top of a step increase. What was the point of that bonus if they were already offering a 7% bonus in the pick-up?
  • 1984: CPS wanted teachers to pay part of the premium for health benefits. CPS dropped the premium demand.
  • 1987: The year of the infamous 19 day school strike. In the end, on top of 4% yearly COLAs, CPS granted teachers more sick days and improved health coverage. In return, CPS laid off 1,700 teachers and other staffers to help pay for it all. Does that count as “consideration”?
  • 1990: One of CPS’s biggest blunders: diverting pension money towards salaries and raises. The $66M diverted from the pensions would be worth about $400M today. To add insult on injury, those raises inflated salary schedules from that point forward, thereby inflating pensions (and negating any such pick-up savings, if there were savings to begin with…and there weren’t). You could argue that CPS is still paying for that decision and that salaries have been artificially inflated since then.

The Chicago Tribune’s 1988 article Teachers Union Has Power To Run System does a pretty good job explaining a whole host of considerations, the most egregious being:

Teachers also can save up to 244 sick days, take a sick leave just before retirement and get paid the entire amount.

More than 200 teachers have retired straight out of sick leaves in the past five years. In response to complaints by board member Winnie Slusser, school officials are trying to determine the cost of this practice.

“When people retire or resign out of a sick leave, their class is covered by a sub, even if they have no intention of coming back,“ Slusser said.

The list goes on and on, but you get the point. The argument that CTU gave up something – anything – in exchange for the pension pick-up is dubious at best. Quite frankly, any outfit that would pilfer from their own retirement fund for raises today doesn’t seem to put much consideration in anything.


Over time, the pension pick-up devolved into an unappreciated and assumed, yet expensive, benefit. Unappreciated, that is, until it was about to be taken away.  CTU has no doubt taken it for granted over the years. Even the media hardly reported it. Take this recap in the Sun-Times of the 1993 CPS contract: “For the first time teachers began paying part of their insurance premiums…their pay was frozen for two years.” No mention that teachers still received the pension pick-up. No mention that teachers still received their automatic step increase. You would think CTU was teaching for free. You could argue the biggest faults in the pick-up are the utter lack of transparency and the illusion that salaries are held in check by a valiant school board when in actuality they are not.

But there are a few ways CPS could have made the pick-up work. A smart plan would have entailed a choice between a pension pick-up that was worth more today than the COLA raise. For example, the offer could look like this on a $50,000 base salary:

PPU bargaining

Does the teacher chose the pick-up and take an additional $2,135 in his take home pay this year or pay his full pension contribution and take the $1,500 increase is his gross salary that will factor into higher future earnings and a larger pension? Either CPS pays more today but cuts down pensionable salaries later or pays less today but keeps salary increases reasonable. This is how it should have been all along!

Or CPS could offer the pick-up as a longevity bonus. How about the 7% pick-up is activated only for 20/25/30 year anniversaries as a sort of bonus to long-term employees? I’m all for creative compensation and incentive plans. But this only works if something has perceived value. Past contracts prove otherwise.

Perhaps another lesson is when you freeze salaries that you actually freeze salaries! Because it seems that every pay freeze has been met with some sort of clawback that negates the freeze altogether. It’s only human nature to take back what you think you lost. Do you think employees cared that their employer gave them something else in exchange for a raise years ago? They only care that they didn’t get a raise and that this year’s raise has to make up for it. In the end, it’s always about the gross wages.

Lack of transparency, little or no consideration, presupposed…all prevalent characteristics of the pension pick-up. Just another bad idea from CPS in a long line of bad ideas.

But there are other members in the bad ideation syndicate. Many other school districts across the state pick up some portion of the employee pension contribution as well (Not just teachers, mind you. There are district superintendents earning $200,000 that pay nothing towards their pensions!). But the only way to truly know if salaries are kept in-check is to compare similar districts with no pick-up. Perhaps that is a case study for another time…

Until then, everyone hop on the pension pick-up. Space is limited. And it may not be around much longer…hopefully…


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