Issue:
Illinois teachers are not, and never have been, participants in Social
Security. And even if TRS members do pay into Social Security and build up
credit in the system through other employment, the resulting Social Security
benefit in retirement is reduced because the member is receiving a TRS pension.
Many people wonder why Illinois
teachers are not in Social Security. There is also a school of thought that
says placing Illinois teachers in Social Security would reduce the state’s
costs and obligations to TRS members.
Discussion:
When Social Security was created in 1935, all state and local government
employees across the country, including public school teachers, were prohibited
from participating in the program because of constitutional concerns about
levying a federal tax on state governments. Because many government employees
around the country did not have stand-alone pension plans like TRS, in 1950
Congress amended the Social Security Act to allow state and local government
employees, including teachers, to voluntarily participate in Social Security –
but only if they were not covered by another stand-alone retirement system like
TRS. Illinois teachers have been TRS members since 1939.
All 50 states signed agreements with
the Social Security Administration to permit these uncovered government
employees to enter the system, but it was left to the state to decide which
government employees would be covered by Social Security. In 1954, the Social
Security Act was amended again to allow state and local government employees,
except police and firefighters, to participate in the system even if there were
covered by a stand-alone retirement plan like TRS.
At that time teachers in Illinois and
14 other states did not push for participation in Social Security for two main
reasons:
- Participation in Social Security would have required teachers and their local school district to pay an additional tax to Social Security; increasing costs to taxpayers.
Currently, teachers
pay 9.4 percent of their salary and school districts pay 0.58 percent of its
teachers’ salaries to TRS. The federal Social Security tax is 12.4 percent,
split evenly between the employee and the employer. For school districts,
placing teachers in Social Security would result in a 968 percent increase in
taxes and contributions devoted to retirement. TRS members would see their
total retirement contribution rise to 15.6 percent of pay, a 66 percent
increase.
- Teachers' Retirement System retirement benefits were significantly better than those offered under Social Security.
That is still the
case. The average TRS benefit in fiscal year 2012 was $48,216. The average
Social Security benefit in 2012 was $14,880.
It would not save taxpayers money to
place Illinois teachers in Social Security and correspondingly reduce TRS
benefits and contributions. Along with the increased cost to local governments
for Social Security, adding teachers to the system would not wipe out the $91.5
billion that TRS currently owes all active and retired TRS members for the next
30 years. These are retirement benefits that already have been earned. Of that
$91.5 billion, $53.5 billion is not covered by existing assets and still must
be funded. The cost to state government of paying down this unfunded liability
is currently about $900 million per year.
Until the mid-1980’s, teachers were
allowed to receive both TRS benefits and full Social Security benefits earned
from other employment. TRS members whose primary employment was as an educator
not covered by Social Security had their Social Security benefits calculated as
if they were long-term, low-wage workers.
To correct this perceived “windfall,”
Congress passed the Windfall Elimination Provision in 1986. The WEP
automatically lowers Social Security benefits for most retired TRS members
unless the member accumulated 30 years of “substantial earnings” in other
employment – essentially holding a second full-time job and teaching.
In addition, Congress passed the
Government Pension Offset to remove a similar perceived advantage from TRS
members collecting Social Security benefits as a “dependent” of their spouse.
The GPO automatically reduces the benefits a TRS member could normally expect
to receive from a spouse’s participation in Social Security. Spousal benefits
were originally designed to protect stay-at-home parents.
WEP: http://www.socialsecurity.gov/pubs/10045.pdf
GPO: http://www.socialsecurity.gov/pubs/10007.pdf
Placing Illinois
Teachers in Social Security
Issue: Requiring newly-hired Illinois teachers to become part of Social Security would help ease the burden on TRS, lower the state’s contribution to public pension systems, help ease the long-term financial problems facing Social Security, and create more income stability for retired teachers.
Discussion: Making newly-hired teachers pay into Social Security and allowing them to be eligible for benefits would affect all current and retired teachers. Illinois teachers have never been part of the Social Security system. Most teachers rely almost solely on a TRS pension during retirement. Active teachers contribute 9.4 percent of their paycheck to help fund TRS and school districts contribute 0.58 percent of every teacher’s salary to the System. Last year, all told, teachers contributed $917 million to TRS and school districts contributed $155 million.
For new teachers to become part of Social Security this scenario would mean a mandatory 12.4 percent payroll deduction split evenly between the member and the employer, which in the case of Illinois teachers is school districts and state government. Teachers would still be required to contribute 9.4 percent of salary to TRS.
For school districts, the cost of teacher pensions would immediately rise by a considerable amount. Instead of contributing 0.58 percent per new teacher, every district would have to contribute 6.2 percent per teacher. It is estimated that this increased cost would equal $41 million for Illinois school districts in the first year and more than $2.4 billion over 10 years. Plus, districts would still have to contribute 0.58 percent for each participant in the current system.
Finally, a 1999 study by the General Accounting Office found that adding teachers and other public employers from around the country who are not currently in Social Security would create, at best, a temporary surge in revenue for Social Security. Over the long term, adding teachers to Social Security would only increase the System’s total obligations and deepen the long-term funding problem.
Issue: Requiring newly-hired Illinois teachers to become part of Social Security would help ease the burden on TRS, lower the state’s contribution to public pension systems, help ease the long-term financial problems facing Social Security, and create more income stability for retired teachers.
Discussion: Making newly-hired teachers pay into Social Security and allowing them to be eligible for benefits would affect all current and retired teachers. Illinois teachers have never been part of the Social Security system. Most teachers rely almost solely on a TRS pension during retirement. Active teachers contribute 9.4 percent of their paycheck to help fund TRS and school districts contribute 0.58 percent of every teacher’s salary to the System. Last year, all told, teachers contributed $917 million to TRS and school districts contributed $155 million.
For new teachers to become part of Social Security this scenario would mean a mandatory 12.4 percent payroll deduction split evenly between the member and the employer, which in the case of Illinois teachers is school districts and state government. Teachers would still be required to contribute 9.4 percent of salary to TRS.
For school districts, the cost of teacher pensions would immediately rise by a considerable amount. Instead of contributing 0.58 percent per new teacher, every district would have to contribute 6.2 percent per teacher. It is estimated that this increased cost would equal $41 million for Illinois school districts in the first year and more than $2.4 billion over 10 years. Plus, districts would still have to contribute 0.58 percent for each participant in the current system.
Finally, a 1999 study by the General Accounting Office found that adding teachers and other public employers from around the country who are not currently in Social Security would create, at best, a temporary surge in revenue for Social Security. Over the long term, adding teachers to Social Security would only increase the System’s total obligations and deepen the long-term funding problem.
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