Updated: Oct. 1, 2017
Issue: The Illinois Policy Institute (IPI) in 2011 released a study of the school districts in Illinois that “pick up” or pay member contribution for their TRS-covered employees, which currently stands at 9 percent of salary. IPI research indicated that about half of the 867 school districts in Illinois “pick up” all or part of the teacher contribution. The IPI concluded incorrectly that when districts pick up all or part of the teacher contributions, that means teachers are not paying the contribution. The IPI says this amounts to $400 million “extra” that taxpayers must pay every year to TRS that teachers should be paying.
Discussion: Illinois taxpayers are not paying an “extra” $400 million for teacher pensions and teachers are not being spared the responsibility of paying $400 million in contributions. The IPI incorrectly described the way TRS member contributions are remitted to the System.
Teacher contributions to TRS are deferred income. The TRS contributions are part of a teacher’s overall compensation package along with their take–home pay and other benefits. The TRS contribution is designed to come back to the teacher later in life as a retirement benefit.
When a school district “picks up” the contribution, the money still comes from the teacher’s total compensation package. The “pick up” is in reality only a difference of when the district deducts the contribution from the teacher’s salary – either before taxes are deducted or after taxes are deducted. Teacher unions for years have negotiated this point with school boards as part of overall salary and benefit packages for teachers. There is an income tax savings for teachers if the contribution is deducted pretax.
In practical terms, no teacher writes TRS a check every month and mails it, so no teacher in Illinois directly “pays” TRS. All TRS contributions from every teacher in every school district are deducted from paychecks by the school districts and remitted to TRS in one lump sum. Member contributions to TRS in fiscal year 2012 totaled $917.6 million.
The IPI conclusion that taxpayers are paying “extra” for the pick–up rings false because, in the end, taxpayers pay for everything in a school district, including all teacher salaries. There is no “extra” $400 million.
If you carry the IPI’s conclusion about TRS contributions to other examples you’ll realize that everyone who is not self-employed and participates in Social Security hasn’t paid their share of federal Social Security taxes because their employer is paying the tax for them. No one writes a check to Social Security when they get paid unless they are self-employed. The FICA tax is deducted from the paycheck by the employer. It’s the same thing for TRS contributions. One of the reasons Illinois teachers don’t contribute to Social Security or get a Social Security benefit is because they make the same type of paycheck contribution to TRS.