Updated: November 1, 2015
Issue: During the summer of 2015, many news organizations reported that school districts were paying “excess salary payments” to TRS after granting annual raises in excess of 6 percent a year to teachers and administrators close to retirement.
On July 22, 2015, the Chicago Tribune reported that between 2005 and 2015 school districts paid only $39 million of $149.5 million that was due because of raises that exceeded 6 percent. The remaining $110.5 million was waived because of the exemptions in the law.
Discussion: If a school district grants an educator a raise in excess of 6 percent in any given year and that raise factors into the educator’s initial pension calculation, then Illinois law requires the school district to pay for the long–term cost of the portion of an educator’s pension created by the portion of the raise that exceeds 6 percent.
These costs are called “excess salary payments.” In fiscal year 2014, 400 school districts out of 1,013 made excess salary payments, which totaled $5.28 million. The average excess salary payment in 2014 was $12,685.
This law was enacted in 2005 in order to prevent school districts from granting double–digit raises to educators approaching retirement in order to boost their pensions. Without this law in place, TRS and state government would be responsible for the long–term costs of pensions created by large salary increases.
Between 2005 and 2011, the law contained seven exemptions that allowed school districts to avoid the payments. Five of the exemptions were repealed in 2011 and covered raises larger than 6 percent for:
- Educators whose salaries were contractually guaranteed by union contracts signed before 2005.
- Teachers who engaged in additional classroom instruction beyond teaching the standard number of class periods that define “full–time.”
- Full–time teachers that taught summer school.
- Educators that received a promotion that required them to obtain a different teaching license from the state, such as a classroom teacher promoted to school principal.
- Educators whose salaries were funded by state or federal government grants — salaries that were not under the control of the local school board.
Two permanent exemptions in the law cover raises larger than 6 percent for:
- An educator that leaves one district and receives a raise when they start to teach in another school district.
- Educators whose jobs are affected by school district consolidations or annexations.
The Tribune story and other media reports about these payments and the exemptions contain a number of inaccuracies:
- The excess salary payments are referred to as “penalties” and “fines.” This is incorrect because the words “penalty” and “fine” are not used in the law. School districts are not breaking the law when granting raises in excess of 6 percent so they cannot be assessed a penalty.
- The law does not outlaw raises by school districts that exceed 6 percent. The law only transfers the responsibility of paying for the pension created by a raise in excess of 6 percent.
- TRS does not grant the exemptions. School districts are entitled under the law to the exemptions just like property owners are entitled by law to deduct the property taxes they pay on their federal income taxes. The Internal Revenue Service does not “grant” that deduction.
- TRS does not determine that raises in excess of 6 percent are out of compliance. The law does not give TRS the power to characterize any salary increase as non–compliant because the law does not place any limits on raises granted by school districts.