As Chicago Public Schools (CPS) continues to experience cash outflow, tradeoffs between student needs and pension costs are becoming more apparent. CPS faces declining enrollment numbers, rigid labor costs and growing legacy retirement costs that threaten its viability.
CPS’ actuarially required pension contribution has reached approximately 40% of operating revenue and continues to rise, due to years of pension holidays, underfunding requirements, benefit enhancements, and optimistic investment-return assumptions that have left its Chicago Teachers’ Pension Fund (CTPF) unsustainable.
CTPF’s near insolvency is due to politicians treating pensions like an extra slush fund rather than as retirement guarantees for teachers. CPS has diverted billions in taxpayer contributions away from classroom instruction and into payroll instead, leading to financial crises within the district and shifting costs onto students, parents and taxpayers alike.
Subreporting in the Census Bureau’s Survey of Income and Program Participation (SIPP) is well-documented; nonetheless, many consider it one of the best sources for comparing individual-level incomes with administrative records. Economists Adam Bee and Joshua Mitchell recently used SIPP’s improved linkage with administrative data to estimate how much misreporting actually occurs.
Researchers found that SIPP underreports retirement account withdrawals by more than double, and this discrepancy is particularly noticeable among low-income workers. Furthermore, when comparing new questions in 2015 CPS with administrative data they discovered that while these changes appear to reduce relying on Social Security benefits among older Americans they did not substantially diminish reliance on retirement income from retirement accounts.
These findings indicate that estimates of individual-level retirement account withdrawals could be inaccurate without more precise methods for measuring them. As a response, the Census Bureau revised income questions in the 2015 CPS to better measure withdrawals, linking to administrative records to increase accuracy of future estimates and identify any underreporting impacts and facilitate precise comparisons between survey and administrative income estimates.
CPS’ financial situation is not unique; teacher pension plans throughout the nation are struggling to meet actuarially required contributions. One solution would be creating budget stability within districts while providing teachers with funding guarantees in the form of self-managed pension plans (SMPs). CPS should take steps to address this by not diverting pension contributions towards payroll costs; rather, these funds could be utilized to increase teachers’ own contributions through SMPs. That will put money back where it belongs: teacher salaries and savings accounts – while also discouraging politicians from using CPS as a political slush fund. For CPS to regain its financial health, politicians need to end pension pick-ups and implement SMPs with true funding guarantees – this way teachers will receive retirement security they are due.