Who Pays What? Digging into the Employer Contributions for Chicago Public Schools Employees

As the state legislature debates creating an elected school board for Chicago Public Schools the Chicago Sun-Times editorial board weighed in, arguing against the proposal because it would compromise the hundreds of millions the City of Chicago is currently kicking into CPS’ budget. One such item is the millions the City pays for “pension contributions for CPS employees in the Chicago Municipal Retirement Fund.” 

So what’s going on here? Why is the City paying for some CPS employees’ pensions? The tl:dr reason is that of CPS’ nearly 40,000 employees about 44% are in non-teaching positions and part of the municipal employees’ pension system, and under state statute, it is the City of Chicago (not CPS) that’s responsible for their pension benefits.

Quick CTPF + MEABF Stats:

All CPS staff get a public pension, but teachers are in the Chicago Teachers’ Pension Fund (created in 1895) while non-teaching staff are in the Municipal Employees’ Annuity and Benefit Fund of Chicago (created in 1921). MEABF is Article 8 of the Illinois Pension code, and CTPF is Article 17.

MEABF ’s total membership as of 2019 is 76,440, with current employees accounting for 42% of that total membership. The number of current CPS employees in MEABF is 17,857 (this represents 56% of MEABF members that are current employees). Total membership for CTPF, as of 2020, was 89,390.

Pension benefits are funded by a combination of employee contributions (a fixed rate of pay), investment returns, and employer contributions (a function of the cost of benefits earned–less employee contributions–and any amount necessary to pay down unfunded pension liabilities).

As of 2020, the MEABF is less than 25% funded (this is the ratio of assets to pension benefit liabilities) while the CTPF is 45.4% funded.

Pension Payments for CPS-MEABF Members:

From reading the pension code and CPS financial reports, my understanding is that the City of Chicago is responsible for the cost of pension benefits for all members of the MEABF, which would include the non-teaching CPS staff. In other words, even though CPS is the employer for all CPS staff, the City of Chicago is legally responsible for the employer contribution for CPS staff that are part of the MEABF.

Both CPS and the CTU have said the pension cost of CPS staff in the MEABF is the City’s responsibility. CPS has explicitly stated this in past financial reports: 

So if the City’s on the hook, why is CPS paying anything? Well this ties to fairly recent changes to the funding laws that dictate the amount of money the City has to pay to the pension funds each year. 

Quick re-cap of pension funding laws: for years the City was underfunding the pensions because its annual pension contributions weren’t tied to the actual cost of benefits. Absent a change to the funding law the pension systems were going to run out of money. Properly funding the pensions would mean the City’s payments would balloon overnight. So, during his tenure, Mayor Emanuel pushed for legislation that would cut benefits while also changing the funding law. Because the pension systems are governed by state statute this required action by the General Assembly. Emanuel’s plan became SB 1922, passed in 2014, and subsequently struck down by the Illinois Supreme Court in 2016 because the Illinois Constitution protects benefits. 

The funding law for MEABF was subsequently changed as part of the budget implementation act (or “BIMP”) for fiscal year 2018 (SB 42, PA 100-23). The City’s required payments are fixed dollar amounts for budget years 2017-2021, and starting with budget year 2022, the annual payment has to be sufficient so the pension system is 90% funded by the end of 2058. 

The chart below shows the City’s payments to the MEABF under the old law (in blue), the ramp year payments (in red), and estimated future payments to meet the 90% target (in yellow). 

(small aside, there’s a year lag between when the City collects revenue and when it makes the actual payment to the pension fund. In this post I’ve matched up the data to the City’s budget year, which is a year behind the payment year. AKA budget year 2017 = payment year 2018…unnecessarily confusing, I know).      

Shifting Costs to CPS

The City’s estimated 2022 payment to MEABF is nearly five times greater than the City’s actual 2016 payment. The MEABF is just one of the four pension systems the City is responsible for, so the full increase in the City’s pension payments is even greater than that. This is a serious fiscal challenge for the City.

As a means of relieving some of that fiscal pressure the City, under Mayor Lightfoot’s leadership, is looking to have CPS pay the pension cost for the CPS employees that are in MEABF. The way this has been structured is that the City pays the money to MEABF, and CPS makes a payment to the City (rather than CPS just paying into MEABF). This began with the City’s 2020 budget and is outlined in this intergovernmental agreement between the City and CPS.  City leadership is referring to this as a “pension reimbursement”, but I think of it more as a cost shift since the City has historically paid for the CPS-MEABF member pensions.

In 2020, CPS paid $60 million, and from the IGA it looks like CPS will pay $100 million in 2021. To sum, the context for why this is happening now is that the City is looking to have CPS pay for CPS staffs’ pensions that the City has historically paid for as the City’s required contributions increase over time. 

Ok, So What Would An Elected School Board Mean?

Bringing it back to the topic of the Sun-Times editorial, their argument (and the Civic Federation who they link to) seems to be that without Mayoral control, the City can’t (or won’t) make the pension payments for the CPS-MEABF members. But, again, CPS’ legal interpretation is that the payments are the City’s, not CPS’, obligation. In other words, this isn’t something the Mayor has discretion and is choosing to do. As such, the implications of an elected school board may be the reverse: that without Mayoral control, the City can’t get CPS to pay for the CPS-MEABF pensions.

….and Some Final Notes/Questions

The IGA I saw just references payments for a few years, so I’m unsure if there’s a different agreement between CPS and the City regarding future payments. In other words, has CPS agreed to reimburse the City for MEABF pension payments on an ongoing basis? And if so, will it be a fixed $100 million, or is the amount going to increase over time?

The City’s total payment to MEABF is $576 million in budget year 2021, so $100 million is about 17% of the total payment. As I wrote above, CPS employees comprise more than 50% of the active members in MEABF….I’m still not totally sure who came up with how much CPS should pay the City or what it’s based on, or if CPS has ever paid the pension cost for non-teachers historically (the CPS employees in MEABF). If you have more details, please reach out!