In an attempt to close state budget gaps by shifting some of the responsibility for educator pensions from state coffers to local school districts, both Illinois Governor Rod Blagojevich and California Governor Arnold Schwarzenegger are separately proposing reforms to these systems. Their goal is to force school districts to take on a financial stake in the retirement process for determining how much money educators will receive after they retire, and hopefully putting the brakes on some overly generous payouts.

Currently, both states (and indeed most states) base an individual's annual retirement payment on how much he or she was earning in the final few years of service. For employees (like a district superintendent) who get a significant pay boost towards the end of their career, they can and often do retire with inordinately healthy pension payments, far more generous than what is typically available in private industry. What got Blagojevich steamed was the revelation that one Illinois superintendent, John G. Conyers, is now getting a $186,000/year retirement check. The governor complained, "taxpayers across Illinois shouldn't have to pay billions of dollars more in increased pension costs just to cover those end-of-career raises."

More often, payouts mushroom because employees (not just high-paid superintendents, but all educators) are allowed to cash in their unused sick and vacation days accumulated from decades of service. Employees are permitted to count that lump-sum payment as salary earned in their final year. For example, a teacher who was earning a salary of $70,000 could cash in $30,000 of unused leave, leading to a retirement calculation based on a misleading salary of $100,000 for the final year of service. As these systems are now structured, districts are often happy to help employees achieve these high payments since the money comes from state, not district, coffers.

But since rolling out this plan to save nearly $800 million Blagojevich has run into a bit of resistance from the teachers unions, some of the most powerful unions in the state, who tend to make some pretty hefty campaign contributions.

And as it turns out, non-partisan legislative analyst Elizabeth G. Hill told Schwarzenegger that his "plan to change teacher pensions was probably illegal," and it was unlikely California would save any money with his proposal. While Schwarzenegger still insists that Hill's analysis is wrong, his plan has lost enough support that he has softened his stance on the issue.