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Teacher pension 'tsunami' expected across Pennsylvania
By Rick Wills
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TRIBUNE-REVIEW
Sunday, May 3, 2009
This year, the Pine-Richland School district is contributing $900,000 to state's teacher pension fund.
Three years from now -- and for many years thereafter -- the district expects to pay roughly $7 million annually into the Pennsylvania Public School Employees' Retirement System, known as PSERS.
The dilemma facing Pine-Richland faces each of the state's 501 school districts. A bubble in the number of teachers expected to retire in the next decade and a 30 percent drop in the total value of the fund's assets last year in the souring economy means districts contribute more to the teachers' retirement fund.
School officials in turn are predicting almost certain property tax hikes at a time when many Pennsylvanians have watched the recession slash their 401(k) accounts in half or force their companies to end pension plans entirely.
"This is a financial tsunami, and doing something now does not mean significant relief for years or decades. It's one ugly scenario," said Jay Himes, executive director of the Pennsylvania Association of School Business Officials.
Teacher retirement benefits are mandated by law. Courts have ruled they cannot be reduced for current teachers or state employees covered under similar retirement plans.
"I'm worried about this, even now," said Stephen Hawbaker, president of the Pine-Richland school board.
Starting in the 2012-13 school year, when retirements are expected to accelerate, school districts and the state will have to pay an additional $2.5 billion annually into the fund, according to the Association of School Business Officials.
The fund collects from 273,000 active members and pays pensions to 174,000 retirees. It was valued at $67.2 billion in 2007. That dropped to $45.4 billion at the end of December.
Jude Abraham, business manager at the Hempfield Area School District, Westmoreland County's largest, anticipates that by 2012, the district will be paying $5 million more than the $2.5 million it pays now. The district's budget is about $80 million.
"Many districts are using reserve funds to try to plan for this. But taxes will have to go up to compensate for this," he said.
The state Legislature sets the contribution rates from teachers and school districts. School employees, including teachers, pay between 6 percent and 7.5 percent of their salaries into the pension fund. The state and school districts pay a combined 4.76 percent of a teacher's salary into the fund.
In the Hampton School District, payments this year are $510,000 -- an expense business manager Jeff Kline estimates will be $2 million by 2012.
"It's hard enough to balance a budget, and we have no control over this spending. The contributions are set by the state," Kline said.
While poor financial market conditions are the immediate cause of the problem, Timothy Potts of Democracy Rising, a nonpartisan citizens group, lays blame with lawmakers.
"The Legislature always prefers to have someone else raise taxes, which school boards will now be forced to do," said Potts, who is a member of the Carlisle Area school board in Cumberland County.
Pittsburgh Public Schools, the largest district in the county, has 2,700 teachers and full-time professionals. Chris Berdnik, chief financial officer and chief operations officer, estimates that contributions to the pension fund will rise from $10.08 million this year to $33.18 million in the 2012 school year.
"The PSERS funding crisis as one of the most significant challenges we face in the next decade," he said.
"The PSERS funding crisis as one of the most significant challenges we face in the next decade," he said.
In 2001, lawmakers increased their pension benefits by 50 percent and, at the same time, boosted teachers' and state workers pensions by 25 percent.
But the Legislature didn't require a corresponding increase in contributions from school districts, says Wythe Keever, a spokesman for the Pennsylvania State Education Association, the state's largest teachers' union.
"The districts, in the latter part of '90s and in the early part of this decade basically took a pension holiday. They did not pay enough to sustain the system during the down years," Keever said.
In 2002, for instance, contributions from school districts in the state were $539,000, Keever said. The same year, the state contributed $662 million.
Contributions generally have been based on the assumption that the stock market will go up 8 percent on average each year. During much of the 1990s and the early part of this decade, the fund generated double-digit returns.
"Earnings were very high until about a year ago," said Rep. David Levdansky, an Elizabeth Democrat who chairs the House Finance Committee.
Levdansky favors setting minimum contributions from teachers, districts and the state that would be required even if the stock market does well.
"I wish we had done that. We would not be in this kind of trouble if we had," he said.
Rep. Paul Clymer, a Bucks County Republican and ranking member of the House Education Committee, said legislators are looking at whether federal stimulus money can be contributed to the pension plan. Clymer has introduced a bill that would push state and school contributions to 7 percent immediately.
"That at least would be somewhat of a cushion for the future," he said.
But school districts remain in a tight spot.
"The market has changed and has caught up with the rest of the world, but raising taxes is really the last thing we want to do," said Jon Rupert, business manger of the Highlands School District In Natrona Heights.
Rick Wills can be reached at rwills@tribweb.com or 412-320-7944.
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With the recent uptick in the markets, the situation has improved somewhat. It is just hard to say by how much.
Thanks for reading.
James
