LTE: Creditorial

Retirement Partnership Requires Both Sides to Share the Costs – in Good Times and Bad

There is a lot of talk around the state these days about the looming pension crisis.  It is one of the hot topics of conversations at school board meetings, legislative meetings and in the faculty lounges of public schools.

Like other hot button topics, any issue that involves taxpayer monies, public education, retirement funding and politics is bound to stir up strong emotions and a lot of conflicting facts.

It’s time to lay the true facts out on the table. When I started teaching in 1982, I agreed to pay a percentage of my salary into my retirement.  In return, the state and school districts promised to pay their portion into the Public School Employees’ Retirement System.  After 35 years of dedication to the students, I would be assured that I hand the chalk to a new teacher, and move into retirement.

Funding for the Public School Employees’ Retirement System is supposed to be a partnership — the employees, and the employers (school districts and the Commonwealth). 

Public school employees, who are also taxpayers, have paid their share – twice as much to PSERS as school districts and the state combined – over the last 10 years.

The employers meanwhile took a “pension holiday,” dropping their combined contribution far below the cost of benefits earned by their employees over this same period of time. School administrators who are objecting to increased pension costs now weren’t complaining earlier in this decade when their districts were paying close to zero for PSERS.

In 2002-2003 the legislature attempted to provide some relief to the Commonwealth and the school employers as a result of the down markets in 2001-2003.  But instead of dealing with the problem, the General Assembly took an easy payment option and passed legislation that simply pushed the problem off to the future. Unfortunately, that future is looming in 2012-13.

You would have to go back to 1997-1998 to find the last year the state and school districts together contributed enough to cover the employer’s share of the normal cost of benefits earned by employees during the same year. Pennsylvania’s Joint State Government Commission in 2004 warned that without contributions set at a rate to cover normal costs, funding pressures would increase.

The state and school districts need to make their fair share of contributions to cover the cost of retirement benefits. By building stronger reserves in good times, PSERS will better be able to weather economic downturns without resorting to rate hikes.

School boards and administrators are understandably concerned about the looming pension spike. But they should know that creating a separate, inferior system of retirement benefits for school employees will do nothing to mitigate the increased pension costs that are expected to occur by 2012-13. And it will actually increase administrative costs.

In fact, three states — Alaska, Nebraska, and West Virginia – moved to 401(k)-type retirement plans for new school employees only to discover the new plans were more costly to administer. Nebraska and West Virginia have already moved back to defined benefits plans due to the shortcomings of 401(k)-type retirement plans, and Alaskan legislators are considering a similar bill.

In order to keep the promise of a secure retirement – which employees have paid their share for — the state and school districts need to make their fair share of contributions to cover the cost of retirement benefits. By building stronger reserves in good times, PSERS will better be able to weather economic downturns without resorting to rate hikes.

Brad Siegfried

President, Philipsburg Osceola Education Association

President, Central Region PSEA

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