Schools face huge pension hikes

From the BCCT.

Schools face huge pension hikes
The increases needed to make up for the poor performing teacher retirement fund will cost districts and their taxpayers millions of dollars.
By GARY WECKSELBLATT
STAFF WRITER

If stock market returns in 2009 replicate those from 2008, school districts will be forced to increase their contribution to the Public School Employees’ Retirement System from next year’s 4.78 percent to 30.22 percent in 2012-13.

That year will begin a decade-long string of pension payments of at least 30 percent of teacher salaries followed by another decade where the numbers range from 23 percent to 29 percent.

And that’s the good news. Property taxpayers will have to dig even deeper if the retirement system doesn’t earn a return of at least 8 percent. “I hesitate to even think what the tax increase might be,” said Jeffrey B. Clay, executive director of the system. He’s not alone. “These numbers aren’t manageable,” said Robert Reinhart, business manager at Pennridge. “It could cost us $6.6 million more” in 2012-13, said Reinhart. If the market turns around and the system earns an 8.25 percent return this year, that 30.22 percent would drop to 20.16 percent in 2012-13 and the next two decades would mean contributions in the teens. Still a difficult scenario for districts and their property taxpayers.

Clay gave a 57-page presentation Monday night to about 40 school administrators and school board members at the Bucks County Intermediate Unit in Doylestown.

“Horrible, just horrible,” Linda Palsky, of the Pennsbury School Board, said of the numbers.

Chuck Baker, a school board member in Central Bucks, said, “People in the community can’t even pay their taxes now. It’s really a shame.”

The retirement system, which has more than 547,000 members, is the 12th largest defined benefit pension fund in the country. Working members contribute between 5.25 percent to 7.5 percent of their salary to help fund their retirement.

PSERS lost 29.68 percent during the 2008 calendar year compared to the Dow Jones Industrial Average (-34 percent, the third worst year in its history), S&P 500 (-39) and NASDAQ (-41). From a high of $70.1 billion in October 2007, the fund had $43.3 billion “as of Friday,” Clay said, essentially the same amount it had in 1998.

During the market turbulence in October, he said, the fund had days it lost $1 billion.

For parts of his presentation, Clay spoke of changes to funding formulas through state legislation that lowered the employer contribution, an actuarially determined rate that is the percentage of payroll the school employers are required to pay into the state’s pension fund so it has enough money to pay retirees. The commonwealth reimburses the school districts for a little more than half of the employer contribution rate.

Clay said for 12 years the “employer normal cost” has been lower than it should have been because of legislation that “pushed off liability to the future to provide fiscal relief to both the commonwealth and school employers.”

That relief is long gone, if it was ever felt.

“It burns me that we have to put it back into the fund to make up for their losses and we have people who have lost plenty and nobody is helping,” Baker said. “This has got people upset.”

David Matyas, business manager for Central Bucks, said, “Reducing staff is the only alternative to manage this. The numbers are higher now (because of the stock market losses) but we knew this was going to be a problem. There’s no way out, that’s what’s so sobering about it.”

According to a chart displayed by Clay, if the pension fund gained 35 percent a year for the next three years, a nearly impossible feat, contributions would be below 5 percent.

“You’re not going to earn your way out of this,” Clay said. “There is no silver bullet, no copper bullet, no lead bullet. Additional funds are needed for this system.”