Pension payments loom for districts
Trinity Area School Board is the latest board to consider asking the state Legislature to revamp the employee pension system because of projected escalating costs.
The pension system is set up so employees, local districts and the state pay into it. Districts must pay a certain percentage of salaries into the system each year, which is determined by the Pubic School Employees’ Retirement Board. It’s a defined benefit plan, so the amount of a member’s pension benefit is not tied to investments of the fund.
This year, districts paid 4.78 percent into the system. Next year, they will pay 8.22 percent. By 2014-15, that number is projected to be 33.6 percent.
“Realistically, within three years, that would mean a 20- to 25-mill tax increase just to pay the pension obligation,” said Trinity School Board member Scott Day, who is also on the board’s finance committee. “It’s going to be a huge problem for years to come unless they decide to do something.”
He said that is $5.1 million on top of what the district already pays. Trinity paid $470,000 into the pension this year. Even if the board wanted to raise taxes that much, which it doesn’t, it would have to take a request that high to the voters, Day said.
State law allows school districts to raise taxes by an annual index without getting voter approval. The rate varies per district, but it is usually between a 3 and 4 percent increase, which is well below what would be needed for the sharp pension increases. Day and others said voters wouldn’t approve that type of increase if it were put on the ballot.
That means cost cuts are coming, and they could be severe if the pension system doesn’t change, Day said.
Trinity brought in a financial expert from the Pennsylvania School Board Association to look at ways to cut costs to get ahead, he said.
“We are looking at doing multi-year budgeting to look at ways to save money,” Day said.
Trinity is scheduled to vote on a resolution next week asking the Legislature to make changes. The board is not alone in its concern about the skyrocketing costs of the pension fund.
State legislative committees have been holding hearings about the matter. Pennsylvania State Education Association President James Testerman testified before the state Senate Finance Committee in December, saying that the pending spike is primarily the result of significant losses in investment returns and a lack of state and district funding.
A majority of teachers union members have contributed 7.5 percent since 2001, he said. Over the past decade, they have paid more than $7.3 billion into the system, while the state and districts combined paid $3.765 billion into the system, Testerman said.
He also said the union cannot accept a resolution where pension costs were simply kicked down the road for someone else to pay. That happened because the state kept the rates artificially low for the past decade.
Testerman also said union members see harm to the retirement security as harm to the profession.
“Courts have ruled that our current members’ pension benefits are constitutionally protected against impairment,” he said. “But we know that a severe reduction in benefits for future employees would also have a devastating effect on current employees and our profession.”
Meanwhile, PSBA has been urging school boards across the state to pass a resolution asking the state to change the system.
McGuffey School Board recently did so. Business manager Scott Burchill said pensions will cost the district an additional $6.3 million over the next five years.
At that March meeting, a resident asked whether the board could have paid extra into the system over the past decade to prevent such high increases now. Burchill said the district could only pay in the percentage approved by the retirement board.
The projected increase for Washington School District is an additional $1,396,000, or an additional 23.25 mills, between the 2010-11 and 2014-15 school years.
That board also unanimously passed the resolution.
When Ringgold approved a similar resolution in March, board President Denise Kuhn described it as a desperate situation for all districts.
It would cost Ringgold an additional $20 million between 2010-11 and 2014-15.
The pension system is set up so employees, local districts and the state pay into it. Districts must pay a certain percentage of salaries into the system each year, which is determined by the Pubic School Employees’ Retirement Board. It’s a defined benefit plan, so the amount of a member’s pension benefit is not tied to investments of the fund.
This year, districts paid 4.78 percent into the system. Next year, they will pay 8.22 percent. By 2014-15, that number is projected to be 33.6 percent.
“Realistically, within three years, that would mean a 20- to 25-mill tax increase just to pay the pension obligation,” said Trinity School Board member Scott Day, who is also on the board’s finance committee. “It’s going to be a huge problem for years to come unless they decide to do something.”
He said that is $5.1 million on top of what the district already pays. Trinity paid $470,000 into the pension this year. Even if the board wanted to raise taxes that much, which it doesn’t, it would have to take a request that high to the voters, Day said.
State law allows school districts to raise taxes by an annual index without getting voter approval. The rate varies per district, but it is usually between a 3 and 4 percent increase, which is well below what would be needed for the sharp pension increases. Day and others said voters wouldn’t approve that type of increase if it were put on the ballot.
That means cost cuts are coming, and they could be severe if the pension system doesn’t change, Day said.
Trinity brought in a financial expert from the Pennsylvania School Board Association to look at ways to cut costs to get ahead, he said.
“We are looking at doing multi-year budgeting to look at ways to save money,” Day said.
Trinity is scheduled to vote on a resolution next week asking the Legislature to make changes. The board is not alone in its concern about the skyrocketing costs of the pension fund.
State legislative committees have been holding hearings about the matter. Pennsylvania State Education Association President James Testerman testified before the state Senate Finance Committee in December, saying that the pending spike is primarily the result of significant losses in investment returns and a lack of state and district funding.
A majority of teachers union members have contributed 7.5 percent since 2001, he said. Over the past decade, they have paid more than $7.3 billion into the system, while the state and districts combined paid $3.765 billion into the system, Testerman said.
He also said the union cannot accept a resolution where pension costs were simply kicked down the road for someone else to pay. That happened because the state kept the rates artificially low for the past decade.
Testerman also said union members see harm to the retirement security as harm to the profession.
“Courts have ruled that our current members’ pension benefits are constitutionally protected against impairment,” he said. “But we know that a severe reduction in benefits for future employees would also have a devastating effect on current employees and our profession.”
Meanwhile, PSBA has been urging school boards across the state to pass a resolution asking the state to change the system.
McGuffey School Board recently did so. Business manager Scott Burchill said pensions will cost the district an additional $6.3 million over the next five years.
At that March meeting, a resident asked whether the board could have paid extra into the system over the past decade to prevent such high increases now. Burchill said the district could only pay in the percentage approved by the retirement board.
The projected increase for Washington School District is an additional $1,396,000, or an additional 23.25 mills, between the 2010-11 and 2014-15 school years.
That board also unanimously passed the resolution.
When Ringgold approved a similar resolution in March, board President Denise Kuhn described it as a desperate situation for all districts.
It would cost Ringgold an additional $20 million between 2010-11 and 2014-15.
Labels: State pension
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