Taxpayers to bail out school district’s pensions

Ready for another blow in this terrible economy? How about a 40% hike in teacher pension contributions.

In a recent School Board Meeting here in Marlboro, an external auditor told the school board that they should brace themselves because the next few years are going to be bad and the district should cut costs above and beyond any cuts already made. The board nodded in agreement and then went back to business as usual. Taxpayers will have to indirectly start paying into teacher’s pensions because of the Wall St. meltdown.

So why do taxpayers have to foot yet another cost? One that mimics a bailout? One that has nothing to do with our children’s education? For a group that doesn’t budge and rejects any proposal to reduce their salary increases, why should we even entertain the idea of paying into their pensions? If those who manage their investments haven’t taken precautionary measures to avoid or minimize this risk, why should they be rewarded? People with 401K have lost most of their retirement investments. No one is going to help them out. Why should this be any different? Simply because we are forced to. Simply because we, as taxpayers, ultimately foot the bill.

NYS Teacher Benefit Comparison Table

The National Association of State Retirement Administrators and the National Council on Teacher Retirement, in an issue brief state that:

Investment losses in public pension plans, if they persist, may have to be made up with additional contributions, either from employers (taxpayers), employees, or both.

The New York State Teachers’ Retirement System Bulletin Nov 09:

  • fiscal year 2009-10: Employer Contribution Rate (ECR) of 6.19% of payroll.
  • fiscal year 2010-11: Employer Contribution Rate (ECR) estimated between 8.5% and 9.0% of payroll.

Tier 3 and 4 members contribute 3% of their salary toward the Required Contributions Fund until they have either 10 years of membership or service credit.

Tier 3 and 4 members stop making member contributions when they have 10 years of membership or service credit.

Times Herald Record:

A state deal on teacher pensions will help taxpayers down the road but does nothing to ease a 40 percent hike in contributions coming in 2011.

This increase translates to millions of dollars for mid-Hudson districts and taxpayers.

For instance, even using a conservative estimate, the Middletown School District could owe the pension fund an additional $1.4 million. The Valley Central School District may have to cough up about $1 million more.

“All you can do is budget conservatively,” said Middletown Superintendent Ken Eastwood. “We have no mechanism to prepare for these kinds of things.”

School districts can keep a rainy day fund, or surplus, of up to 4 percent of their total budget. Eastwood said some districts choose to exceed that amount — and risk a scolding from the state comptroller — in order to save for the pension contribution.

“We have some reserve, but it definitely can’t cover all these hits at once,” Marlboro Superintendent Raymond Castellani said.

The contribution increase is a result of the 2008 Wall Street meltdown. For the fiscal year ending in June 2009, the value of investments decreased by 20.5 percent. That is what triggered the massive hike.

The change is delayed and spread over several years by an actuarial practice that aims to avoid drastic swings in rates.

While the pension fund gives school district officials ample lead time, the state planning method doesn’t match up, Eastwood said.

“We have been planning for these increases, given our knowledge and prediction on the economy,” Eastwood said. “The one category we have a difficult time trying to predict is what the state is going to do.”

School districts are still leery that Gov. David Paterson and the state Legislature will cut state financial aid in the middle of the current school year or next year, or both.

In addition, federal stimulus money credited with saving hundreds of school jobs over two years dries up in 2011.

“It’s a perfect storm,” Castellani said.

One thing school districts didn’t do was save when pension contributions were low some years back, according to Alan Lubin, executive vice president of New York State United Teachers.

Taxpayers are supposed to see billions in savings from the new pension deal — but not for at least a decade. That is because, Lubin said, the current system requires that employees contribute for their first decade of employment. It is only after employees hit that mark that the new increases in employee contributions — and thus the savings — start.

Moreover, the changes will apply only to employees hired after the start of 2010. Current employees and current retirees are unaffected. In fact, Lubin said, the new system guarantees current employees and current retirees lifetime health benefits.

That is a way to shuffle costs onto the local taxpayer, Eastwood said.

“This is the kind of thing that is breaking everybody’s back,” he said.

Source: Times Herald-Record

December 07, 2009

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