School districts face higher pension payments

Surprise! Another bailout.

Local school district officials are concerned the cost of New York State Teachers’ Retirement System investment losses amid the recession will mean millions of dollars in additional district contributions in 2011.

Higher contributions could result in higher property taxes, officials said.

The system’s drop in value during 2008-09 was 20.5 percent, reflecting negative returns throughout the capital markets, the system’s November Administrative Bulletin said. The severity of the decline is the primary reason for the increase in the rate. The money available to pay current and future benefits decreased from $95.8 billion in 2008 to $72.5 billion in 2009.

The retirement system is funded by investment income and employer and employee contributions. And those losses are going to have to be made up.

“We think it’s going to be a budget buster,” said Dover Assistant Superintendent for Business Christopher Prill.

Investments lost $21.5 billion in value in fiscal 2009 compared to a loss of $7.8 billion in value in 2008, according to the 2009 annual financial report. In 2007, the value of total investments increased $14.7 billion.

The 2009-10 employer contribution rate is 6.19 percent, but next year’s rate could be between 8.5 percent and 9 percent, according to the November Administrative Bulletin.

District officials are concerned about the future increase in the employer contribution rate, which would raise their contribution to the pension system.

In 2009, Dover contributed $825,989, or about 3 percent of its 2008-09 budget of $27.6 million, to the teachers’ pension system, according to Prill. In 2008, Dover contributed $923,954.

How much a district must contribute to the retirement system depends in part on how well previous investments did. With the stock market crash and recession in recent years, the employer contribution is expected to rise.

In 2008, Dutchess school districts contributed $28.3 million to the system compared to $26 million in 2009. The amount increases or decreases depending on the employer contribution rate, which is a percentage of teachers’ and administrators’ salaries, according to the retirement system.

The system

The Retirement Board of Trustees, which sets policies and oversees the system, looks at investment income over the last five years to calculate the employer contribution rate, spokesman John Cardillo said.

Although school districts make payments every fall, the amounts are calculated based on the employer contribution rate that was set in the previous fiscal year. The public school fiscal year runs from July 1 to June 30.

For example, the $26 million Dutchess districts contributed in 2009 was calculated based on a percentage of 2008-09 salaries of teachers and administrators currently employed at the district.

The employer contribution rate has steadily declined over the past three years from 8.73 percent of salaries in 2007-08 to 7.63 percent in 2008-09 to 6.19 percent in 2009-10.

“You use five years of investment returns to calculate what you need to sustain the fund,” Cardillo said. Referring to the 2009-10 rate of 6.19 percent, Cardillo said, “In that calculation, there were four years of double-digit positive returns. When you do the math, that one bad year was offset by the good years.”

Amid the recession, 2008-09 saw a loss in investments, Cardillo said.

Most of the system’s income is from investments, which totaled $71 billion in 2009, according to the annual report. Employers only contributed about $1 billion that year, while eligible members contributed $183.6 million to the pension fund.

Districts are required to contribute to the teachers’ retirement system. The system oversees the fund that distributes retirement, disability and death benefits to teachers and administrators who work outside New York City.

The Teachers’ Retirement System of New York City administers pensions for educators working in the city. The New York State and Local Retirement System oversee pensions for state and local government employees.

Pension benefits

The state teachers’ retirement system paid retirees about $5.2 billion in 2009 compared to $4.9 billion in fiscal year 2008, according to the latest annual report.

The average annual benefit given to a retiree was $36,222 in 2009, the annual report said.

In Dutchess County, 2,533 retirees and beneficiaries received a total of $100.9 million in pension payments in 2009, according to the annual report. Excluding the five boroughs of New York City, Dutchess is one of seven counties that received more than $100 million in benefits. The other counties are Westchester, Nassau, Suffolk, Onondaga, Monroe and Erie.

In Ulster County, 1,919 received a total of $73.4 million in benefits in 2009.

The Wappingers Central School District paid the highest contribution in Dutchess — $5.6 million — in 2009 and Arlington Central School District had the next highest contribution with almost $5 million, according to the retirement system.

“We’re the largest district in the county,” retired Wappingers Superintendent Richard Powell said. The district’s payroll is higher than others, he said.

Some residents wonder about the burden on taxpayers, but understand why union officials support public pensions.

Orsola Acosta, a Town of Poughkeepsie resident in the Arlington Central School District, has two children who graduated from schools in the district.

“I guess it’s necessary, but it doesn’t seem right if it’s coming out of taxpayer money,” Acosta said. “I think it’s a good way to retain better teachers.”

Excluding public schools in New York City, membership in the teachers’ retirement system is mandatory for all full-time teachers, teaching assistants, guidance counselors and administrators employed in public schools, BOCES and eligible charter schools that opted to participate, according to the retirement system. Part-time teachers have the option of becoming a member.

Teachers who work for SUNY or a New York state community college can choose to be a part of the retirement system, the New York State and Local Employees’ Retirement System or an optional retirement plan.

The retirement system has five tiers of membership, depending on when a member joins. The state Legislature and Gov. David Paterson created Tier 5 in December to lower the costs of pensions for the state and local governments.

Active, or nonretired, members in tiers 3 and 4 must contribute 3 percent of their salaries each year to the pension system until they reach 10 years of service. Those in Tier 5 hired on or after Jan. 1, 2010, must contribute 3.5 percent of their salaries to their pension as long as they are a member of the retirement system.

System challenges

Arlington Superintendent Frank Pepe said employee pensions are an important part of educators’ compensation package. However, he said, “The problem is how the pension system is managed.”

“We get these huge swings in pension contributions … and it needn’t be that way,” Pepe said.

He said a more prudent, fiscally-managed system would mean a more regulated, even set of payments from year to year.

With a projected increase in the district’s contribution, Robin Zimmerman, Arlington assistant superintendent for business, said, “Whenever the budget increases, can it impact taxes? The answer is yes.”

Most districts’ payments, including employer and employee contributions, are deducted from state aid allocated during September, October and November of each school year, according to the retirement system. The few exceptions are State University of New York and community colleges that pay their bill directly, as well as school districts that don’t receive enough state aid.

“Public educators are paid at a much lower rate for the level of education required for the field of work they’re in,” said Bob Maier, president of the Arlington Teachers’ Association.

Maier said pensions provide an opportunity to attract and retain quality teachers and administrators.

School officials say budget planning is difficult when the employer contribution rate depends on how well investments do.

“The bigger problem is fluctuation in the rate from year to year,” Red Hook Central Schools Business Administrator Bruce Martin said. “When the rate jumps up very quickly, that creates a budgetary funding problem.”

The Red Hook school district contributed $1.26 million to the system in fall 2009 — roughly 3 percent of its annual budget — compared to $1.32 million the previous fall, Martin said.

“Historically, going back 20 to 30 years, the employer contribution rate has ranged as high as 23.49 percent and as low as 0.36 percent,” Martin said, adding that the rate change can cause problems in planning the district’s budget.But New York State United Teachers spokesman Carl Korn said there’s no better remedy for the public pension system than the stock market.

Korn said the employer contribution rate for 2009-10 is 6.19 percent, a 19 percent decrease from the 7.63 percent contribution rate for the previous year. Over the last 15 years, the average employer contribution rate was 4.16 percent, he said.

The retirement system’s return on investments decreased 20.5 percent in fiscal year 2009, following a decrease of 6.4 percent. Prior to that there were increases of 19.3 percent, 11.8 percent, 10.6 percent and 16.1 percent, the latest annual report said. The average annual rate of return over five years is 1.9 percent and the 25-year return was 9.8 percent.

Korn said teachers in tiers 3 and 4 pay 3 percent of their salaries each year to the pension system for the first 10 years in the classroom.

Educators’ contributions

At one time, all members had the same retirement plan until state government officials became concerned about the increasing cost of public employee pensions after benefits were improved in the late 1960s and 1970s, according to a retirement system overview. Members are covered by a state constitutional guarantee that benefits can’t be reduced once they are given to a person.

Districts collect members’ contributions by deducting 3 percent from the annual salaries of teachers and administrators in tiers 3 and 4, according to district business officials.

Unlike those in tiers 3 and 4, Tier 5 members hired on or after Jan. 1, 2010, will contribute 3.5 percent of their salaries for as long as they stay an active member.

Referring to tiers 3 and 4, Prill, Dover’s assistant superintendent for business, said member contributions depend on the number of younger teachers or teachers with less than 10 years of service.

Source: Poughkeepsie Journal.

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