Pennsylvania bill would alter teachers' pension plan
By Deb Erdley
Published: Thursday, Dec. 17, 2009
Faced with the prospect of soaring school district contributions to the state's school pension fund, the Pennsylvania School Boards Association Wednesday joined forces with a pair of Republican lawmakers to introduce a bill to reduce pension benefits and provide individual retirement accounts for school employees hired after July 1, 2010.
The bill, sponsored by state Rep. Glenn Grell, R-Cumberland County, and Sen. Gene Yaw, R-Mechanicsburg, drew fire from the Pennsylvania State Education Association.
"The solutions in this bill make for good sound bites, but they won't do anything to reduce the projected payment increase for (the Pennsylvania School Employees Retirement System), and could actually cause long-term problems," said James Testerman, president of the union, which represents teachers and other school employees.
He predicted the legislation would hurt the state's ability to attract and retain high quality teachers. Testerman, who testified before the Senate Finance Committee Wednesday, urged lawmakers to reject it.
Last week the Pennsylvania School Employees Retirement System announced taxpayer costs for the pension fund that covers 279,000 active employees and 177,000 retirees will increase from 4.78 percent of payroll costs to 8.22 percent next year due to dips in investment performance. In three years, experts say the contribution will have to increase to nearly 30 percent of payroll.
Opponents and supporters alike say the bill would have no impact on those costs because court rulings have held that the state cannot reduce benefits to those already in plans. But Tom Gentzel, executive director of the Pennsylvania School Boards Association, said with many teachers poised to retire in the next two to three years, schools could see a real impact quickly by putting new employees into what he described as a hybrid plan
He predicted lawmakers will have to reamortize the pension debt, a move akin to refinancing a mortgage for a longer term, to give school districts relief. Without such a move one study concluded property owners could face school tax increases averaging about $558 in 2012-13, just to cover increased pension costs.
"This crisis is getting close," Gentzel said. "The Legislature has to act quickly. We'll probably have to reamortize the debt, but we can't stop there. We have to make sure we don't go down this road again."
School employees and retirees say the state contributed to the pension problem when it set employer contribution rates artificially low in years when pension investments posted strong returns.
Gentzel conceded that there could be initial start-up costs for the defined contribution portion of the hybrid plan, but said managing it within the current pension system would keep those costs to a minimum. At the same time the bill continues to provide for a reduced lifetime pension benefit.
The proposal does not address the state employees pension fund, which also is projected to require steep increases in taxpayer contributions in 2012-13.
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