Schools look to alter defined benefit pensions

Schools look to alter defined benefit pensions

(District of Columbia) Long considered the polestar of public employment compensation, the defined benefit pension has also emerged in recent years a key driver of budget deficits on both the state and local level.

While there remain perceptions that labor groups –especially teachers’ unions—have stubbornly resisted efforts to restructure public pension systems, new data from the U.S. Bureau of Labor Statistics suggests that lawmakers nationwide have had better success than might be expected.

Thirty years ago, virtually everyone employed within the public education system nationally—which included K-12 school districts as well as state colleges and universities—received retirement payments based on the length of service and ending salary.

By 1999, however, the number of workers in the education sector qualified to receive a define benefit pension fell to 92 percent, according to the Bureau of Labor Statistics.

In 2007, the number fell to 84 percent and last year it fell again to 76 percent.

“That’s a 19-percentage point decline in twenty-nine years,” noted Chad Alderman writing this month in a newsletter from the Fordham Institute. “That’s much different than the conventional narrative and it may even be under-selling things a bit since existing employees are typically allowed to keep their benefits even as new employees are in something different.”

According to Fordham, most of the drop has come as a result of higher education shifting more of its workforce into alternative pension programs such as 401-Ks or a hybrid.

In 2007, almost 70 percent of employees of public colleges and universities participated in a defined benefit pension. By 2016, the number has fallen to 62 percent.

Facing crushing liabilities, changes in retirement benefits are also slowly coming to K-12 districts too. Total unfunded pension liability nationwide among school districts is estimated to exceed a half trillion dollars, having jumped by more than $100 billion in just the last two years, according to a 2015 report from the National Council on Teacher Quality.

A number of states have sought to address the ballooning expense. In some cases, new employees have been shifted into 401-K programs. In others, payment benefits have been cut or vesting periods have been lengthened. In many states, teachers as well as school employers have been asked to share a bigger burden of the costs.

In California, for instance, the state’s teacher pension has an unfunded liability of $73 billion in 2012. An agreement between the Legislature, schools and teachers put the system back on a path to solvency but local districts are struggling to keep up as their share is expected to increase by about $1 billion this fiscal year.

As a result, a large number of districts are at loggerheads with their employee unions in contract negotiations.

Disputes have erupted in other states too. After lawmakers enacted sweeping changes to school pensions in Kentucky, schools are bracing for the potential of thousands of teachers opting to retire early. An estimated 20 percent of the state’s 42,000 teachers have already worked the minimum 27 years to be eligible for the lifetime pension which averages close to $37,000 annually.

Jessica Hiler, president of the Fayette County Education Association told the Lexington Herald-Leader that she expects many teachers had planned to retire in their mid-50s. By raising the retirement age to 65, she said, the Legislature is “basically moving the goalposts on us in the middle of the game.”

In St. Louis, the school district’s share of pension costs jumped from 414 million in 2006 to almost $28 million in 2013—even though enrollment fell by 10,000 students.

“The default mechanism is service cuts, so fewer education dollars make it into the classroom because they are needed to pay for teacher’s past service,” said Joshua McGee, vice president of the Arnold Foundation, which tracts school retirement issues. “The real difficulty is finding a solution that is fair to both workers and taxpayers,” he told Education Week.