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Current school pension formulas are unfair

4 min read

What really caused the Pennsylvania pension crisis when it comes to public school employees?

From 1979 to 2001, the employer contribution, paid for by taxpayers, averaged 14 percent of payroll annually, and the employee contribution was 6 percent. The workers’ pension formula gave a teacher who retired after 35 years 70 percent of their pay every year for the rest of their lives. Assuming you began teaching at, or before, age 25, that meant you could retire at age 60 with 70 percent of your salary. A retiree who taught for 40 years could receive 80 percent of their salary for the rest of their lives, a very generous income. Plus, you could qualify for Social Security.

Then, in 2001, the Legislature gave school employees a 25 percent increase in their pensions, which was retroactive if they were still working. Since then, a 36-year retiree gets 90 percent of their pay, and a 40-year retiree gets 100 percent of their pay, which is very, very generous. And they also qualify for Social Security and a $1,200 stipend for health insurance.

Finally, in 2010, the Legislature gave employees hired after June 30, 2011, the option to take the original plan and make an employee contribution of 7.5 percent, or make an employee contribution of 10.3 percent, and get the plan that pays 25 percent more. And remember, these teachers are also eligible for Social Security.

Since 2010, school district pension costs have soared, along with public-employee salaries. The taxpayer contribution rate on payroll for the last five years has been 8 percent of payroll, then 12 percent, 16 percent, 21 percent and 25 percent for the 2015-16 school year. Half of that is paid by the school district, and half by the state government for all districts. But we taxpayers pay all of that contribution, one way or another. Since payroll can be 70 percent of a district’s budget, you can see these rates have a huge impact on schools. You can also see why the commonwealth has had trouble increasing the school subsidy. They need to fund pensions first. It is law, a promise that was made by our elected representatives in Harrisburg.

The current pension formulas are unfair to students and taxpayers, and cannot be funded fairly. They divert resources from the classroom, and are far more generous than the retirement income most taxpayers can expect.

Pensions are a legal obligation, one created by the Legislature. Radical measures are needed to fund this entitlement. But it’s not an entitlement that public school employees be given a raise. School districts could freeze salaries and put those dollars directly into pension funding until the taxpayer contribution rate starts coming down. That will eventually happen, and it will be sooner rather than later if our representatives in Harrisburg put together an affordable pension formula for new employees.

The unions representing current employees told Tom Corbett when he was governor any change in the pensions of current employees would lead to many years of litigation. We believe them. It is easy to say current employees should make concessions. But we have to ask if we would volunteer to give up thousands of dollars in lifetime pension benefits if we were school employees? A temporary wage freeze might be better in the long run.

After three mistakes, the Legislature finally realized the pension formulas are too generous, but it seems that any reforms will be vetoed by Gov. Tom Wolf. How long will it take most, if not all, of our local school boards to realize this? To realize they do have another option, other than cutting or diluting programs for our students and gouging taxpayers over and over again. They can react to the need for increased pension funding with multi-year salary freezes for school employees. That money is needed to fund the employees’ very generous pensions, which most taxpayers, as private sector workers, don’t receive. That seems fair. Throwing fuel on the fire by giving salary increases between 2 percent and 3.5 percent almost every year doesn’t make sense. That constantly increases the total payroll, and constantly increases pension funding costs.

Whatever increases can be made to school funding must be directed to classroom needs, especially in the least affluent districts. Holding the line on salaries, with a serious pension reform plan, would go a long way toward making this possible.

Smith is a retired manager of Borders Books and Music in Bethel Park. Cianelli is owner of Liberty Lumber in Canonsburg.

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