Saturday, January 29, 2011

Time Bomb: Facing Reality

I have written a number of articles over the years about the perilous fiscal condition of the State Teachers Retirement System, the organization which provides retirement benefits to the teachers and other certified employees (including Administrators who are former teachers) of Ohio's school districts.

This week, as reported in The Columbus Dispatch, the governing Board of STRS voted 7-3 to implement adjustments to both the contributions required and benefits provided, in hope of preserving the financial integrity of the system. This is not the final step in the process - the decision of the STRS Board now goes to the General Assembly, who will use the Board's resolution as the basis for drafting updates to the laws which control STRS. From there, the proposed law goes to the Governor for his action.

Governor Kasich had made it clear that he would veto any legislation which forced greater contribution from the employers - which are the local School Boards. The current contribution scheme requires the employee to contribute 10% of salary to STRS, and the employer - the taxpayers - to contribute another 14%. Under the proposed plan, the employee share would gradually increase to 13% by 2014, but there would be no increase in the taxpayer percentage.

Some argue that the employer contribution to STRS has not increased for years. This is a partial truth.

While the percentage of the employees salaries contributed by the taxpayers might not have increased from 14% for many years, the majority of our teachers and other certified staff have been receiving annual increases of more than 7% for the past decade, and the taxpayer share, in dollars, of the STRS contribution has increased at the same rate.

The STRS Board made some other tough choices as well. Currently, the STRS rules allows a teacher to retire with unreduced benefits at 30 years of service. Under the new rules, which phase in between 2017 and 2023, a teacher will need to be at least 60 years old and have 35 years of experience to receive unreduced benefits.

They are also ending the practice of enhancing the benefits of a teacher who works 35 or more years. Under the current system, a teacher who retires at 30 or fewer years of service receives, as an annual lifetime pension, 2.2% of their Final Average Salary (average of the last three years) for each year worked, or 66%. With the Final Average Salary of $90,363 (the top of our pay scale for the past three years), a teacher retiring with 30 years of service receives a lifetime annual pension of $59,640.*

But currently a teacher who retires with 35 years of service receives a kicker that makes this percentage 88%. With Hilliard's current pay schedule,  a teacher retiring with 35 years of service with a Final Average Salary of $90,363 would receive an annual pension of $80,423* for the remainder of life.

In what perhaps is a preview of the issues facing Social Security (which by the way the teachers neither pay into nor receive benefits from), decisions had to made about how to apportion the costs of fixing STRS between those who are already retired, and those who are still working. Each group feels they are being asked to sacrifice for the benefit of the other. The following cartoon is from the blog of Kathie Bracy, an STRS retiree and activist.

The final decision will have less to do with what is fair or logical than it does which group carries more political clout in the Statehouse. As with every other area of American politics, those with money and votes always win in the end. So who won in this case - the retired teachers who are more likely to show up to vote, or the active teachers who can funnel tons of money into campaign coffers via the Ohio Education Association?  We may not know for a few years, after all of the unintended consequences shake out (e.g. as many highly paid teachers retire, converting from major contributors to the system to its largest beneficiaries).

But I do know that the taxpayers were not made party to the conflict, thanks to the stand taken by Gov. Kasich. It was their own investment decisions and benefits choices (e.g. the so-called '13th Paycheck') that got STRS into this mess, and the taxpayers should not be expected to bail them out.

* Note: these numbers are accurate to the best of my knowledge. However, the only authoritative source of retirement information is the State Teachers Retirement System. Consult with STRS before making any retirement decisions.

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