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February 9, 2013

Local school districts analyze state pension reform

NEW CASTLE — Local school districts are waiting to hear whether a pension reform plan proposed by the governor will come to pass.

Without it, they are anticipating continued increases in their employer contributions to the Public School Employees Retirement System.

Gov. Tom Corbett has said he will work closely with the state retirement systems, teachers unions and Legislature to address the state’s pension system, which has more than $41 billion in unfunded liability and is obligating more and more money from school districts in employer contribution costs.

The governor’s proposal could save more than $2 billion over the next five years and could save school districts $1 billion during that time.

Joe Ambrosini, New Castle school district’s business manager, explained that were the governor’s proposal to pass, some of the reduction in employee benefits would translate into a reduced percentage of a maximum increase districts would have to pay from one year to the next.

The legislation would cap the increase at 2.5 percent per year as opposed to the current increases of 4.5 percent. “That would be more manageable for the budget,” Ambrosini said.

The 2013-14 increase is set at 16.93 percent, but under the governor’s plan the rate would be 14.68 percent — a decrease of 2.25 percent.

Based on the New Castle district’s salaries totaling $20,450,000 for 2012-13, applying this year’s employer retirement rate of 12.68 percent, the district’s contribution would be $2,593,060, according to information Ambrosini provided.

Ambrosini noted the state reimburses most districts about half of their total contributions, so the net cost to the district would actually be about $1,296,530 for this year.

For next year, the district’s projected total salary is $21 million. At the 16.93 percent rate, the district’s contribution would be $3,555,300. With the state share of about half, the district would pay $1,777,650.

However, under the pension reform plan, at 14.68 percent, the district would pay only $1,541,400 in 2013-14, which would be a reduction of $236,250.

Other proposed changes would affect future pension benefits of employees, but there would be no change for those already retired.

New employees would have a defined contribution plan, similar to a 401(k), instead of a defined benefit plan.

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