Local school districts analyze state pension reform

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.

UNHAPPY TEACHERS?

Stanley Magusiak, New Castle’s acting superintendent, commented that, “based on my limited knowledge of the bill, I can't imagine many educators would be happy about the changes.”

The proposed changing of the multiplier used to determine pension benefits, from 2.5 percent per year to 2 percent, caught his attention, he said, and another change would be in determining an employee’s final salary by averaging the employee’s last five years of compensation as opposed to the highest three, as it is now.

This is supposed to be happening on July 1, 2015, he said. “I believe these changes, among others, will help make up the minds of those educators (who) are deciding whether to retire or not.”

Shenango’ superintendent, Mike Schreck, said he foresees the governor having difficulty in getting his version of pension reform passed.

“It is obvious that something has to be done to fix the pension crisis in Pennsylvania,” Schreck said, “but I believe the governor is going to have a tough road ahead trying to pass this version of pension reform.”

According to Schreck, the district’s employer contribution to the system this year will represent an increase of 12.36 percent, which equals $988,906.

Acknowledging the school districts’ contribution rate for 2013-14 is set at 16.93 percent, that will make the district’s share about $1,381,383. That is an increase of almost $400,000 from this school year.

PROJECTIONS

If the governor’s pension reform is adopted, it is anticipated that Shenango’s contribution rate would be 14.68 percent for next school year, which would mean an increase of only $209,000 from this year, Schreck said.

He noted that the 2013-2014 figures were calculated using a 2 percent raise for all staff.

With public schools receiving state reimbursement to help cover pension contributions, Shenango last year received 55 percent and this year, 59 percent.

Jennifer Conrad, Wilmington’s business manager, anticipates the state will provide districts with additional guidance as the proposed effective date for the changes nears and as more details of the governor’s plan are revealed.

“As I understand it, this is basically a complete overhaul of the retirement system that is going to require a great deal of discussion and deliberation in Harrisburg before a final plan is put into place.

“Obviously, the proposed plan is intended to benefit school districts and the state, while still offering state employees an expected level of retirement stability,” Conrad said.

Wilmington’s obligation for the 2011-12 school year was $718,862, and this school year, the district will pay about $1,013,000, Conrad said.

The district will have a new teachers contract for 2013-14 and 2014-15. Using current payroll figures, it’s estimated the district’s share will be $1,387,229, and $1,736,289, respectively, as its obligations stand right now, she said, without any change in the contribution percentage.

(Email: dwachter@ncnewsonline.com)