New York state’s school district employees outside of New York City generally belong to one of two public pension systems – the New York State Teachers’ Retirement System (TRS) and the New York State Employee Retirement System (ERS).
The pension benefit that individual retirees receive depend on various factors, including: which system they are in; their salary; the date employment began; years of service; and age at retirement.
Pension systems have three sources of revenue: employee contributions, employer contributions (those from state and local government and school districts), and the investment returns on these contributions.
Employee contributions are based on the date employment began. Employees hired before July 1976 were not required to contribute. Those hired since then have had to contribute 3% of their salaries for at least a portion of their careers; and new employees will contribute 3% or more for the duration of employment.
How are the contributions of state and local governments and school districts determined? Employer contributions are determined according to an accounting model that takes into account the future liabilities (pension payouts) of the system and the value of the fund. The state sets employer contribution levels each year in order to ensure that the systems are fully funded in relation to future obligations.
Market conditions are a major factor in determining pension costs. The contribution rates of the state pension systems are set annually by accounting for the value of the funds in relation to future obligations. Therefore, as markets fluctuate—and cause the value of the ERS and TRS investments to change—so do the rates of employer contributions to the systems. Thus, the economic slowdown of recent years has been a major driver of the increases in pension costs to school districts and other governments in New York state.
As pension costs rise student services are cut
In our local district, pension costs have risen more than 50% over the last two years and now account for 7.2% of the total budget, up from 5.1% in 2010-11. This has meant ongoing cuts in student services as taxes are diverted to pay for pensions. The trend is up, and by 2015 pension costs are expected to eat up 35 percent of property tax collections.
The good news
New York is one of a handful of states that entered the current economic downturn with a fully funded pension system, according to a 2010 study from The Pew Center on the States. Many states have funded their pension systems at levels far lower than their future obligations require, and some have skipped payments altogether— but not New York.
- ‘Exploding pension costs are the single biggest threat to local government’s ability to deliver needed services’ (costofcollege.wordpress.com)