Posts tagged ‘Pension’

March 14, 2013

Even after recent reform, New York teacher pension costs will rise 37%

by Grace

A history of New York State public school pension reform:

20130309.COCNYPensionTiers2

Recent reform that saw the creation of Tier 6 is unlikely to offer taxpayers any relief for at least a decade.

Over time, lawmakers have passed legislation to reduce the cost of pensions to state and local governments and school districts. The avenue they have used to do this is to create additional “tiers”—levels of membership that carry different benefits and requirements. After the passage of Tier 5 in 2009, calls for pension reform persisted, and a new Tier 6 was enacted this year.

Gov. Cuomo has said that the recently enacted pension reform will save the state more than $80 billion over the next 30 years. However, according to the NYS Comptroller’s Office, the creation of Tier 6 will not significantly lower pension costs for schools in the immediate future to prevent the kinds of program cuts many districts face in the next few years.

This is because the new pension tier applies only to new employees hired after April 1, 2012. With school districts struggling to balance their budgets in this difficult economy, most are laying off staff rather than hiring new employees who would fall into the new tier.

Pension costs have continued to surge out of control, as I wrote last year.

… skyrocketing public pension costs are “the single biggest threat” to local schools’ ability to deliver educational  services for New York children.  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.

There is no relief in sight.  Teacher pension costs for the 2013-14 school year will rise 37%.

Related:

February 4, 2013

Despite increased education spending, surging pension costs only allow New York schools to ‘tread water’

by Grace

The 4.4% increase in school spending proposed by New York Governor Andrew Cuomo is not enough according to some education advocates.

Cuomo’s budget plan for the fiscal year that starts April 1 includes a 3 percent increase — about $610 million — in education aid plus $203 million to offset high pension contribution costs. An additional $75 million would go toward initiatives highlighted in his State of the State address.

Proposed funding barely allows schools to “tread water”.

“The year-to-year costs in education just to tread water are more than the amount of money in the proposed budget,” said Billy Easton, executive director of the labor-backed advocacy group Alliance for Quality Education. “If we actually want to improve the schools — that’s not even addressed here.”

Governor Cuomo argues that the 8.6% increase in education funding over the last two years has been double the inflation rate.

“That is double the rate of inflation,” Cuomo said in Tuesday’s address. “That is four or five times the increase in home values during the same period of time and it’s during a period of time where student enrollment has gone down.”

Schools across the state report that steep rises in pension costs more than cancel out any increases in proposed funding.

New Paltz Superintendent Maria Rice said teachers’ retirement costs alone at the Ulster County district are growing by about $900,000, so the $333,500 increase won’t come close.

The district would get about $12.4 million, a 2.8 percent increase from last year, when including building aid. The county’s average is 2 percent.

Based on the aid, Rice projects the district will have to cut between $800,000 and $1 million to balance the budget, which is “luckily” less than last year’s gap, she said.

The district cut its pre-K program and increased class sizes this year. Next year, she said she’ll debate whether to cut Advanced Placement courses or eliminate an elementary foreign language program which she said has been successful.

Some schools are considering taking advantage of a new “pension-financing plan”.

The pension stabilization option would give local governments and school districts a lower, more predictable employer contribution rate over a period of 25 years or more, rather than high bills now and presumably lower ones later.

Not everyone believes this new scheme will work, with some calling it a “threat to pension solvency”.

The state’s largest public union is right. Gov. Andrew Cuomo’s proposal to “smooth” pensions for local governments and school districts is “a bait-and-switch scheme … that will allow public employers to underfund their pension obligations,” as the Civil Service Employees Association described it last week.

Kicking the can down the road
Instead of providing real mandate relief to remedy the unsustainable rise in pension costs, the governor is promoting a quick fix that will temporarily hide the problem until a few years down the road when it will resurface.  This has become a typical scenario among our politicians.

Related:

December 28, 2012

Under New York 2% tax cap, protected pensions will cause even more cuts to student services

by Grace

In New York, public schools are struggling with rising pension costs and a 2% tax cap as they plan for next year’s budgets. As the situation becomes desperate, one official warns that school security may suffer. 

School districts face a daunting challenge as they begin drafting budgets for 2013-14: Rising pension costs alone could eat up most or all of their allowable tax-levy increase under the state’s tax-levy cap.

“It’s debilitating for us, terrible,” said Thomas DePrisco, a member of the Pearl River Board of Education.

Pension costs will increase nearly 40%, forcing cuts in student services.

District contributions to the pension system for teachers and administrators are expected to rise close to 40 percent next year. This increase could translate into hundreds of thousands of dollars for small districts and several million for larger districts, which will require raising the tax levy by 2 percent or 3 percent in most districts.

Since the state cap starts at 2 percent before adjustments, most districts will not be able to increase spending in other areas, from health insurance to curriculum materials, without making equivalent cuts to programs and staff.

Students are being punished.

“The numbers are punitive, a shocker,” said Kendall Egan, a member of the Rye school board and president of the Westchester-Putnam School Boards Association. “You’ve already filled up your cap. It’s hard to make your community understand that there is so much out of the control of a school board. We’ll be back to going line-by-line through our budgets, looking for all possible savings.”

Pension contributions will increase to about 16% of payroll costs.

Under state law, all school districts outside of New York City must contribute a percentage of their payroll each year to two pension systems, one for teachers and administrators, and one for support staff. The percentages are determined by the two systems’ past investment performances. Next year’s contributions are tied to the period between 2007-08 and 2011-12, when investment returns were down.

The New York State Teacher Retirement System recently notified districts that it expects to raise their 2013-14 contribution to between 15.5 percent and 16.5 percent of payroll, up from 11.8 percent of payroll this year. The employer contribution has varied between 6 and 9 percent of payroll in recent years.

The TRS fund, which pays pensions to retired teachers and administrators, has $88 billion in assets. It is paying benefits to almost 150,000 people, up from 100,000 in the year 2000. Its active membership — those who will receive future benefits — has increased from 225,000 people in 2000 to 277,273 this year.

Schools will start with a deficit.

The Valhalla school district expects to increase its Teacher Retirement System contribution by about $930,000 to more than $3 million, while its Employees Retirement System contribution will rise by about $91,000. These increases alone will require raising the district’s tax levy by about 2.5 percent.

“We start the budget planning process in a deficit and wonder how we’ll stay under the cap,” Superintendent Brenda Myers said.

Teachers’ pensions were protected under the property tax cap legislation but student services were not.

The property-tax cap, going into its second year, starts by limiting tax-levy increases to 2 percent, but the number can go up or down depending on several factors. Pension cost increases over 2 percent are exempt from the cap, which is little consolation for districts that are up against the cap anyway.

Politician wants to give teachers even more protection.

Assemblywoman Ellen Jaffee, D-Suffern, said she is considering proposing legislation that would exempt additional pension costs and perhaps tax certiorari payments from the cap.

“It could help stabilize the situation,” she said. “There are very real concerns about districts facing insolvency.”

‘rising pension and health care costs’ leading to ‘dangerous territory’

Ken Slentz, deputy state commissioner of education, said that rising pension and health care costs will result in people losing their jobs so districts can stay under the cap.

“Where are we headed?” he said. “Dangerous territory.”

Recent pension reform had little effect.

A key factor is that 86 percent of all teachers and administrators statewide are in Tier 4 of the pension system, meaning that they contribute 3 percent of their salary to the system for only 10 years and nothing thereafter. Tiers 5 and 6, created since 2009, require ongoing employee contributions but currently include only 8 percent of all members.

In a low blow that may have been meant to evoke fears related to the recent tragedy in Newtown, one official intimates that school security may suffer.

“The impact on our budgets is devastating,” Burrell said. “If we can’t raise tax levies, and taxes are already too high for many people, districts will have to make uncomfortable choices. Will districts have to choose between AP classes and security?”

Related:

November 14, 2012

Quick links – Parents burdened by ‘crushing’ student loans; young voters turned out in record numbers; longing for pensions

by Grace

——  ‘Child’s Education, but Parents’ Crushing Loans’  (New York Times)

There are record numbers of student borrowers in financial distress, according to federal data. But millions of parents who have taken out loans to pay for their children’s college education make up a less visible generation in debt. For the most part, these parents did well enough through midlife to take on sizable loans, but some have since fallen on tough times because of the recession, health problems, job loss or lives that took a sudden hard turn.

And unlike the angry students who have recently taken to the streets to protest their indebtedness, most of these parents are too ashamed to draw attention to themselves.

Related:  Paying student loans in your 20s, 30s, and beyond interferes with saving for retirement (Cost of College)

——  College students voted in record numbers with most supporting Obama.

According to Fair Elections, 19 percent of all voters this year were between the ages of 18 and 29, which is a percentage point higher than the turnout of young voters in the 2008 presidential election.

Spaulding said while total number of young voters remained “on-par” with the numbers from 2008, in some states, such as California, the percentage of voters under 30 years old increased by over 5 percent.

He attributes the spike in young voter turnout to the increasing ease of voter registration. Many first time voters are uninformed as to how and where to register which eventually causes them to miss out on voting entirely, he said. Spaulding said the rise of online registration is one of the biggest factors in increasing participation.

Obama support slipped, but remained higher than for Republican candidate.

In some battleground states, tallies show, their ballots were decisive factors in the president’s victory….

… Sixty percent of young people voted for him, compared with 66 percent four years ago….

… As in 2008, the edge young voters gave to Mr. Obama proved decisive in some states. According to Circle, in the battleground states of Florida, Ohio, Pennsylvania, and Virginia, if young people had not voted or if only half of them had supported the president, Mr. Romney would have won.


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Employees lust after pensions, but the memory may be better than the reality.

… In several head-to-head questions, researchers asked whether workers would prefer it if their employers offered them a guaranteed retirement benefit (essentially a pension) or other perks. A large plurality – 49% — chose the pension over the opportunity to earn a bigger bonus….

… A generation ago, pension plans were offered to more than four out of five private-sector workers; today it’s fewer than one in three. Pensions have largely been replaced by defined contribution retirement plans like 401(k)s, which were hammered along with stock and bond prices during the financial crisis….

There’s also some evidence workers may be looking at the past with rose colored glasses. Another recent study from the Investment Company Institute, the mutual fund industry’s trade group, argues exactly that. Its findings: In 1980, payments from private pension plans accounted for only about 8% of retirees’ overall income, compared to 53% for social security. (The rest came from other sources, ranging from other forms of government help to dividends on stocks.)

Since most 401(k)s are stocked with mutual funds, of course, the institute has a lot to gain from promoting the current 401(k) system. But the study is still worth note. The explanation: While many workers had access to pension plans thirty years ago, many failed to collect full benefits because of various factors. Switching jobs, for example, tended to reduce employees’ standing under formulas plans used to calculate payouts. The government moved to fix these problems with new laws in the 1970s and ‘80s, but by then the move to 401(k)-type plans was already underway.

“There’s a persistent misconception that there once existed a time when private sector workers typically retired with full pension benefits,” says ICI senior economist Peter Brady. “Many actually received little or nothing.”

Were pensions as great as you remember? (WSJ MarketWatch)

May 4, 2012

A primer on New York State public school pensions

by Grace

A primer on New York State public school pensions provided by Capital Region BOCES:

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.

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