Athens School Board discusses pension crisis
Review Photo/BRIAN BISHOP Thomas Gentzel, executive director of the Pennsylvania School Boards Association, discusses a looming pension crisis, at an Athens School Board meeting.
ATHENS - Swift action is needed by the state legislature on the state's school employees pension system, the executive director of the Pennsylvania School Boards Association (PSBA) recently told the Athens School Board at their meeting.
School districts' contributions to the Pennsylvania School Employees Retirement System rose to 8.22 percent of payroll costs for the 2010-2011 school year, from 4.76 percent in 2009-2010, according to information from the PSBA, and are projected to increase to more than 30 percent by 2014-2015.
Tom Gentzel, PSBA executive director, said that the PSBA has been in conversation with legislators to address the issue of rising pension costs. The Pennsylvania School Employees Retirement System (PSERS) is currently a "defined benefit" plan, Gentzel explained, meaning that employee benefits are determined by a formula, based on factors such as final pay and years of service when the employee retires. In 2001, he said, the state legislature raised the benefits of the PSERS plan, as well as pension plans for other state employees and the legislature itself.
PSERS is a "very well-managed" system, Gentzel said, and is routinely recognized as one of the best run public pension plans in the country. However, the increased costs caused by the pension benefit increases were met by decreased revenue from investments when the stock market fell, Gentzel said. Court rulings have stated that the benefits due to retiring school employees are a contractual obligation on the part of the state and local school districts, who both contribute to the retirement fund, which cannot be changed for employees currently in the system, he said. Employees also contribute to the fund, he said, at a rate that can only be increased if the benefits increase.
PSBA put together a committee to research pension funding, and the chairperson of that group, Pam Markle, who has served as PSBA president in the past, was also present at the meeting to discuss the group's findings. Markle said she had discussed funding the pension plan with staff at the Athens School District, and said the district had budgeted around $760,000 for PSERS costs this year; by the 2012-2013 school year, that number is projected to increase to more than $5 million.
The fact that benefits for employees currently in the system cannot be changed presents a challenge to state legislators, Gentzel said, but something needs to be done to limit the cost increases to local school districts. At the same time, the legislature needs to take steps to change the benefits to new employees, so that the current situation does not recur, he said.
The PSBA has developed a plan to deal with the pension crisis, Gentzel said, which has received support in both chambers of the state legislature, with Rep. Glenn Grell (R-Cumberland County) in the House and Sen. Gene Yaw (R-Lycoming County) both pledging support for the proposal.
The PSBA plan calls for a "hybrid" system, between a "defined benefit" plan, which is currently used, and a "defined contribution" plan, which is similar to a 401K plan and is common in the private sector, for new school employees entering the system, Gentzel said. Defined benefit plans put the burden of risk on the employer, while defined contribution plans put the risk on the employee, he said. The PSBA promotes the hybrid plan in an effort to be fair to everyone involved, he said, adding that the hybrid plan would share the risk between the school districts and their employees.
The PSBA is open to other alternatives and ideas, he said, and welcomed school board members to contribute their thoughts on a solution to the problem.
Gentzel commended Senator Yaw for his leadership on the issue. The pension crisis is important to the state legislature as well as local school boards, he said, because the state also contributes to PSERS. More action is needed from legislators, he said.
Brian Bishop can be reached at (570) 888-9652; or e-mail: bbishop@thedailyreview.com.
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