Super Predicts Pension Calamity

Super Predicts Pension Calamity

In discussing the financial picture of the Pittsburgh Public Schools-the director of budget, management, and operations reiterated his position that the District will be insolvent by 2015, a statement he made in November of last year-the Superintendent handicapped the Governor’s pension proposal that would affect the District as it pays into PSERS, the state retirement system covering public school employees. That proposal, which we recently wrote about, would affect future earnings of current employees and would put new hires into a defined contribution type plan on a certain date if enacted.

Noting there would be "a lot of pushback", which is not surprising since the state teachers’ union has already stated its position, the Superintendent opined that "Even if it were to go through, it would result in a rush to the exit in 2015 like this state has never seen" and then possibly causing a teacher shortage, especially in certain subject areas, and "That would be a real statewide human resources issue".

Lots of governments, state and local, have made changes to retirement benefits that have affected new hires or close the window on existing benefits but allow those that retire before the changes go into effect to leave with their benefits intact. That’s happened locally with the Port Authority and Pittsburgh police and fire. Existing teachers that could retire before changes to current benefits might; it also happens with early retirement incentives. Those seeking to enter the teaching profession now might be put off by the thought of being employed in Pennsylvania if they had to be in a 401k type defined contribution system. If so, the latest data from the National Conference of State Legislatures shows that 40 states (including Pennsylvania, as no changes have occurred) offer only a defined benefit plan to elementary and secondary teachers. Only Alaska has a mandatory defined contribution plan; Indiana, Oregon, Rhode Island and Washington have mandatory defined benefit/defined contribution hybrids; Virginia and Kansas are moving to db/dc and cash balance plans in the next few years; Florida, Utah, and Michigan allow employees to choose the type of plan.

While the PPS is certainly on hard times and has been for a while, Census data on local government employment and payroll shows that full time equivalent employment in elementary and secondary education (instruction and other) rose by about 50,000 from 1993 to 2011. Teachers, on a per 10,000 person basis, rose from 121.7 to 142.2 over the nearly two decades shown by the Census. Note that all other local government employees-police, fire, librarians, water workers, welfare employees, parks, etc. fell slightly from 131.8 to 129.5 per 10,000 people.

And what of a state like Alaska, where in 2006 the switch was made for teachers by enrolling new hires in a defined contribution plan? In 1993 there were 8,386 teachers, or about 140.2 per 10,000 people. In 2011, five years after the pension change, the Census count of teachers is 11,233, or about 155.1 per 10,000 people. Sure, many of those are still likely working under the old pension plan, but has there been a problem attracting new teachers to the point there is a shortage?