October 8, 2013
By Russ O’Reilly
State house Rep. John McGinnis, R-Altoona, entered a room packed full of Altoona Area teachers and related an unpopular message: The only way to reform the state’s pension systems is for schools to pay the price.
The state’s pension funds, made up of contributions from employers, employees and the state, are underfunded to the tune of $120 billion, he said, much more than the reported estimates of $47 billion.
School costs – employer contributions – are costing districts millions of dollars annually and are running higher each year because the teachers’ pension system is racked with debt from past legislative decisions to not fund it. [EXPAND Read more]
School officials at districts statewide have been hoping the state will reduce the financial burden on school boards.
But McGinnis, a trained economist, said such proposals require the legislature to borrow money, which he believes is an egregious action, pushing off debt owed for current employee benefits to future taxpayers who have not benefited from the teachers’ services.
“That is manifestly unfair,” he said.
His message was that school districts must pay the cost, and he also suggested that new teachers be enrolled in a defined contribution pension plan instead of the current defined benefits system.
McGinnis stated that the district’s fund balance, about $50 million accumulated through the 29-year career of retired Superintendent Dennis Murray, should be used to pay district obligations to the pension system. He said it wouldn’t solve the problem, but would “buy about eight years.”
Despite assurance that teachers’ benefits or their payments to the system – currently about 10 percent of their annual pay – cannot, under the state constitution, be changed, McGinnis did not appear to win over the crowd of teachers.
Teachers applauded for board member Elizabeth Chapman who rejected perceived notions that employee raises should be held because pay increases raise the board’s pension obligation.
“My comment to that is, we can’t expect our staff to take pay freezes indefinitely and if we want quality administration and staff we have to pay salaries to pay those people.”
McGinnis countered by saying there is an economic reality that has played out in Harrisburg and Philadelphia.
“It is delusional for school boards to think they can keep going on without consequences,” he said.
His slide presentation displayed text reading “At current rates of retirements and withdrawals, the [state teacher pension fund] will be empty within 15 years. Teacher layoffs and curriculum reductions will only get worse,” he said.
The pension system provides defined benefits at the end of an employee’s career based on employee, employer and state funds which are invested in areas including real estate, markets that he said have failed too often, leaving taxpayers to fill the gap.
All state government employees including teachers are members of state pension systems that offer defined benefit plans, meaning the pension is determined at retirement. McGinnis said he has a different pension plan, a defined contribution plan. He suggested new teachers be enrolled in the same type of system because it demands less financial support from districts.
Representing the teacher association at the end of McGinnis’ presentation, James Krug offered a rebuttal to McGinnis’ suggestion to enroll new teachers into a defined contribution plan instead of the old system. He provided papers stating studies from seven states that support his claims.
“You can cost taxpayers an additional $40 billion over the next 30 years because of transition costs [from the old system to the new system]. If you are not putting anybody new into the old system, the state has to make a lot more money for the people who still have their money in there.” [/EXPAND]