Why are teachers pension plans in trouble?
Photo: Emma Lee | WHYY
George Bezanis teaches world history at Central High School.
In the Multiple Choices podcast, Keystone Crossroads senior education writer Kevin McCorry joins with Paul Socolar, publisher and editor of the Public School Notebook, and Notebook contributing editor Dale Mezzacappa to explain and explore the history, complexities and controversies of public education funding in Pennsylvania.
The state runs two public employee pension plans that share a parallel narrative. One plan is for teachers and school employees, called PSERS. The other is for other state workers, called SERS — which, in addition to rank-and-file state employees, covers state troopers, lawmakers, judges, top executive branch officials and state university staff members.Collectively these pension plans currently have a $53 billion dollar unfunded liability that's causing major headaches at both the state and local school district level.
How did the state get into this mess?
You have to go back to the late 1990s. The economy was booming. The state was running a surplus, and the public employee pension funds were flush with cash.
By the summer of 2001, state lawmakers voted to boost pension benefits, bumping up the pay-out rate and cutting in half the amount of time it took to become eligible for a pension.
But, then, the bottom fell out.
The attacks of 9/11 came, the economy took a downturn, and surpluses were quickly drained.
In 2003, Ed Rendell came into the Governor's mansion with big plans to boost classroom education spending. And through his two terms in office, neither he nor the legislature made funding state pensions a priority.
They made their "required payments," but only by fiddling with numbers.
In reality, based on actuarial need, the state continually hasn't kicked in enough money to cover its growing debt, the single biggest reason for the dire straits the state currently faces.
Compounding the issue, many school districts used the state's influx in classroom spending to boost employee salaries — which, because pension payouts are based on a percentage of an employee's final pay, drove up the state's debt.
Rendell and state lawmakers believed that the market would rebound, and a surge in the stock market would forgive their underfunding.
Through it all, to this day, state workers made their required contributions, which for teachers is 7.5 percent of salary.
By 2007, with Wall Street booming, Rendell's bet seemed like it just might pay off. But the Why are teachers pension plans in trouble? | Philadelphia Public School Notebook: