PSERS: Perfect Storm Empties Residents' Savings

March 26, 2012

Four years ago, QCSD was faced with a problem. Actually, it was faced with nothing but problems, but let's stay focused here. Our free-spending school board had hired too many teachers, and lavished them with top-10-in-the-state salaries. Our budget was busted.

PA education law, pretty much controlled by the teachers' unions, does not permit a district to simply lay off teachers to save taxpayer money. (A bipartisan bill to allow such cost-cutting passed the State Senate last May, but has been bottled up in the House. You can guess by whom.) But it does allow teachers to take early retirement. Their salaries then come off of the books of the school districts, and become the problem of PSERS, the Public School Employees' Retirement System, which has 279,000 active members and 194,000 retirees.

So QCSD encouraged early retirements, and 41 of the 60 eligible teachers, each with 25 or more years of experience, took the money, almost $1 million in total, and ran. That's a cool mil in addition to their pensions. Predictably, Superintendent Lisa Andrejko loudly proclaimed victory. And then, with considerably less fanfare (read: none) she super-quietly replaced almost all of them, at an average salary/benefits package of $66,900.

It tells you plenty about what we were paying our teachers if the newbies - the ones intended to bring us salary relief - took home an average of almost $67,000 in their first year. But QCSD's budget got a bit of short-term help. We simply pushed our problems into the future.

And the future is now. The smaller issue is that those newcomers are all earning higher salaries, which increase every year. The gigantic problem is that the 41 high-paid early retirees, most of whom are collecting pensions of about $50,000 - $80,000 a year (75 percent of their highest pay rate), are part of a system that is about to overwhelm PA residents. PSERS now stands for Perfect Storm Empties Residents' Savings.

No one outside of academia really paid much attention to PSERS until a few years ago, when the public first learned of the disastrous consequences of our state legislators' 2001 gift to themselves, and the teachers' unions. In that economic boom year, a bipartisan majority of Harrisburg lawmakers increased their own retirement benefits by 50 percent. And after the teachers' unions squawked "where's our share?", the legislators obliged with a 25 percent boost for school employees. A year later, they gratuitously included all teachers who had already retired.

For anyone who noticed, and objected, we were blithely assured that the PSERS fund had plenty of money, and we could well afford the increases without higher state and school district payments. After all, the stock market had been on a 10-year bull run. Time for our elected leaders to cash in.

Oops. Shame on us for believing them. The Dow Jones had already lost nine percent of its peak value at the start of 2001, while the tech-heavy Nasdaq had lost 44 percent. Throw in the Enron accounting scandals, 9/11, and the flattening of the internet bubble, and as of September, 2002, the Dow Jones Industrial Average had lost 27 percent of the value it held on January 1, 2001, a total loss of 5 trillion dollars.

PSERS funds were devastated. There wasn't sufficient money to pay those handsome new benefits. Had PSERS payments been made according to the rules at that time, state and employer (school district) contributions would have more than doubled, then increased more than eightfold over the next nine years. But when given the opportunity to solve the problem by simply rolling back, or deferring, their newfound retirement wealth, lawmakers just said no. Instead, they set events in motion that will cost everyone (except themselves and the teachers) a frackin' fortune.

The legislature kept their increases, and, like QCSD, went for the short-term fix. They changed the PSERS rules, and deferred the really big increases for 10 years, when many of them would already be...(you see what's coming)...(wait for it)....(wait for it).... retired!

The stock market did rally over the next few years. But, deja vu all over again: the 2008 plunge brought on by the Wall Street debacle, and plummeting housing prices and employment, wiped out those gains. So in 2010, the legislature passed another bill. Nope, they didn't end the monster retirement payouts. They aren't taking a cent less, despite the devastation that PSERS is about to cause to their constituents. They again slowed the rate of increase, and again spread it out over a longer time. Kind of like refinancing your home: yearly payments go down, but you end up paying far more interest over the life of the loan. You mortgage your future. And our lawmakers mortgaged ours.

If the bill had not been enacted, pension contributions for 2012-13 would have been $2.5 billion more, and the employer rate would have been an astronomical 29.6 percent of payroll, instead of the current 12.4 percent. But we have only delayed the debacle. Employer contribution rates (translation: your school real estate tax dollars) for PSERS are projected to be:

2013-14 - 16.75%

2014-15 - 21.25%

2015-16 - 25.56%

2016-17 - 26.26%

And that's not the end. Contributions then gradually increase until 2035. The system, which next fiscal year will be funded at only about 64 percent of the amount it needs to fulfill its obligations, won't be fully funded until 2045. Of course, we are told, those are estimates, which could change down the road. Again.

The result of this mess is that while PA is slashing aid to education, and raising tuition at state-affiliated universities, PSERS payments for 2012-13 from the state and school districts will skyrocket by about 45 percent, to $1.7 billion. The state share of that contribution is $916 million, compared to $600 million this year. State PSERS payments increase from 6.7 percent of the total state K-12 school budget to a whopping 10 percent.

And it gets far worse. State and local contributions are projected to be almost $2.5 billion in 2013-14, and almost $5 billion by 2019-20!!!!

How does this effect us in QCSD? The current school year budget provides $1,845,231 for PSERS. The required 45 percent increase forces our payment for next year to $2,669,135, an increase of $823,904. That increase alone could pay for about 12 teachers, something to think about when the directors are forced to decide between program cuts or tax increases. And based on the state's projections, those numbers will be dwarfed by what is coming.

All of this will allow our legislators, and teachers, to retire in even greater comfort. Not a penny will go toward educational programs, extracurricular activities, maintaining facilities, or new construction. In fact, nothing for the schools at all!!!