District Administration - January 2010 - (Page 41)

employees nationwide enjoy and the enormous costs of which crippled sectors like the American automotive industry—in favor of “defined contribution” plans like the 401(k) and other private investment accounts. According to the Center for Retirement Research at Boston College, just 17 percent of all private sector workers in 2007 exclusively had a defined benefit plan for retirement income, down from 62 percent in 1983. Conversely, 63 percent of all private sector workers exclusively relied on a 401(k) defined contribution plan in 2007, compared to 12 percent in 1983, almost an exact reversal. Perhaps unsurprisingly, teacher unions have the opposite viewpoint of Schwarzenegger and other likeminded critics of pensions, and don’t hesitate to question the legitimacy of claims that a crisis exists. “Pension funds have been around for over 100 years and have weathered every economic crisis during that time, including the Great Depression,” says John Abraham, director of the Member Benefits Department for the American Federation of Teachers. “The writers of these stories are people who want to do nothing less than destroy state governments. That’s what’s driving all this negative press … these tax cutters.” Bill Raabe, director of the Collective Bargaining and Member Advocacy Department at the National Education Association, is also skeptical. “Pension systems, state governments, employers and employees need to look at the whole problem and first ask, “Is our problem real?” says Raabe. “Then, if they decide that it isn’t something created for political reasons, they have to examine the rates of contributions, investments and benefits, and determine what mix of those will solve the problem.” Costly Solutions for Districts Union skepticism notwithstanding, proposed solutions to the crisis are moving forward and vary by state, but in most, the proposals are going to cost districts. “We have an advisory committee that has been studying this for months,” says Julie Economaki, spokesperson for the Iowa Public Employees Retirement System, or even higher, depending on stock market returns. The state of Vermont is facing a $700 million unfunded liability in its teacher pension system, according to State Treasurer Jeb Spaulding. “People are living longer and living in retirement longer. We’ve seen our benefit payouts increase significantly every year, and they are “These changes will have devastating impacts on our operating budget.” —Don Aguillard, superintendent, St. Mary Parish (La.) Schools which had an investment return last year of negative 16.27 percent, losing over $3 billion. “It advised the legislature to both increase pension contribution rates and reduce future benefits,” says Economaki, adding that both school employees and districts would have to contribute to the rate increases. The Ohio pension system has recently proposed a number of reforms, including raising the contribution rates for school districts from 14 percent to 16.5 percent of payroll over five years beginning in 2016, and capping the number of years of pension payments at 33.4 years. Similarly, Oregon—often touted as an example of a successful state pension overhaul after 2003 reforms cut retirement benefits to current employees, erasing an unfunded liability of $15.7 billion—is considering a significant increase in employer contributions after the state fund lost $17 billion in the 2008 market crash, possibly doubling school district payments to 25 percent of payroll in the next five years, projected to go up another 50 percent in the next five years,” says Spaulding. A committee including Spaulding has proposed not only raising the retirement age, increasing the number of years required to earn a pension, and reducing benefits to future retirees, but also requiring districts to contribute a percentage of payroll to the pension fund or retiree health plan costs, which they do not currently do in the state. “But adding those costs to districts is controversial, because taxpayers are already under a lot of financial pressure to pay their local property tax, which is the source of that revenue,” says Spaulding, adding that raising those taxes would be a difficult proposition. Defined Contribution Even more controversial are proposals to dramatically overhaul pension systems by transitioning from defined benefit plans to defined contribution accounts like the 401(k), following the broader trend across the private sector. Reform attempts 49: number of states $2.73 trillion: with pension systems that were less than 80 percent funded, 2007 (American Enterprise Institute, Center For Retirement Research at Boston College, Forbes) www.DistrictAdministration.com cost of promised pensions, health care and other retirement benefits for all public employees in the next 30 years (Pew Center on the States) January 2010 41 http://www.DistrictAdministration.com

Table of Contents for the Digital Edition of District Administration - January 2010

District Administration - January 2010
Table of Contents
From the Editor
News Update
Health Update
Curriculum Update
District Profile
The Feud Over Food
Discipline Gets the Boot
Cutting Technology Costs with Refurbished Computers
Will Pensions Bankrupt Your District?
Tech Disruptions
Crisis Response
Supervisor’s Opinion
Product Focus
New Products
Online Edge

District Administration - January 2010