Pension reform is essential — and possible– argues a new Fordham report, The Big Squeeze: Retirement Costs and School District Budgets.
Philadelphia schools could spend as much as $2,361 per pupil by 2020 on retiree costs alone, more than 10 times the current level — and 13 percent of the school district budget — if the governor’s pension reform plan doesn’t become law, the report warns.
Milwaukee will spend $1,924 per pupil on pensions and health care for retirees, but that’s $1,588 less per pupil because Wisconsin passed Act 10, a reform measure.
Ohio’s pension reform means Cleveland schools will spend less on retirement costs in 2020 than it did in 2011; the new laws are projected to save it about $1,200 per pupil that year.
But pension reform is always costly for someone. Both Wisconsin and Ohio in effect raised employee pension contributions and reduced retiree health benefits. While the changes in Milwaukee will be shared by all teachers, the impact in Cleveland will be felt disproportionately by new teachers, who will be essentially “taxed” to pay for the benefits of current and past employees.
That could discourage young people from entering teaching, the report warns. Young teachers will earn less — and less in the future — to maintain “relatively generous benefits for veteran teachers and current retirees —some of whom will spend more years in retirement than they did in the classroom.”
Pensions for public-sector employees will change dramatically in the future, Fordham predicts. Public employees may be offered 401(k)-style plans or “cash-balance plans. The current system isn’t sustainable.
Lawmakers have promised teachers retirement benefits that the system cannot afford, because the promises were based on short-term political considerations and willfully bad (or thoroughly incompetent) math. (For instance: assumptions about market returns that were wildly optimistic, and assumptions about longevity that were overly pessimistic.) The bill is coming due and someone’s going to get soaked.
Retirement benefits take 10 percent of the school budget in St. Louis, writes Stephen Sawchuk. Student enrollment is declining as pension costs are rising. ” The situation has hastened some of the district’s cost-cutting measures, and fights over whether and how to restructure pensions are looming.”