School Pension Costs To Skyrocket Nearly 40 Percent

10:46 PM, Oct 31, 2012   |    comments
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By Joseph Spector, Albany Bureau Chief

ALBANY -- Pension costs for schools are set to grow nearly 40 percent next school year, a major hit to education budgets already crippled by rising costs.

The state Teacher's Retirement System estimated that schools would have to pay as much as 16.5 percent of payroll to cover pension costs, according to a bulletin released earlier this month. The current rate is 11.84 percent.

The system said higher pension costs are expected in future years. The system said the rate for the 2013-14 school year, which starts July 1, would be between 15.5 percent and 16.5 percent of salary.

"We anticipate future increases in the (employer contribution rate). The magnitude of the increases will depend upon future investment performance and member demographic experience," the bulletin to school districts read.

School officials said the increase comes as other costs are growing, such as health insurance for employees. Schools are also grappling with a property-tax cap that limits the growth in taxes to 2 percent a year; an override of the cap requires 60 percent of support from voters in May.

"It's on top of everything else," said Robert Lowry, deputy director of the state Council of School Superintendents.

Growing pension costs continue to be a problem for schools and local governments.

In the 2009-10 school year, pension costs were 6.2 percent of a district's salary and cost $926 million statewide. In fall 2013, nearly double will need to be collected: about $1.8 billion. The new pension costs would need to be collected in the fall of 2014.

The poor economy has hurt public pension funds.

The Teacher's Retirement Fund has not indicated whether it's dropping its estimated annual rate of return of 8 percent. The rate of return for the fiscal year that ended June 30 was 2.8 percent, the bulletin said.

The state Comptroller's Office in 2010 lowered its expected rate of return from 8 percent to 7.5 percent on the state pension fund amid the struggles on Wall Street.

As of July, the teacher's retirement system was worth about $88 billion and covered about 149,000 retirees and 277,000 active members. The average teacher pension in the system was $38,238 last year.

E.J. McMahon, senior fellow at the fiscally conservative Empire Center for New York State Policy, said the Teacher's Retirement System has compounded its problems by having a modest increase last year of 6.5 percent and by not lowering its 8 percent estimated rate of return.

He predicted the system's pension costs would grow to 20 percent of salary.

"They artificially deflated it for a year. This was inevitable," McMahon said.

In August, Comptroller Thomas DiNapoli said local and state governments would need to contribute an average of 20.9 percent of salaries into the state pension system, an increase of 10.6 percent.

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