What Can Penn Trafford Do About Pensions?

In Pennsylvania, public teachers annual pensions equal the average of their three highest years salaries times 2.5 percent times the number of years worked. In Council Rock, the average teachers salary approximates almost $100,000. Accordingly, a teacher making $100,000 and retiring after 35 years, would receive an annual pension of $87,500 for life ($100,000 x .025 x 35 years). If the teacher started working at 22 after college and retired at 57, he/she would expect to receive an additional $2,012,500 (23 years x 87,500) using an actuarial 23 year remaining life span. Many teachers will make more in 23 years retirement than they did working 35 years. Until 2001, the annual percentage coefficient was 2 percent, but in a 2001 political deal whereby state politicians increased their own pensions 50 percent, they also increased teachers pensions 25 percent without receiving any union concessions. It was a pure political gift. How many private sector employees get a free 25 percent retirement increase? Simple answer: none. By contrast, the average private sector retirement income was approximately $35,100 for an entire household in 2011 per the Census Bureau. Roughly $15,000 of this amount was Social Security and the remainder employer retirement plans. The net result is teachers receive 200-300 percent more than private sector employees, retire earlier, and work an average of 188 days a year, vs. approximately 240 days in the private sector. Although teachers contribute approximately 7 percent of their income to retirement, most of teacher benefits are funded by taxpayers not the teacher contributions. The fact is politicians have promised unions unsustainable benefits (to get votes and contributions), but have been unwilling to fund same because the tax increases would cause them to lose non-union votes. As a result of such payment deferrals, teacher pension contributions in Penn Trafford will increase 100 percent increase in the next four years. In the private sector, 69 percent of retirement plans are defined contribution plans, where the employer makes a fixed contribution but does not guarantee a fixed retirement benefit. All losses are incurred by employees. By contrast, public employees are almost exclusively covered by defined benefit plans. In Pennsylvania, a fixed benefit is guaranteed by the commonwealth. In the recent recession, private sector defined contribution retirees lost an average of $117,000 or 25-40 percent of their retirement savings. Teachers lost nothing because the commonwealth (hence the taxpayers) must make up teacher plan losses! Governor Corbett and most Republicans have correctly advocated switching new teachers to a defined contribution plan to stop the financial cost to taxpayers and put teachers in the same real world as private sector employees. Rowland and most Democrats reject such common sense because there will be a one-time cost. That cost occurs because the commonwealth has been operating a Ponzi scheme it spends pension contributions for other purposes and incurs investment losses and now needs new teacher contributions and more taxes to pay for current retirees. Teachers unions fight reasonable changes because they want to preserve their retirement gravy train and keep the huge retirement largesse under the taxpayers radar. Without Harrisburg action, which seems unlikely, the only alternative is to adjust salaries and health care cost to district employee in upcoming union contract so they approach those in the private sector.