Why Pennsylvania school pensions 'outrage' taxpayers

Pennsylvania teachers say it's unfair that some taxpayers are angry about the cost of their pension program

Pension envy: It's what many readers feel when they read about Pennsylvania public school employees, whose relatively generous pensions have been consuming a larger share of state and local school district budgets.

After I wrote about how the state's Public School Employees' Retirement System (PSERS) made nearly 11 percent on its investments last year, I heard from upset taxpayers -- and from veteran school employees who felt hurt by the public reaction.

One Philadelphia math teacher asked me to explain the "outrage" our reader-commenters expressed toward her and others who will get school pensions.

After all, she reminded me, teachers pay 7.5 percent of their income to fund their pensions. She knew the state and the school districts in the past had paid a lot less, what with disappointing investment returns, and legislative delays. She knew that's why taxpayer contributions have gone up sharply in recent years, because legislators strengthened the law to boost payments.

Teaching is important, and hard, and sometimes dangerous, she reminded me. So why are some of my readers  so "nasty"?

I sent her to the PSERS annual Overview of the Investment Portfolio at www.psers.pa.gov, and the Summary Statements of Changes on Page 5. 

The "Pension Benefits" line shows how much Pennsylvania school pensioners collected during the schools' fiscal year 2016: $6.3 billion.

"Member Contributions" shows what school workers paid toward pensions with their 7.5 percent paycheck deductions -- $989 million. That covered less than one-sixth the cost of last year's pensions.

Where does PSERS get the rest of its money?

There's the "Net Investment Income" from the $50 billion PSERS invests. In school year 2016, that yielded just $473 million. 

And there's PSERS's main source of income -- "Employer Contributions" -- from state taxpayers and local school property taxes. Those totaled $3.2 billion.

Add it all up, and PSERS paid pensioners more than $6 billion, while bringing in less than $5 billion.

Of course, investment results are variable. PSERS had a weak 2015, losing money during the calendar year. Investments recovered sharply as stocks and commodities rebounded last fall, bringing in $2 billion. The system's assets are still far below its long-term obligations. 

Taxpayer-funded "Employer Contributions" are still projected to rise -- to nearly $4 billion this year, and $4.4 billion next year.

Few other items in the state budget have grown as large, or as fast, as school (PSERS) and state worker (SERS) pensions, in recent years.

I asked the math teacher: How much will your pension be, compared with your former pay?

Many long-serving school employees -- including most of the teachers currently vested -- will be eligible to collect as much each year as they used to get paid, she agreed.  

Add in Social Security, and school employees can make more when they're retired than when they were working. That includes that smaller group of administrators and senior teachers in rich suburban districts, who retire at more than $100,000.

How many retirees from private companies will get retirement pay equal to what they made when they were working? I asked.

She told me her husband, working at a big Philadelphia-area company, didn't have to pay for his pension.

I reminded her that her husband's company has frozen its pension plans for younger workers, and is now giving them -- not a guaranteed pension like her husband's or the teachers' -- but a 401(k) plan, where the value can rise or fall with the markets. And the company never has to put another dollar in.

That's why some of our readers end up resenting the public-sector pensions: They believe that  they are paying more every year in taxes for the government plans, which pay a lot more than theirs does.

She politely thanked me for taking the time. She told me about her sons -- one has "a pension, 401(k) plan and bonuses," the other has only a 401(k), and has been setting aside money in Roth IRAs, hoping the market keeps going up.

I told her it would be great if Pennsylvania or the U.S.A. found a way to give all hard-working people the kind of pensions that school employee unions and elected officials agreed to. 

But it's not too clear how many private employers could afford pensions like that. And most Pennsylvanians -- and Americans, generally -- have been voting for tax-cutters, not candidates who want to expand pension programs.

"All hard-working people deserve pensions. I am just tired of being vilified by the public for being a teacher," she concluded.

She promised to read the financial reports for herself -- once she's done marking piles of math tests.