Pension costs to climb higher than expected for school districts

Pennsylvania's school districts have gotten an early lump of coal this holiday season from Harrisburg: word that teacher pension costs, which have taken ever-larger bites out of budgets in recent years, will rise faster than expected in 2017-18.

The board that administers the state's Public School Employees' Retirement System (PSERS) voted this month to increase the rate of districts' per-worker pension contributions from 30.03 percent to 32.57, an 8.5 percent hike.

PSERS officials put the blame in part on the $50 billion fund's flat investments for its fiscal year that ended in June. But they also cast the increase in a positive light, hailing it as the smallest percentage hike since 2009-10, the dawn of Pennsylvania's school funding crisis.

However, the news felt like an icy winter blast to school district business managers, who have watched skyrocketing pension contributions become a leading cause, along with employee health care, of spending shortfalls and rising property taxes.

Between higher payouts to teachers and lower investment returns, the percentage that each school district must contribute for an employee in the PSERS system has gone up dramatically from 5.64 percent in 2010-11.

PSERS had previously called for a 32.04 percent contribution for 2017-18 from districts.

The higher figure "certainly was a surprise for us," said Lee Ann Wentzel, superintendent of the Ridley School District in Delaware County. "Our goal is to have a zero percent [tax] increase this year, so it's going to make it much harder for us."

It's expected to get worse. According to PSERS projections, the districts' rate per employee will rise to 36 percent over the next four years, then remain steady for the next two decades.

At one time, in seeking to stabilize the system and end an era of underfunding, PSERS officials said the rate would max out in 2018-19 at 32 percent. But the 2017-18 rate of 32.57 percent already has blown past that.

"That's not good," said Jennifer Hoff, school board president in Delaware County's cash-strapped William Penn School District, which is suing the state Department of Education over education funding.

Poorer districts aren't the only ones railing against the growing rate of contributions, at least 50 percent of which the state refunds. School officials say salary and benefits eat up the majority of their budgets, and the PSERS contribution is about one-third of that.

"It's been our largest increase," Wentzel said of Ridley, where salary increases totaled less than 2.5 percent over the last three years. She said the district's business manager had not yet calculated the cost of the higher contribution.

Jeff Hellrung, a school board member in one of the region's top districts, Chester County's Unionville-Chadds Ford, wrote in an email that "this reinforces and strengthens even more the critical need for pension reform from Harrisburg. We are in a deep hole and we need, at least, to stop digging."

One reason for the higher-than-expected rate is the annual return of just 1.29 percent posted by PSERS for the fiscal year that ended June 30, adding just $474 million to its assets. The board projects an annual return of 7.25 percent, although PSERS spokeswoman Evelyn Williams noted that is a long-term forecast meant to cover the market's ups and downs during the roughly 30-year career of a typical employee.

For a number of years, the system has been dealing with the impact of a 2001 law - passed at the end of the booming 1990s economy, and when Pennsylvania lawmakers boosted their own pensions by 50 percent - to raise the teacher retirement benefit by 25 percent while slashing the time needed to qualify from 10 years to five. A 2010 reform bill reduced teacher pension benefits, but only for new employees.

Williams said the pension system is striving to pay down an unfunded liability that passed $37 billion last year.

For 15 years, she said, "we were increasing the debt. . . . The rates are still high, employers know that, but at least we're at a level where we're going to reach a turning point."

PSERS is also funded through mandatory contributions from members, who pay 5.25 percent to 10.30 percent of their salaries, depending on their classification and when they joined the system. The rates for members hired after July 1, 2011, will fluctuate based on the fund's performance, according to the board of trustees.

kboccella@phillynews.com

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@Kathy_Boccella