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home : schools : schools February 5, 2016

12/19/2012 12:24:00 PM
District 65 and 202 School Boards to Consider Possible Shift of Pension Costs
By Larry Gavin

The District 65 and 202 School Boards are planning to discuss a joint resolution concerning proposals to shift the cost of funding teacher pensions from the State to school districts at their joint meeting in January, said Superintendent Hardy Murphy at a District 65 School Board meeting on Dec. 17.

State legislators are considering a proposal to shift the "normal cost" (e.g., the cost attributable to the current year) of funding pensions of teachers in the Teachers’ Retirement System (TRS) from the State to local school districts. Last year, the State’s "normal cost" to fund TRS was pegged at about $800 million. This does not include the amount needed to pay down the unfunded liability, which is about $53.5 billion, according to TRS’ estimate.

Teachers at School Districts 65 and 202 are members of TRS, so both Districts would be impacted by the cost-shifting proposals.

The calculations of the "normal cost" and of the unfunded liability are made using an assumption that money held by the pension fund will enjoy an investment rate of return of 8.0%. If the calculations are made using a lower rate of return the "normal cost" and the unfunded liability will be much greater. For example if a 5.5 percent rate of return is used in the assumptions, the unfunded liability is estimated at $75.5 billion. Moody’s is proposing to evaluate pensions using an assumed rate of return of 5.5 percent.

A bill recently submitted by State Representatives Daniel Biss and Robyn Gabel, both of Evanston, and 21 other legislators would phase in the cost-shifting at the rate of 0.5% of a school district’s payroll in fiscal year 2013 and then increase the amount 0.5% each succeeding year until school districts were paying the full "normal cost." Based on other proposed changes in their bill, they assume the normal cost will decrease from 7.89% of payroll to between 5 and 6% of payroll.

Dr. Murphy said the Districts need to speak out in a definitive way explaining how the cost-shifting will impact their budgets and the education of children in the community.

A draft statement presented for review by the District 65 School Board says a shift of the pension costs to the school districts "without other areas of key reform is a non-starter." It states, "Proposals to shift ever increasing costs to the school districts that have been reducing costs and balancing budgets while the State has reduced its payments in support of education is neither fair nor equitable. For decades, teachers and school districts have paid their contributions to TRS prescribed by the State – in full and on time. Shifting the burden of the normal cost of benefits to school districts without meaningful reforms and well-aligned accountabilities will not reform the system or guarantee its return to good health."

The policy statement says three policy options should be a key component of the discussion: 1) changes to the cost-of-living adjustments; 2) in addition to increased contributions by teachers, a tax on pension benefits over a designated minimum that would be earmarked to be put back into the system; and 3) governance changes that place accountability for the future of TRS in the hands of school districts and teachers.

The joint meeting of the District 65 and 202 School Boards is scheduled for Jan. 14, 2013.


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