Audit: Georgia could save hundreds of millions on teacher pensions

A new audit says Georgia has saved about $71 million by rejiggering its retirement system for state workers and outlines cost-cutting measures that could reduce spending on teacher pensions by hundreds of millions of dollars a year.

The audit — requested by the Senate budget committee — is out just days before legislation is expected to be filed that could include some of the proposals.

The more than $70 billion Teachers Retirement System, which pays benefits to about 127,000 former Georgia educators, has been a hot topic at the General Assembly in recent years because lawmakers have had to pour big money into the fund to keep it financially stable.

Some lawmakers have called the current pension system unsustainable. But legislators have been reluctant to give the idea of changing it anything more than lip service. Bills to consider altering the TRS — which covers about 400,000 teachers, University System of Georgia employees and retired educators — cause a political stir at the Capitol and quickly die.

Educators say the pension is an important tool to help school systems recruit and retain teachers.

“The Teachers Retirement System of Georgia is a vital investment in Georgia’s future and an essential teacher recruitment and retention tool,” said Margaret Ciccarelli, a lobbyist for the Professional Association of Georgia Educators, the state’s largest teacher organization. “Georgia lawmakers have historically understood the importance of a thriving TRS and its critical positive impact on the quality of teaching and learning.”

John Palmer, a Cobb County educator and spokesman for the teacher and retiree group TRAGIC, said: “It’s ridiculous to suggest that the state should save more money by taking away from the Teachers Retirement System. TRS is one of the best-managed pension systems in the country and continues to be one of the best retention tools for keeping quality teachers in Georgia’s classrooms.

“Georgia teachers are paid well below other professionals with comparative degrees and skills, and TRS allows those educators to retire with a pension that keeps up with inflation without relying on the whims of state legislators.”

State Rep. Chuck Martin, R-Alpharetta,who has called for a thorough review of the pension system, said Thursday that he'd not yet seen the audit and couldn't comment.

But he added, “I want to work on solidifying the pension system to protect the current teachers in the system.”

Lawmakers changed the pension system for state employees in the late 2000s. Instead of receiving a standard pension — based on years of service and their highest 24 months of salary — new hires after Jan. 1, 2009, got a hybrid retirement plan. It’s part smaller pension, part 401(k). The audit said the changes for new hires has saved about $71 million.

Less than 20 percent of state workers in the new system are expected to stay on the job long enough to vest for a pension, just like many new teachers don’t remain in the profession long enough to earn the TRS pension.

Auditors looked at several potential changes to the teacher system, which does well financially in good stock markets and not so well when the market is down.

Some of the scenarios the audit looked at are likely to be included in retirement bills filed in the General Assembly during the 2019 session.

Among the possibilities:

  • Modifying the annual 3 percent cost-of-living raises that pensioners receive. The audit said that in 21 of the past 26 years, the cost-of-living increase for TRS retirees has outpaced inflation. An independent actuarial analysis found that modifying the COLAs could save $17 million to $700 million, depending on how its done, such as by reducing it for new hires and/or those previously hired after a certain date.
  • Cutting the interest rate credited on employee contributions into the system. The change could save the state several million dollars, depending on the new rate.
  • Basing the pension on the highest five years of salary, rather than two years, as is currently the case. Doing it over five years would likely mean a lower average salary would be used in the pension calculation. The change could save $50 million annually.
  • Changing the minimum age at which new hires would be able to draw a pension if they worked less than 30 years. Raising it from age 60 to 62 could save $48 million annually.

Some lawmakers want to see changes because of rapidly rising costs. The state and school districts now put about $2 billion a year into the teacher pension system. By 2025, auditors put that figure at close to $2.4 billion, without changes. Actuarial projections suggest that number could be more than $4 billion by 2045.

The “employer,” or government, contribution rate paid into the fund — a percentage of employee payroll — has more than doubled since 2012. The rate of employee contribution — what teachers, principals, college officials and others pay in — has remained the same. Investment income also contributes to the fund.

The average teacher pension is about $37,000 a year, auditors said.

The Great Recession greatly set back the system, which counts on a certain rate of return on investments. The number of teachers and employees contributing to the fund dropped because jobs were cut or positions went unfilled, and pay raises, which boost payments to the system, were scarce. Some of those trends, such as having fewer teachers, have reversed in recent years.

The audit was released about a week after Gov. Brian Kemp gave Georgia’s more than 100,000 k-12 educators some good news by proposing a $3,000 raise. Kemp has vowed to eventually raise teacher pay by $5,000.

“Governor Kemp has demonstrated his strong support of public education through his recently proposed teacher pay raise and appropriation for student mental health and school security enhancements,” Ciccarelli said. “PAGE strongly encourages policymakers to continue in this vein: By investing in our teachers – current, future, and retired – through a strong and stable TRS, we are investing in every Georgia child and family.”

Palmer of TRAGIC said state worker turnover rates have increased since lawmakers changed the employee retirement system in the late 2000s.

“Our legislators can’t claim to support teachers and to support education if they are constantly looking for ways to save the state money by taking benefits out of educators’ pockets,” he said.