After pouring nearly $600 million into Georgia’s teacher pension system in recent years to make it more financially stable, lawmakers are making another big push this session to make changes in a program that they say is unsustainable.
This year’s retirement legislation — which has been written and rewritten — ensures two things that will likely make the 400,000 teachers, University System of Georgia employees and retired educators in the Teachers Retirement System happy: it promises to retain the current defined-benefit pension and only effects new hires.
But teachers, retirees and education groups still worry that making any changes could hurt the ability of school systems to recruit and retain new teachers. And a think tank that analyzed the proposal said it would have only a minimal impact on the bottom line for the system, which had about $70 billion in assets at the end of 2018.
“We’ll probably be back with another version next week,” said House Retirement Chairman Tommy Benton, R-Jefferson, a retired teacher who is trying to write a bill that teacher groups can live with.
It has been a near impossible task in recent years, as state and local school districts have put more and more into the system, and teacher groups have successfully beaten back attempts to make changes such as turning the pension system for new hires into a 401-K, defined-contribution program that is more common in the private sector today. In such programs, rather than getting a fixed or defined monthly payment when they retire, employees and employers contribute into an investment fund that workers can take with them if they switch jobs.
Benton has made it clear that he wants to be able to continue offering new teachers a pension. But he and members of his committee also say something’s got to change.
“My motivation was to come up with some ideas for TRS to be in better shape financially,” Benton told committee members recently. “Doing nothing is not an option.”
The Great Recession greatly set back the system, which counts on a certain rate of return on its 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.
Today, the average teacher pension is about $37,000 a year.
Among the features of Benton’s legislation, House Bill 109, for new hires:
- The pension would be based on the five highest years of salary, rather than the current two. That would keep pensions from being inflated if educators get a big bump in salary just before they retire.
- The amount of salary used in setting the pension would be capped at $200,000. That would most likely affect University System staffers, where there are far more six-figure salaries. The Atlanta Journal-Constitution reported in 2017 that the number of Georgia retired university employees, teachers and state employees receiving pensions of more than $100,000 a year had more than doubled in the previous six years. A $200,000 final salary would equate to a $136,000 pension for an employee who put in 34 years in the University System or a school system.
- Staffer contributions into the pension system would rise from the current 6 percent of earnings up to a maximum of 9 percent.
- New hires couldn’t retire early with a full pension after 30 years on the job. Currently, some teachers retiree in their early- to mid-50s after teaching for 30 years.
Some of the proposals in Benton’s bill were raised in a recent state audit.
Rep. Chuck Martin, R-Alpharetta, a member of the retirement committee who has long been an advocate of changing the system for new teachers, said more than 70 percent of those coming into the profession won’t last the 10 years in the job needed to vest for a pension. Martin said providing a 401-K-like savings plan would allow new teachers who leave the profession to get out with more retirement money.
Teacher groups fear that giving the retirement system the ability to raise the rate of contribution from workers would eat up most or all of the $3,000 pay raise Gov. Brian Kemp is proposing for teachers this session.
Margaret Ciccarelli, lobbyist for the state’s largest teacher group, PAGE, said, “We need to know how much we might save” by enacting Benton’s plan.
The Reason Foundation, a Los Angeles-based Libertarian think tank, said the answer is, not much.
The group studied House Bill 109 and found its provisions “do not resolve the issues underlying the growing unfunded liability of Georgia TRS or meaningfully improve the solvency of the plan.
“More importantly, HB 109 does nothing to solve the key variables that have contributed to the system’s debt,” it added.
For instance, the group said that the system has assumed a 7.5 percent rate of return in the fund’s investments. “However, the average investment return for the plan has been 5.7 percent.”
It said global market forecasts from BNY Mellon and JP Morgan Chase suggest the odds of hitting 7.5 percent in the coming decade is about 20 percent.
If it does not meet that level of investment growth, Reason Foundation analysts said, even higher contributions from new teachers would not be enough to prevent the system from having to raise additional funds from the state and school districts.
John Palmer, a Cobb County educator and spokesman for the teacher and state employee group TRAGIC, told the retirement committee Tuesday that one of big problems for TRS has been the reduction in teachers during the recession who, in some cases, were never replaced. So fewer teachers were paying into the system at a time when Baby Boomers were retiring and drawing benefits.
“It seems like one solution we would have is to hire more teachers and lower class sizes,” Palmer said.
Benton’s committee deals with retirement issues, not funding for teachers, so it won’t be part of his proposal.
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