Four months after state auditors said Georgia’s universities had been shortchanging the teacher pension fund, the retirement system’s board is considering whether to send the colleges a rather hefty bill.
Teachers and retirees in the 400,000-member Teachers Retirement System have expressed outrage over the auditors’ findings that hundreds of millions of dollars never made it into the fund. They say the $600 million auditors say TRS was shortchanged helped back up state lawmakers who argued that the fund is financially unsustainable.
But University System officials dispute the auditors’ conclusion and say the system pays more than its fair share. They say forcing them to make new payments could have serious consequences, including major spending cuts at colleges and higher tuition or fees for students.
A retirement board committee voted recently to bill the University System $180 million for fiscal 2019 — which ends June 30 — and to bill the system again for the upcoming fiscal year. It said TRS could put the system on a payment plan, if necessary.
The full retirement system board is set to take up the matter on Wednesday. The Attorney General’s Office has weighed in, saying the system didn’t owe the money for this year and next, in part because the General Assembly didn’t allocate the money in the state budget.
Marion Fedrick, a member of the TRS board and president of Albany State University, said the retirement system needs more time to figure out if colleges actually owe the money.
“I don’t think we’re being responsible, I don’t think we are being rational,” she said. “There are still too many question to do that (bill the system) at this point, especially 45 days before the end of the fiscal year.”
But State Auditor Greg Griffin, also a member of the TRS board, said the payments are mandated by law because the $78 billion pension system has a liability. In other words, it does not have enough money to fund all future pensions that are owed. He said the pension system’s failure to collect the funds in the past amounted to “an administrative error.
“Now that the error has been discovered, I believe the board has a fiduciary responsibility to collect the transfer payments from USG,” Griffin said. “To not do so is to continue to require local school systems and other TRS employers to shoulder a disproportionate portion of the legacy costs of USG retirees in TRS.”
Lawmakers budgeted $2.5 billion for the University System in fiscal 2020, which begins July 1. The system probably couldn’t absorb a $180 million hit without serious budget cuts or getting more money from students in the form of tuition or fees. The system’s Board of Regents set tuition for the upcoming school year last month.
But the issue is a sensitive one for teachers, university personnel and retirees because they have lived with the fear in recent years that lawmakers want to make changes to the system, which currently provides benefits to 124,000 pensioners, averaging about $37,000 a year.
Several bills have been filed to change benefits for future teachers and university staffers, and lawmakers have, among other things, talked about altering the way annual cost-of-living raises are given. Under some of the bills, future teachers and university staffers would get a hybrid 401(k) and smaller pension.
That discussion heated up after lawmakers had to pour nearly an extra $600 million into the retirement system over two years to shore up its finances.
“I can’t see that it’s a coincidence that USG failed to pay around the same amount that the Legislature has had to contribute to TRS over the same amount of time,” said John Palmer, a Cobb County educator and spokesman for the teacher group TRAGIC.
University System officials say the money auditors argue that they owe and the extra $600 million the General Assembly paid into TRS are unrelated.
Scott Reynolds Nelson, a member of the United Campus Workers of Georgia and a UGA history professor, was critical of the University System’s handling of the issue.
“Between 2008 and 2018, the state gave University System of Georgia over $250 million to pay into state employees’ pensions. USG took that state money but never paid it.
“Now our pension fund is in the red. Taxpayers and employees must now foot the bill. At best this is incompetence, at worse it is corruption.”
The issue arose earlier this year when state auditors — whose agency is under the General Assembly - released an audit saying the University System had not paid enough into the fund for more than a decade, something college officials strongly denied
At issue are payments auditors said the University System was supposed to make after it created something called an Optional Retirement Plan in 1990. Essentially, the plan allowed University System staffers to choose a 401(k) over a pension. In a 401(k), the employer and employee put money into a retirement investment fund, which the staffer can take with him when he leaves. In a pension, the employee who works for a certain number of years receives a regular payment from the TRS when he or she retires.
When the optional plan was created, state law required the University System to make payments into the TRS to fund the long-term liability of retirees.
The purpose of the payments was to prevent the long-term pension costs of retirees from being borne by the state or school districts by balancing the ratio of active employees paying into the TRS and retirees drawing money out of the TRS, auditors said.
The University System made the payments through 2001, when the pension system had the money to meet its future responsibility to retirees and TRS - going on the report of its actuary - determined it no longer had to make the payments.
Auditors said the law requiring the payments was never repealed, and that they should have resumed in 2008, when the Great Recession started hammering investments in the retirement system and it once again had a pension liability.
They said the University System requested funding for the payments from the General Assembly that were in turn never made to the TRS. University System officials say that is not true, and that, in fact, colleges pay more than their fair share into the fund.
Delaying the issue could help the University System for at least two reasons. With the new fiscal year fast approaching, it would be unlikely that the system would be back-billed for fiscal 2019 and 2020, even if it is eventually found to owe the money. And it would allow the General Assembly time to consider legislation, sponsored by House Retirement Chairman Tommy Benton, R-Jefferson, to codify the University System’s position that it doesn’t owe future payments.
Benton’s bill will be considered by the House Retirement Committee over the summer and likely be voted on during the 2020 session, which begins in January.