Commission floats pension changes for teachers
MONTPELIER — The report released last week by the commission that evaluated retirement benefits for Vermont teachers and state workers lays out 10 recommendations intended to decrease deficits in the state employee pension fund by, among other things, increasing employee contributions to their retirement accounts and raising the retirement age.
To Martha Allen, president of the Vermont National Education Association (VT-NEA), the report’s recommendations are disappointing.
“What the report wants is for teachers to work longer, pay more and get less,” she said.
Allen’s worry is that cuts to the pension plan will decrease the number of teachers wanting to work in the state. By the VT-NEA’s calculations, Vermont’s teacher pension plan is already the lowest in New England and the fourth-lowest in the country, averaging under $15,000 in payments per year.
“This has to do with recruitment down the line,” said Allen. “People are going to look at what kinds of benefits Vermont gives, and they’re not going to want to go to Vermont.”
The report — formally titled the “Report of the Commission on the Design and Funding of Retirement and Retiree Health Benefits Plans for State Employees and Teachers” — proposes specifically to raise the retirement age for teachers and some state workers from 62 to 65, or from 30 years of work to a system in which the combination of years and age must equal 90. The recommendations also propose changing the starting salary for benefit calculations from the average of the highest three years to the average of the highest five years for all teachers and state workers.
The most controversial issue has been a proposed change in pension contribution rates. The recommendations propose that the employee contribution to the pension fund be calculated as a percentage of the state’s contribution each year. The current system requires a fixed-rate contribution. The transition, according to Allen, would significantly increase annual contribution rates for teachers. The changes would go into effect for all teachers who are more than five years from retirement.
The Legislature assigned the commission, chaired by State Treasurer Jeb Spaulding, to address the pension fund’s budget shortfalls. The commission began its work in late July, using as its starting point numbers released around that time by Spaulding’s office.
The need for a review of public pensions was prompted in part by the increase in demands upon the state pension system and in part by the looming state budget shortfalls brought on by the recession.
“If we don’t make any changes in the benefit plan, the required appropriation from the General Assembly in the coming year will be an increase of $32 million,” Spaulding said at a press conference in Montpelier last Thursday.
Spaulding was speaking of the increase in required appropriation from $73.5 million to $105.1 million from the fiscal years 2010 to 2011. This increase includes an extra $22 million to pay teacher pensions alone. According to the commission’s report, the total cost of funding the pension system was 7 percent of the state’s General Fund last year, and this year it will comprise about 9.5 percent.
Spaulding attributed the rise in cost to the increased number of people in the system.
“People are living longer,” he said. “There are close to 3,000 more retired state employees and teachers now than there were five years ago.”
The state also pays 80 percent of each retiree’s monthly health insurance premiums, a cost that the treasurer’s office projected would rise by $5.69 million in the current fiscal year.
The commission was made up of mostly legislators and some benefit consultants, but the teachers union had no representation. This is another reason for Allen’s dissatisfaction.
“Teachers and state employees were excluded from the commission. That was one of our biggest issues all along,” she said.
Members of the VT-NEA are currently working on their own report on the pension plan, and working with the Legislature to temper some of the proposed changes.
“We know it’s a very difficult situation, but we also have one of the most modest pension systems in the country,” she said. “We’re not really excited about any changes.”
Originally, there were a series of other possible cuts on the table, but many of them did not end up in the final recommendations. Among the possibilities was a change of teacher pension funding from the General Fund to the Education Fund, which would have transferred the cost to payers of property taxes. Another was to extend the cuts to teachers who are already retired and those nearing retirement age. The final report strongly encouraged the Legislature not to make changes in either of these areas.
Pat Sheffert, president of the Addison County Retired Teachers Association, was relieved to find that the final recommendations did not include changes for those already retired. But overall, she is unhappy with the recommendations.
“What they’re doing for the teachers who are still employed is terrible,” the Middlebury resident said.
Sheffert, who began the fight for teacher pensions back in October, said she and other retired teachers will continue trying to influence the Legislature.
“We are starting a campaign to flood the Legislature with emails and letters. We have to let them know we’re still here,” she said.
Spaulding addressed the concerns of the teachers at last Thursday’s press conference.
“I don’t believe that what we have recommended is unreasonable, and I don’t think it will make us uncompetitive with other states,” he said. “I think it will allow us to maintain the system going forward, and (prevent us from) having to make more draconian cuts to the system in the coming years.”
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