State Sen. Robert Adley has come up with an idea to help save $83 million annually for the state’s financially strapped public higher education institutions.
The problem, as least for local school boards, is that his proposal saves money for colleges and universities at the expense of kindergarten through 12th-grade public schools.
“We have been subsidizing K-12 through the universities,” said Adley, R-Benton. “This will go a long way to helping the universities and create a level playing field.”
But shifting some pension costs to K-12 schools would be devastating to a system that is already underfunded, said Scott Richard, executive director of the Louisiana School Boards Association.
“Ultimately, it impacts the classroom because it diverts dollars normally flowing to the classroom to offset the impact” of higher pension costs, Richard said. “K-12 should not be put against higher education, and vice versa.”
But that’s what will happen Monday when Adley’s legislation goes before the Senate Retirement Committee.
Higher education institutions, just like public schools, have faced rising pension system costs for their employees and retirees. Both are having to come up with more and more money each year to pay their portion of the retirement system’s nearly $12 billion unfunded accrued liability.
Known as the UAL, that’s the amount of money that would be necessary to pay off retirement promises made to pension system members.
The Teachers Retirement System of Louisiana, called TRSL, has about 165,000 active and retired members — 10 percent of whom are in higher education.
Adley’s original Senate Bill 18 proposed giving colleges and universities permission to pay off the long-term liabilities associated with their employees and then exit the system.
Adley said that idea proved to be “too ambitious,” but in doing research, he said, he discovered that higher education is contributing too much toward the system’s UAL. The new version of his bill changes the allocation of the required contributions between higher education and K-12.
“The debt of the universities is 16 percent, but the universities are charged 25 percent,” he said.
He said the overpayment results because the calculation used to determine higher education’s share is based on payroll. Higher education pays better — an average $59,000 compared to $43,000 in K-12 — so those members pay more. “They calculate everybody’s debt in the UAL not on the liabilities but on salary,” Adley said.
In addition, about half of higher education employees in the TRSL system are not in the traditional defined-benefit plan — the one that determines long-term pension commitments based on a formula that includes number of years worked and salary earned.
Those employees are enrolled in the Optional Retirement Plan — a defined-contribution model similar to a 401(k). The performance of the individual’s investments determines the retirement benefits due, so there is no fixed long-term commitment.
“There is no debt associated with the TRSL higher education members who are in a defined-contribution plan, but the system still calculates what higher education pays based on their salaries,” Adley said, adding that everybody should pay their own way.
Under Adley’s proposal, higher education’s contribution would drop from $262.5 million to $179.6 million in the fiscal year that begins July 1, according to an actuarial analysis.
At the same time, K-12’s contribution would increase from $900 million to $983 million, the analysis found.
The School Boards Association’s Richard said K-12 school systems already have seen a near doubling of their retirement contributions in recent years, with no corresponding increase in state aid to public schools.
School boards went from paying 15.5 percent in 2009-10 to 28 percent this year because of growing payments related to the TRSL system’s long-term debt, he said. “It’s the UAL, which is a state responsibility, that the local school boards have had to continuously shoulder the burden,” Richard said.
The state’s contribution to public schools — based on how many students are enrolled — has not increased enough to cover inflation and new pension costs. School boards have had to shift money around to cover those costs, he said.
TRSL Executive Director Maureen Westgard said Adley’s new bill “raises many process and policy issues.”
“Ultimately it’s a very simple bill, but it does major cost-shifting,” Westgard said. “It’s one of those things that when things get tight, everybody looks out for themselves, but in a multi-employer plan, it gets difficult.”