Playground at Bell Creek Intermediate
Retirement And The Public Sector
There are two key points that need to be kept in mind when discussing the retirement of public employees, which includes the staff at BSS.
Their pension and how much it is, is MANDATED by the government. It is not a decision made by either an employer or an employee.
Unlike private pensions, public employees DO NOT receive social security unless they fall into two exemptions. Those exemptions can receive reduced SS benefits and are explained below.
Let’s start with our first key point, that public employees and their employers, must pay into a pension plan. The state of Ohio laws say that public employees must annually contribute 10% of their salary to their pension, unless they're teachers. Teachers are expected to contribute more. So anyone without a teaching license at BSS is putting 10% of their annual income into their pension, while those with a teaching license are putting in 14%. A public sector employer, in this case BSS, is required to put 14% of all annual salaries into the pension funds, regardless of whether or not the staff members are teachers.
Just like with social security, a public employee must reach a certain point in their life before they are allowed to draw benefits, usually somewhere in their 60s. How long they’ve worked and what their final salary is before they retire will factor into their monthly pension payouts. That is why most public employees make a habit of sticking around in the profession long-term. If they do, their pension is higher to account for their length of service and continued contributions. The company responsible for the pensions of all non-teachers at BSS is SERS, or School Employee Retirement System. The teachers use STRS, State Teachers Retirement System. These links both go to videos that explain a little about pensions in general and how they apply to those in the public sector. It should also be pointed out that in 2012 there was an overhaul of STRS that was seen as necessary to maintain the financial health of the teacher retirement system as a whole. When you read through the list of changes that were made, it is quite clear the teachers did not come out ahead.
On to the second key point. Anyone receiving a public employee pension does not get social security. We mentioned exceptions but want to make it clear that the state has put regulations in place to ensure that if an individual is getting both then what they're getting from social security is reduced. So here's the breakdown:
If a person has worked in the public sector most of their life, only paid into their pension, and then retired and are getting that pension, they won’t get social security.
If a public employee that falls into the above category is allowed to receive a spouse’s social security after their death, then the amount they’re given is a smaller percentage of that social security check. This is called the Government Pension Offset.
The other exception is if an individual either works before or after their public service in the private sector and works both types of jobs long enough to qualify for both social security AND a pension. This is called the Windfall Elimination Provision.
The school staff does have the option to also fund a 403b for their retirement if they choose, much like anyone in the private sector can fund a 401K. There are some pretty impactful differences in the plan types though. The most glaring to me were that while employers can match contributions they usually don’t and their investment options are not as varied. There are differing opinions as to whether the return on a 403b is as good as the return on a 401k, our googling found there was no consistent answer to that comparison. Some of the places we looked are www.investorjunkie.com, www.rbcwm-usa.com, www.investopedia.com, and www.thestreet.com
Now, let's get into the details regarding BSS. We did some math to look at how retirement costs affect the school's budget. The average salary is $74,300, which, by the way, is not a number any of the instructor’s make. The current steps chart goes up in odd number increments. So, after pulling out the their retirement contribution (Which remember, they have to work as teachers for 35 years and be at least 60 years old to get full benefits from) this hypothetical teacher will only take home $63,900. A teacher making $59,000 only gets to take home $50,700 at the end of the year. They don’t get a choice. Their employer then, is also required to fund the pensions. The cost to the school is the same, $10,400 and $8,300, respectively.
As we pointed out above, the school is required to pay this 14% for all employees, not just the teachers. When we spoke to Mr. Liming, the school's treasurer, he broke down line 3.020 in the budget for us so we knew how much of that was going to pay for insurances and how much went towards retirement. We learned the total retirement cost to the school is $2,880,367.
Using our excel spread sheet of the staff salaries, we multiplied each teacher's by 14% and got $1,662,196, or about 58% of the total retirement cost to the school. By itself, though, the teacher's portion of the retirement is only 5.54% of the school’s total $30M budget. We do recognize that by lowering teacher salaries, this number would also be reduced, so we did a quick calculation to see by how much. If we do the same math, replacing all teachers who currently make more than $60,000 with a salary of $60,000, the total is $1,317,185 and would drop the 5.54% to 4.39%. That’s a difference of 1.15%. If we assume we're replacing all these experienced instructor's with newer, just out of college graduates and replace the salaries greater than $60,000 with $45,000, the new total retirement cost is still over a million and is only a 2% reduction to the budget.
As long as there are employees at BSS, there will be a portion of the budget going towards retirement. This is their safety net in their later years, and a legal requirement, just like our social security is for those in the private sector. It cannot be changed on a whim and is not at the discretion of any local school board. Their only option to alter the overall cost of retirement is to alter the make up of the staff. This comes back to the discussion of what kind of education do we want for the children of this community. Every staff member is there for a specific purpose and without that staff member, the service they provide may no longer be available or may require reductions to availability.