Walker’s reforms allowed Wisconsin district to make bold changes to an unsustainable retirement program

Jun 28, 2013 by

Part 2 in a series of Act 10 success stories

By Steve Gunn –

NEENAH, Wis. – Sometimes financial deals that made sense in the past can come back to haunt you.

It’s nice to have the ability to get out of those deals, particularly when you’re financially responsible for the education of thousands of children.

That’s the case in the Neenah, Wisconsin school district, which for years had been paying out big bucks to teachers and other employees through a supplementary retirement benefit.

The cost of the program had become steep, and was showing signs of threatening the district budget and student programs in the future. But the teachers union refused to give it up.

Relief finally came in the form of Act 10, Gov. Scott Walker’s landmark legislation, which allowed school districts to manage their labor budgets without union consent.

The Neenah school board took advantage of the new law, altering the retirement benefit program to make it far less expensive. Union leaders didn’t like the changes, but had no power to stop them.

“Part of my obligation is to leave this district in a much better place than it was when I came,” Dr. Mary Pfeiffer, the district’s superintendent, told EAGnews. “I could not continue to leave this situation unaddressed. It was not in the best interest of kids.”

The story is the perfect example of how Act 10 has been a tremendous asset for Wisconsin school districts.

‘A $184 million unfunded mandate’

The Neenah supplemental retirement benefit was introduced in the 1970s as an early retirement incentive program. The idea was to convince veteran teachers (and other staff members) to retire sooner than planned, so they could be replaced by less experienced teachers making significantly less money.

Under the original program, teachers and other employees who reached the age of 55 with at least 15 years of experience qualified to receive 50 percent of the district’s base salary (which equals about $17,000 today) and have full medical and dental benefits until they became eligible for Medicare.

The district either came out ahead on the deal or at least broke even through the 1990s, according to Pfeiffer.

But the program started to become a serious problem in 2003, following the negotiation of a new teachers union collective bargaining agreement, Pfeiffer said.

Suddenly teachers could receive the annual stipend for a full 10 years, regardless of when they retired. In other words, teachers could retire at 64, or 70 or 74 – whenever they wanted – and get 10 full years of stipends.

Union leaders demanded the changes because they claimed the original program discriminated against older employees who wanted to work beyond 55, Pfeiffer said. They argued that all teachers should get the full 10-year benefit, regardless of their age when they retire.

The school board went along with the changes, perhaps because the economy was in decent shape in 2003 and school finances were sound.

That’s when the program started to bleed the district of needed revenue, according to Pfeiffer.

Individual teachers were retiring and collecting supplemental benefits (stipends and insurance) in excess of $200,000. Retired administrators were walking away with even more money.

The program became what Superintendent Pfeiffer called “a $184 million unfunded mandate” that was costing the district between $5 and $6 million per year.

Act 10 to the rescue

It soon became obvious that the program was unsustainable over the long term, Pfeiffer said. It would have cost an increasing amount of money every year, and the district had no way to pay for it beyond the general fund.

That could have eventually forced the district to lay off employees, cut student programs and increase class sizes, Pfeiffer said.

“If we had kept the former plan, there would have come a time when we would have been paying about $10 million every year out of the general fund,” Pfeiffer said. “Many people in the district saw what was coming.”

On several occasions the school board went to the teachers union, asking to cancel or alter the benefit. The union refused each time. For a while it seemed as though the district would be saddled with the costs forever and students would pay the price.

Financial disaster was avoided with the enactment of Act 10 in 2011. The school board suddenly had the power to change the program without union approval, and moved quickly to do so.

The Neenah school board agreed to fund the old program for one more year – 2011-12 – then approved major changes for the following year.

The new program still provides teachers and other employees with supplemental retirement income to go along with the pensions they receive through the Wisconsin Retirement System.

Under the new program, veteran teachers who reach the age of 57 with at least 30 years of experience can qualify for a payment of $99,000 over 5 ½ years when they retire. New teachers will receive $1,000 per year of service toward a retirement plan, provided they serve at least five years.

Retired teachers no longer qualify for free insurance, but will be allowed to purchase their way into the school plan.

The district saved about $5 million last year through the pension changes, Pfeiffer said. Future savings will provide revenue to fund the updated retirement program going into the future, so it won’t be an unfunded mandate threatening the general fund budget and student interests.

“We immediately decreased our liability by $100 million,” Pfeiffer said.

That wouldn’t have been possible before Act 10.

via Walker’s reforms allowed Wisconsin district to make bold changes to an unsustainable retirement program – EAGnews.org powered by Education Action Group Foundation, Inc..

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