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A tale of two crises: Philly public schools waffle while Catholic schools confront pension debt

By   /   November 14, 2013  /   No Comments

At least some Philadelphia teachers have agreed to make fundamental changes to their retirement plans.

At least some Philadelphia teachers have agreed to make fundamental changes to their retirement plans.

By Maura Pennington | Watchdog.org

PHILADELPHIA — Facing a multi-million-dollar pension debt, one set of Philadelphia teachers has agreed to make fundamental changes to their retirement plans.

In the wake of recent audited financial statements, the Archdiocese of Philadelphia decided to take action to address a pension shortfall of $150 million. At the end of June, they will freeze current defined benefit pension plans for teachers and other non-clergy employees.

Under that plan, the archdiocese contributes 7.5 percent of salaries with no employee contribution. In its place, the archdiocese will implement a defined contribution plan, similar to the 401(k) plans that are now commonplace in the private sector.

This shift affects 8,500 lay employees across five counties, including 650 high school teachers and several thousand elementary school teachers.

The Association of Catholic Teachers represents the lay teachers employed in the archdiocese’s 17 high schools. Their president, Rita Schwartz, has closely monitored the situation since discussions began about pension reform.

“We were brought into the conversation from the very beginning. We’ve been in the loop, very much so,” she said.

There is a clause in the ACT contract that seats a representative on the pension board. For now, the union accepts the reforms, an attitude not often displayed by their public sector counterparts.

“We will be negotiating whatever this new plan is and that has kept the panic out of the air,” Schwartz added, referring to the teachers’ response to the announcement.

The change to the Lay Employees Retirement Plan was revealed in a letter circulated Nov. 5 by the Rev. Monsignor Daniel J. Kutys, Moderator of the Curia. Kutys said that, given the latest reports on the archdiocese’s finances, “action must be taken now to ensure the plan meets its long-term obligations.”

Effective July 1, 2014, the former pension plan will be replaced by a defined contribution plan, most likely a 403(b), with an expected initial contribution from the archdiocese of 4.5 percent of an employee’s compensation.

The decision to make alterations to address the pension shortfall in Philadelphia, according to Schwartz, is “not extreme.”  Other dioceses across the country have already made similar changes, while the United States Conference of Bishops will switch its employees to a defined contribution retirement plan at the end of December.

“It’s not as big of a problem as it could have been,” Schwartz said.

These are words rarely heard from other teachers’ unions on the subject of pensions.

As for the switch to a defined contribution plan, Schwartz noted, “It is portable, which is a good thing for our younger teachers.”

Pennsylvania currently faces $30 billion in unfunded pension liability in the Public School Employees Retirement System. It’s estimated that retirement costs for the school district of Philadelphia will reach $349 million by 2020.

While Gov. Tom Corbett and the General Assembly have attempted in the last year to enact pension reform, the Philadelphia Federation of Teachers union has met them with resistance and no progress has been made.

The union fears a switch to a defined contribution plan would result in reduced benefits, but it is doubtful that lawmakers in Harrisburg will give up on the issue.  Corbett maintains that pension reform is a priority.

As it stands now, it will take two decades of an annually increasing taxpayer burden to resolve Pennsylvania’s pension debt.

Contact Maura Pennington at mpennington@watchdog.org and follow her on Twitter @whatsthefracas.

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Originally from Washington, D.C., Maura is a reporter based in Philadelphia and has had writing featured by Forbes, NPR, the Wall Street Journal, the Washington Post, and RealClearMarkets. She graduated in 2009 from Dartmouth College with a degree in Russian. Follow her on Twitter @whatsthefracas. E-mail her at mpennington@watchdog.org.