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Pricy pension system has a cost

Pricy pension system has a cost

Wayne Hoffman
July 21, 2011
Wayne Hoffman
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July 21, 2011

School officials are rejoicing over the news that the state’s robust tax collections have allowed the disbursement of $60 million to the districts and charters across the state. In Coeur d’Alene, furlough days are being canceled, textbooks purchased and raises, euphemistically described as “additional salary compensation for experience and education” are being awarded to teachers. Twin Falls officials, according to one news account, negotiated away any windfall money as part of their collective bargaining agreement with the local teachers’ union. In Pocatello, school officials are planning to restore jobs previously eliminated.

The disbursement of money is tied to the Legislature’s action last winter, required as a condition of the state’s acceptance of federal money. For the moment, I’ll forgo discussing the fact that the federal government has no business telling states how to fund schools. (Hint: It’s not constitutional.)

What neither the school districts nor the teachers’ unions will tell you is that, while they’ve been cutting classroom textbooks, teachers, sports and music programs, schools continue to use and heartily defend their luxurious benefit program that awards payments for life to its beneficiaries. Most everyone agrees that, compared to other states, Idaho’s pension system is one of the better run. What few will say is that it is an expensive system. That cost comes with consequences.

To illustrate the effect of this expense, consider this: The state and its school districts spend about $1 billion on salaries. As a result, schools also spend about $100 million annually making payments to the state’s pension system, about 10 percent of payroll. That figure is non-negotiable. Unlike a 401(k) plan, school districts can’t cut back its pension payments in times of need. It is a fixed cost tied directly to the cost of labor.

However, if school district employees were enrolled in a 401(k), districts would be able to adjust their retirement contributions based on economic reality. In tough times like these, school districts could curtail retirement benefit payouts in order to preserve jobs, textbooks and other academic programs they deemed important. Imagine then, that I’ve waved my magic wand and every school district in the state had employees in a 401(k) instead of a pension system. And also imagine that even now, those school districts provided a 4 percent contribution toward retirement instead of the current 10 percent. That would be a savings of $60 million, exactly the amount of the state windfall over which school districts are now salivating.

What I have described is not a strange concept. The Cowles Company, owners of the Spokesman-Review newspaper and KHQ-TV in Spokane, announced recently that it is freezing the company’s pension plan and opening 401(k) accounts for employees. Check out what President Stacy Cowles said about the change: “It is no longer feasible for companies to guarantee payments 10 or 20 years from now when we can hardly predict what’s going to happen 10 weeks from now.” I’d bet the Cowles Company employees are not too thrilled, but I’d bet they prefer a 401(k) to the alternative of unemployment. I’d bet some teachers would prefer a 401(k) to having to take a furlough day.

Government leaders and bureaucrats have to stop saying that our current pension system is just fine. It’s expensive and will always be so. Pretending the pension system is somehow removed from the equation is not fair to taxpayers, government employees or even schoolchildren.

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