West Virginia Teachers Press Lawsuit To Shore Up Troubled Pension System
Facing the looming insolvency of their retirement fund, West Virginia teachers have turned to the courts to force the legislature to allocate some $200 million a year to shore up the pension account.
Unless some action is taken, the retirement fund will be broke by 1991, officials of the West Virginia Education Association are predicting.
The fund's secretary, Willard Ansel, agrees that its collapse is near.
But Mr. Ansel and a state Senate leader both said last week that the state does not have the money to bolster the teachers' pension system immediately.
What to do about the crisis "is the $64 question" that hasn't been answered, said Mr. Ansel.
The teachers' association on Jan. 13 filed its suit directly with the state supreme court, asking the justices to halt the retirement fund's current practice of applying membership contributions to the payment of retiree benefits. The union proposed that the court instead order the legislature to pay all the annual expenses so that the membership contributions can be used to replenish the pension fund.
The high court dismissed the lawsuit last week, but noted that the association has the right to refile its complaint in a county circuit court, where a full factual record can be developed. Lawyers for the union said they will exercise that option in coming weeks.
"We didn't have any option but to file the suit," said Kayetta Meadows, president of the teachers' organization. "We felt it was so critical that we couldn't wait any longer."
Reserve Fund Declining
The retirement fund now pays out $150 million annually to approximately 22,000 retirees. It collects $53 million in contributions from approximately 47,000 active members.
This year, the state paid only $23 million into the fund. The association contends that the legislature should be matching members' contributions.
Contributions from the active members and the state, plus interest earned on investments, fail to cover the cost of benefits, the teachers argue, forcing the fund to dip into its steadily declining reserve fund.
The reserve fund is now down to $175 million, according to Mr. Ansel. A 1983 study revealed an unfunded liability of $1.3 billion, he noted, estimating that the liability now amounts to $2 billion.
Adding to the drain is a legislative mandate that retirees' insurance costs be paid by the fund--a requirement that increases its current annual expenses by another $17 million to $20 million.
However, a recent court ruling barring the state's other major pension fund--the public employees' retirement fund--from covering insurance costs with contributed funds may be applicable to the teacher fund, according to Mr. Ansel.
Early-Retirement Time Bomb
State leaders acknowledge that the pension system has been underfunded since its creation in 1941. But recent recommendations for bolstering the fund have been rejected because they involved reductions in benefits. (See Education Week, Sept. 28, 1988.)
Compounding the problem is an early-retirement program approved by the legislature last year for teachers and other state employees.
The lawmakers, facing a budget crisis and supported by the teachers' association, termed the early-retirement program a way to reduce staff levels, and thus state and school-district expenses, without layoffs.
State officials estimate that 4,000 of West Virginia's 24,000 teachers eventually will opt for early retirement.
The program already has decimated divisions within the state education department, where 10 percent of 300 staff members plan to retire. The potential retirees include the state school chief, his deputy, and almost all the assistant superintendents and division directors.
Legislators recently were told the agency would be unable to conduct a mandated statewide testing program this year because of the staffing problem.
Moreover, Mr. Ansel predicted, the early-retirement program "is going to be devastating" to the pension fund.
"All early retirement did was speed up the timetable," he said. "We were on a collision course before early retirement and it speeded up [insolvency] by three or four years."
'You Can't Work for Nothing'
David Haney, assistant executive director of the teachers' association, argues that the condition of the fund is hurting the state's credit rating, its education employees' faith in the system, and the recruitment to West Virginia of new businesses, which could face tax hikes if the fund goes into bankruptcy.
Actuarial studies of the fund should be completed within four to six weeks, Mr. Haney said. But he estimated8that $200 million annually would be required to stanch the drain on the fund's reserves and rebuild them. The state should be compelled to make that contribution, he said.
"Our members are very upset," said Ms. Meadows of the wvea "You can't work for nothing and then face the prospect that there may be nothing there when you retire."
Mr. Ansel said he had mixed emotions about the lawsuit. "It should have been filed 40 years ago," he said. "Now that they are forcing it to a head, they may be creating a problem we can't handle."
Troubled State Economy
West Virginia has been beset by financial problems through much of the decade because of its troubled mining, steel, and glass industries. Among its difficulties are declining tax revenue, a shrinking population, and falling student enrollments.
Sondra Lucht, chairman of the Senate education committee, said she expected the teachers to win their lawsuit. But the victory could be a hollow one, she warned, saying "we do not have that money, there's no way."
She said legislators last year deleted the teacher-pension allocation as a line-item in the state budget and placed it in the school funding formula in an effort to prevent future lawmakers from targeting the funds for use elsewhere.
That change also called for the state to steadily increase its contribution to the fund. The measure was passed, she said, in spite of attempts by former Gov. Arch Moore Jr. to stop funding the system entirely.
If the association prevails in its lawsuit and the court orders additional state appropriations for the teachers' retirement fund, the only place officials could get the money would be from employees' salaries, said Ms. Lucht.
Special Session Called
Gov. Gaston Caperton, who was inaugurated last week, is aware of the retirement fund's crisis, a spokesman said, and will address the issue either during a special legislative session called for Jan. 25 or when he delivers his first State of the State Message Feb. 8.
Mr. Caperton has called the special session in response to the state's overall financial crisis, which includes an expected $250-million shortfall for the current fiscal year.
Steve Cohen, Mr. Caperton's spokesman, said the Governor pledged during his campaign to make finding a solution to the pension problem "an immediate priority."