W. Virginia Pension Fund Going Broke, Union Says

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Historically inadequate funding, a new early-retirement law, and demographic trends are putting the squeeze on West Virginia's teacher-retirement system and may push it into insolvency within three to four years, the state's largest teachers' union charges.

Officials of the West Virginia Education Association said last week that they are so alarmed about the system's health that they recently directed their lawyers to determine whether state law allows union members to remove their assets from the program. The answer was no.

Although union leaders conceded that the move had political overtones, they insisted that it was a genuine attempt to find a way to protect members' financial security. They said they were considering whether to file suit to force the state to honor its financial obligation to the system.

The union claims that the system has an unfunded liability--meaning the amount the state would have to pay if all current teachers retired en masse--of between $1.5 billion and $1.7 billion, and is now paying out more than it is taking in from state and teachers' contributions.

"We're trying to force the issue and force [the legislature] to face it," said Kayetta Meadows, president of the wvea, an affiliate of the National Education Association. "For those people who are in the system now, there is no assurance there is going to be money there when they retire."

Prospects for any resolution of the problem, however, are far from certain. Observers note that six years have passed since the West Virginia Supreme Court declared the state's equally troubled school-finance system unconstitutional, and an agreement on a solution to that problem has yet to be reached.

Inadequate Funding

Currently, there are 18,800 retirees drawing benefits from the system and 48,800 participants making contribitions.

According to David Haney, the union's assistant executive director and in-house pension expert, the system's financial problems can be traced back to 1941, the year it was created.

"The day the plan opened its doors it was not adequately funded, and it hasn't been adequately funded since then," Mr. Haney said.

He noted that although the state has made some contributions to the system, it has failed since 1979 to provide funds to match employee contributions. But, he added, lawmakers have approved more than a dozen increases in retiree benefits--all in election years--during that same period.

Other factors have compounded the system's financial woes, Mr. Haney said.

In the late 1970's, for example, an audit found that poor investments had cost the fund approximately $100 million.

In addition, last June lawmakers approved an early-retirement incentive program that is expected to entice some 4,000 teachers to quit their jobs, which would force the system to pay out millions of dollars much sooner than if the teachers remained on the job until retirement age.

And projected changes in West Virginia's population are also expected to take their toll on the system.

Fewer students mean that fewer teachers will be needed. Meanwhile, many current teachers are nearing retirement age. According to the union, the inescapable conclusion is that a smaller number of people will be paying into an already financially strapped system at the same time that the number of retirees will grow.

Mr. Haney and other union officials said that signs of an imminent collapse are already apparent.

Ominous Signs

The system's unfunded liability has nearly doubled since the state stopped matching participants' contributions in 1979, and the fund, which operated on a pay-as-you-go basis for years, has been forced to dip into invested reserve funds.

Last year, the system had $250 million in its reserve account. Participants contributed $53 million to the system and the state provided $18 million, requiring the retirement board to tap the reserve account for $41 million to meet its $112-million annunity obligation to retirees.

Union officials argue that the new early-retirement program may force the retirement board to withdraw another $80 million from its reserves.

"It would eventually reach bankruptcy if they continue that practice," said Ms. Meadows. Mr. Haney estimated that current spending practices, if left unchecked, will deplete the system's funds by the early 1990's.

Other System Healthy

The union officials blamed the current situation on lawmakers and governors, past and present.

They added that the condition of the teacher-retirement system is particularly galling in comparison to West Virginia's separate public-employee's retirement system.

That system, which was established in 1961, has a $900-million reserve account, little unfunded liability, and full state participation. State employees, they note, pay less into their system than educators pay into theirs.

Lawmakers, the governor, and heads of state agencies are all participants in the public-employees' system, Mr. Haney pointed out. "They have taken care of themselves," he said.

Delegate George Farley, chairman of the House Finance Committee and chairman of a commission that studied the teachers' system in 1979, said lawmakers were well aware of the fund's problems.

"It is tremendously underfunded," he acknowledged.

But Mr. Farley argued that teachers must share some of the blame for the system's dire financial straits.

Increases in benefits, he noted, were championed by the wvea and were a testament to the union's political clout.

Moreover, attempts by the legislature to solve the system's problem have been defeated by teachers, according to Mr. Farley.

For example, he said the panel he chaired in 1979 recommended that retired teachers' benefits be reduced in recognition of the fact that they also received Social Security. The current formula for calculating benefits--the sum of 2 percent of a participant's highest five-year salary times the number of their years of service--is "overly generous," he added.

But Mr. Haney said the union would reject any attempt to reduce teachers' benefits. Retired teachers, he said, "deserve the meager benefits they are receiving."

The wvea, he added, supports the creation of an entirely new retirement system that would join newly hired teachers and newly hired public employees in one fund. A bill that would have created such a system failed in the legislature this year. Lawmakers are studying the pension issue in preparation for their 1989 session.

Mr. Farley said that it would "take a commitment beginning next year" to save the system and that both sides must make sacrifices.

"There is an awareness," he said. "It will be a top-priority issue this next session."

Vol. 09, Issue 04

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