MILWAUKEE – Milwaukee Public Schools will freeze a supplemental pension for existing teachers effective July 1, 2013 – and end it for any teachers who join or re-join the district after that date – in a move expected to save the district $5 million in annual contributions beginning in the 2013-14 school year.
The move approved by the Milwaukee Board of School Directors last week will also reduce the district’s long-term obligations to pay for the plan by an estimated $20 million.
The change does not affect teachers’ primary Wisconsin Retirement System (WRS) pension.
The supplemental pension was created in 1982 – prior to the election of any current Board members and before the arrival of the current administration – to offset early retirement penalties in the WRS primary pension plan. Those penalties have since been significantly reduced, and in some cases, no longer exist. WRS has also since made other benefit enhancements and continues to be one of the most well-funded public pension systems in the country.
At the same time, the cost of the supplemental pension has ballooned. Unfunded legacy costs tied to the supplemental pension have doubled over the last 10 years, now standing at $133 million.
Teachers who already have earned benefits under the supplemental pension will not lose their earned benefits. Teachers who have already retired will not see benefits change. MPS would not be legally permitted to make such changes. The freeze also means that the supplemental teachers pension will be closed to teachers hired or rehired on or after July 1, 2013.
Ending the supplemental pension is expected to reduce that $133-million unfunded legacy cost by $20 million in the 2013-14 school year. It is also expected to reduce the district’s yearly pension contributions by an estimated $5 million starting in 2013-14.
“We value our teachers. We want to compensate them for their hard work and we want to be able to attract the best and brightest new teachers as well, but this is something that has outlived its original purpose and something we can no longer afford,” Superintendent Gregory Thornton said.
He noted that MPS has already taken significant action to ensure financial stability, including building closures, re-bidding transportation contracts and requiring employees to contribute more toward the cost of benefits as their existing contracts expire. The district will continue to explore additional measures, Dr. Thornton said.