very big problem

Teacher pension fund lost $9 billion last year while costs rose

In Albany this week, UFT President Michael Mulgrew floated a plan to save the city money by letting teachers retire earlier. But a new report on the health of the city’s teachers pension fund suggests that Mulgrew’s proposal would only compound the fund’s potentially crippling budget crunch.

The fund’s annual report, released last week, shows that it lost 29 percent of its value, more than $9 billion, last school year, even as the portion the city is required to pay reached unprecedented heights.

The mix of rising costs and declining value raises serious questions about how the city will be able to afford to pay the pensions it has promised in the future without major concessions by the teachers union.

The fund, called the Teachers Retirement System (TRS), is a collection of investments paid for with a combination of taxpayer dollars and teacher salaries. Every year a chunk of it is used to pay retired teachers and principals the pensions state law says they are owed.

picture-63Last year’s financial crisis sunk the fund to its lowest level in more than 15 years, effectively erasing all of the gains made in the past decade’s bull market, according to a database of TRS’s financial reports. Over that time span, the fund’s value, adjusted for inflation, has shrunk by more than $11 billion.

This leaves a $15 billion gap between what the fund expects to pay out in the next 30 or so years and what it will have saved by that time, according to the TRS’s preferred accounting method. Another way of calculating these “unfunded liabilities” used in the private sector puts the number even higher, at $27 billion.

“It’s not a crisis. It’s a long-run big problem: The pension system is far more costly than it ought to be,” said Charles Brecher of the Citizens Budget Commission, an independent group that advocates for changes in city and state finances.

Sources of the “big problem”

At the center of the mismatch between what is promised and what was saved is the basic structure of what is called a “defined benefit” pension. A typical defined benefit plan promises a certain annual payout to retirees, usually in the form of a percentage of the retiree’s final annual salary. In New York, these payouts are defined by law and are not adjusted to reflect how much a member contributes over time.

Nobody expects the amount a member contributes to fully fund his promised pension. The idea is that the difference will be made up through a combination of taxpayer dollars and market returns.

The problem is that since 2000 a slew of factors have made this gap between how much teachers put in and how much they take out larger than ever before. One reason is that salaries have gone up 43 percent in the past decade, hoisting up the final amount retirees can expect each year. Current teachers’ pay-ins, based on higher salaries, help a bit. But the effect is dampened by the fact that even as teacher salaries have gone up, the proportion of member contributions used to pay for the plan in each year has gone down. In 1999, teachers’ contributions made up 18 percent of the total. In 2009, they were only 6 percent.

Another gap-widening factor is the fact that, for the past decade, a state law has allowed the highest-paid teachers in the city to opt out of contributing to the pension altogether. The rule has changed with the start of a new pension system for employees entering work today.picture-65

In addition to raising salaries, the city has also granted a series of pension sweeteners in exchange for union concessions. In 2007, teachers with 25 years of service won the right to retire at age 55 with no penalty, a union victory that came in exchange for a touted performance-based pay deal.

The sweeteners reduced the retirement contributions for teachers and principals, putting more of the burden to pay for pensions onto the city. They also allowed per diem salary — money teachers make for taking on extra tasks like running after-school clubs and sports — to be counted in the overall final salary number. And, in 2008, a provision allowed teachers to retire early without being dinged in their pension earnings.

Together, the rising salaries and pension sweeteners have created a perfect storm: increasing costs just as the plan’s performance has plummeted in the down market. Although the TRS has not performed significantly worse than the market according to the new report, the annual rate of return it assumes — 8 percent — is high by most private standards. (To be fair, most public pension plans also use a number around 8 percent. Similar private sector plans assume a rate of around 4 percent.)

Assuming a steady and high rate of return leaves little room for error. Imagine that the fund fails to make 8 percent returns one year and instead breaks even. To recover the lost ground the next year, TRS will have to make last year’s 8 percent and this year’s, a total of 16 percent returns. The recession of the past two years has followed this pattern of compounding losses. As a result, the fund was so far behind last year that even the high market returns from earlier in the decade couldn’t make up for the losses.

picture-64All of this has left taxpayers to make up the burden. In the late 1990s, the amount the city put into the pension fund every year was around $500 million in today’s dollars. By 2009, the sum the city had to contribute ballooned to $2.2 billion. 

This amount is incredibly high, especially compared to the New York State Teachers Retirement System, which serves all teachers outside of New York City. Last year, the state contributed half as much to its teacher retirement system as New York City contributed to the TRS, even though there are twice as many retirees in the rest of the state as there are in the city.

Even the new Tier V pension plan, which increased all new teachers’ required contribution to the plan and doubled the amount of time before they can qualify to draw a pension, has not alleviated all costs. That’s because the Tier V law included a special provision for New York City’s teachers that no other plan received, allowing them to retire with a full pension at age 55 if they’ve taught for 27 years. Teachers in the rest of the state must wait until age 57 to retire with a full pension.

Though the city is not benefiting as much from Tier V as the rest of the state, Tier V reforms are still expected to save the city $19.1 million next year, according to Division of Budget estimates.

But E.J. McMahon, of the conservative-leaning Manhattan Institute, warns that Tier V will do little to close the TRS’s budget gap. Instead of making retirement benefits fundamentally sustainable, Tier V actually turns back the clock to before the recent decade of pension sweeteners, he argues. Tier V “does not deserve the label reform,” McMahon said.

Brecher doesn’t even think Tier V merits its name. “They call it that, but it’s not really a tier in the sense that it’s a big change in the benefit structure,” he said.

Grim prospects

Going forward, the city cannot alter any current TRS member’s benefits due to a state law that prohibits the public pensions from being “diminished [or] impaired.” Only a handful of states have this provision, which guarantees that pension reforms affect only future teachers.

One possible alternative for the future is a cash balance plan, which California and Nebraska have adopted for their employees. Cash balance plans blend features of the TRS model (the defined benefit plan) with features of private sector pensions, known as defined contribution plans, to spread out risk more evenly among employees and employers. Although cash balance plans were surrounded by controversy when they were first introduced, in recent years they have been gaining popularity in academic and public policy circles.

Another option is a straightforward defined contribution plan, like the 401k plans that are offered to private sector workers and even some CUNY and SUNY faculty. Such plans are subject to market fluctuations and are dependent on the quality of investment advisors, but some consider them less likely to see costs spiral out of control.

“Anything that has a defined benefit at the end of it … is complicated, more costly and subject to manipulation by the union through a legislature that doesn’t understand it,” McMahon said.

Any of these alternative pension plans could make their way into city teachers’ contract one day, but for now the UFT is publicly committed to at most tweaking the current system, as Mulgrew indicated before legislators yesterday.

“We believe in a defined-benefit plan,” said Dick Riley, a UFT spokesman, adding that he would not discuss contract negotiations with the media.

Whatever happens, making TRS sustainable is likely to require city teachers to give up some of the perks of their profession.

“It’s up to the union to decide whether they’re going to make some concessions on these benefits or take layoffs and both deprive kids of educational services or members of their jobs,” said Brecher of the Citizen’s Budget Commission. “That’s the trade-off.”

Kim Gittleson is a research assistant employed by Ken Hirsh, a GothamSchools funder and contributor.

pre-k for all

New York City will add dual language options in pre-K to attract parents and encourage diversity

PHOTO: Christina Veiga
Schools Chancellor Carmen FariƱa, back right, visits a Mandarin pre-K dual language program at P.S. 20 Anna Silver on the Lower East Side.

Education Department officials on Wednesday announced the addition of 33 dual language pre-K programs in the 2018-19 school year, more than doubling the bilingual opportunities available for New York City’s youngest learners.

The expansion continues an aggressive push under the current administration, which has added 150 new bilingual programs to date. Popular with parents — there were 2,900 applications for about 600 pre-K dual language seats last year — the programs can also be effective in boosting the performance of students who are learning English as a new language.

Another possible benefit: creating more diverse pre-K classrooms, which research has shown are starkly segregated in New York City.

Schools Chancellor Carmen Fariña said the new programs reflect the city’s commitment to serving all students, even as a national debate rages over immigration reform.

“It’s important to understand that immigrants or people who speak a second language are an asset,” Fariña said. She called bilingual education “a gift that I think all schools should have.”

Included in the expansion are the city’s first dual language pre-K programs in Bengali and Russian, which will open in Jamaica, Queens, and the Upper West Side, Manhattan, respectively. The other additions will build on programs in Spanish, Mandarin and Italian. Every borough is represented in the expansion, with 11 new programs in Manhattan, nine in Brooklyn, six in Queens, five in the Bronx, and two on Staten Island.

In the dual-language model, students split their time between instruction in English and another language. At P.S. 20 Anna Silver, where the recent expansion was announced, pre-K students start the morning in English and transition to Mandarin after nap time. Experts say the model works best when the class includes an equal mix of students who are proficient in each language so they can learn from each other as well as the teacher, though it can often be difficult to strike that balance.

Officials and some advocates view dual-language programs as a tool for integration by drawing middle-class families eager to have their children speak two languages into neighborhood schools that they otherwise may not have considered. Research has shown that New York City’s pre-K classrooms tend to be more segregated than kindergarten. In one in six pre-K classrooms, more than 90 percent of students are from a single racial or ethnic background. That’s compared with one in eight kindergarten classrooms, according to a 2016 report by The Century Foundation.

Sharon Stapel, a mother from Brooklyn, said she knew early on that she wanted her daughter to learn another language and strike relationships across cultures. So she travels to the Lower East Side with her four-year-old, Finch, to attend the Mandarin dual-language pre-K program at P.S. 20 Anna Silver. On Wednesday, the city announced it will add a Spanish dual language program at the school.

“We really see it as how you build community with your neighbors and your friends,” Stapel said. “It was also an opportunity for Finch to become involved and engage in the cultures and in the differences that she could see in the classrooms — and really celebrate that difference.”

Citywide, about 13 percent of students are learning English as a new language. That number does not include pre-K since the state does not have a way to identify students’ language status before kindergarten. However, based on census data, it is estimated that 30 percent of three- and four-year-olds in New York are English learners.

Dual-language programs can benefit students who are still learning English — more so than English-only instruction. Nationally and in New York City, students who are learning English are less likely to pass standardized tests and graduate from high school. In one study, students who enrolled in dual-language courses in kindergarten gained the equivalent of one year of reading instruction by eighth grade, compared with their peers who received English-only instruction.

The city has been under pressure to improve outcomes for English learners. Under the previous administration, New York City was placed on a state “corrective action plan” that required the education department to open 125 new bilingual programs by 2013. Though the city fell short of that goal, the current administration has agreed to place every English learner in a bilingual program by the 2018-19 school year.

Among the greatest barriers to achieving that is finding qualified teachers, Fariña said. In some cases, it can be hard to find teachers who are fluent in the target language. In others, teachers who are native in a foreign language may only be certified in their home country, and it can be hard to transfer that certification to New York.

In order to open an Urdu program recently, Fariña said, the teacher, who holds a degree from another country, went through Teaching Fellows, an alternative certification program that usually caters to career-changers or recent college grads.

“I think the biggest challenge we have right now is ensuring our teacher preparation courses are keeping up with our need and demand for teachers who can teach another language,” she said.

college plans

As Washington decides their fate, ‘Dreamers’ preparing for college are stuck in limbo

PHOTO: Joe Amon/The Denver Post
Randi Smith, a psychology teacher at Metro State University, marched to support Deferred Action for Childhood Arrivals during a citywide walkout in downtown Denver, CO.

While many high schoolers spend spring of their senior year coasting through classes and waiting to hear back from colleges, undocumented students who hope to attend college spend their time calling lawyers, consulting school counselors, and scouring the internet in search of ways to pay for school without the help of federal financial aid or student loans — assuming they even get in.

That process, anxiety-provoking even in a normal year, has become incalculably more chaotic this admissions season — even traumatic — as these young undocumented immigrants watch President Trump and lawmakers wrangle over Deferred Action for Childhood Arrivals, the program that has until now allowed them to remain in the country without having to fear deportation.

As the policy battle nears a climax, these students aren’t just breathlessly waiting to learn whether they’ll be accepted into college — they’re waiting to see whether they have a future in this country.

“It’s different for me. It’s definitely more stressful and there are times when you want to give up,” said an undocumented student at KIPP NYC College Prep High School, who is graduating this year and applying to colleges. She requested anonymity because of her legal status. “But then I remind myself that regardless of what’s going on, I’m still going to do what I’ve set myself to do.”

High school counselors are also feeling the strain. They already faced the difficult task of helping undocumented students compete for private scholarships, and finding schools that will support those students once they’re on campus. Now those counselors also must monitor each twist and turn of the immigration debate in Washington, while, somehow, trying to keep their undocumented students focused on college.

One of those counselors is John Kearney, who works at Guadalupe Centers Alta Vista High School, a charter school in Kansas City, Missouri. Dozens of his soon-to-graduate students are beneficiaries of DACA, a program created under former President Obama that allows undocumented immigrants who were brought to the country as children to avoid deportation and work here legally. Lately, they have been asking him why they should even consider college when their fate in the U.S. is so uncertain.

“The big question is, ‘Why? Why go to college, and then I can’t even work, then why?’” said Kearney, who also helped start a nonprofit that provides scholarships to undocumented students. “It’s a really tough question.”

As of Friday, President Trump and lawmakers were still locked in heated negotiations over DACA, which Trump said this fall that he would eliminate unless Congress enshrined it in law. Without an agreement, it is set to expire March 5, just as graduating seniors firm up their college plans. If that happens, young immigrants, often called Dreamers, could lose the few crucial protections they have. For many, their DACA status has already lapsed.

Even with DACA’s protections, Dreamers face massive hurdles to enroll in college: They don’t qualify for federal aid or loans, and, in some states, are barred from receiving financial aid or even attending public universities. Out of the estimated 65,000 undocumented students who graduate from high school every year, only 5-10 percent enroll in college.

Following Trump’s announcement in September, counselors have also had to race against the clock counting down to DACA’s expiration: That meant juggling college application deadlines with the October cutoff for students to apply for renewed DACA status.

The KIPP charter school network received a donation this year to help students pay for the renewal fee, which has been a godsend for many students — including the young woman who is graduating from KIPP NYC College Prep High School.

As soon as she learned the school would pay the fee for her, she immediately called her father, who is also undocumented and repairs beauty-salon equipment for a living.

“My dad was definitely trying to round up the money before the deadline, so it was a blessing that the school was able to find a donor,” she said. “I told him not to worry about it and it was a relief — like a weight off his shoulders.”

If the girl was trying to relieve her father’s stress, her college counselor, Rob Santos, was trying to do the same for her. Even as she balanced college-application essays, transcripts, and the rest, she was also coming to realize how quickly her life would change if DACA is not extended.

“There was definitely extra emotional support that I’ve had to provide this year,” Santos said. “I definitely had my DACA student in my office, and tears were happening.”

Santos keeps a running list of the colleges that accept students who don’t have permanent legal status and the few scholarships available to them. Many of those scholarships require undocumented students to have DACA status. If the program ends, it’s unclear whether students will still be eligible.

Still, Santos said his dreamer student rarely talks about the political furor surrounding her future in the U.S. as she awaits her college-acceptance letter. Instead, she’s more likely to discuss her hope of one day studying business and fashion.

“Our DACA students are resilient. They’re optimistic,” Santos said. “But they’re also realistic for what could actually happen.”