Editor’s note: Jon Margolis, aka the Vermont News Guy, is the author of this news analysis.
A funny thing happened to the Vermont teachers retirement system on its way to getting diminished and perhaps demolished. It got stronger.
At a price, to be sure. Teachers will have to pay a little more into their pension fund and wait a little longer to retire. But when they do, their benefits will be higher.
Perhaps more important, their plan will survive as a defined benefit plan (the jargon for a traditional pension system) instead of being turned into a defined contribution (the 401k alternative) plan as some officials had apparently hoped.
In the process, the state saves $15 million. Pretty much a win-win-win situation, the winners being: the teachers and their union (Vermont-National Education Association); State Treasurer Jeb Spaulding, who seems to have orchestrated the arrangement; the Democrats, because the deal removes a Republican talking point; the taxpayers, both for the $15 million and because the agreement might inspire some veteran (meaning well-paid) teachers to retire.
What, no losers?
Maybe not. Gov. Jim Douglas wanted a plan that would save the $29 million proposed by a special commission last year from both the teachers and state workers. There are more teachers than state workers, so even if a deal is worked out with the Vermont State Employees Association, the $29 million figure is not likely to be reached. But Douglas does not really come off as a loser here, and is not threatening to veto the agreement.
A few teachers are miffed because, for a while at least, they thought they’d have to make the higher contribution to the pension fund without getting the higher benefit. The agreement has apparently been modified to assuage their concerns at least somewhat, but perhaps not entirely.
And the retirement controversy is not over. The VSEA and state officials are farther apart than the Vermont-NEA ever was. The state workers union and state officials are not even negotiating yet.
“Negotiating,” in this context, comes with an asterisk. In the words of Jes Kraus of the VSEA, “this isn’t a matter of negotiating a contract. This is a matter of statute.”
Meaning that the deal reached by the teachers union, Spaulding, and the leaders of the Legislature isn’t final unless and until it becomes law. Or maybe not even then. The public employee pensions are not simply laws. They are constitutionally protected contracts with each worker, and “any aggrieved individual can always challenge” any contract change in court, as Spaulding acknowledged. Especially because the Vermont-NEA has agreed to these changes, a challenge might fail. But fighting it would cost the state some of that $15 million it expects to save.
This constitutional complication is not merely theoretical; it is, for instance, one reason Kraus and the VSEA are so far standing firm in opposing any change in their pension system. But it does not seem likely to scuttle the deal with the teachers, which came as something of a surprise when it was announced two weeks ago.
Until then, state officials and what might be termed the establishment public opinion machine had prepared press and public for a confrontation. Both unions objected to making concessions. To Douglas and some Republican observers, a “crisis” loomed because of the projected growth in state payments into the retirement funds — $73.5 million this fiscal year, $103.5 million next year, and continuing to rise in the future.
Out of context, those raw figures are meaningless, except perhaps to provide politicians with ammunition for declaring a “crisis.” But putting the figures in context does not demonstrate that there is no problem. The obligation is projected to rise as a percentage of state spending, higher than the 3.5 percent of the General Fund deemed acceptable by the Legislature’s Joint Fiscal Office.
There is nothing unique to Vermont about any of this. All over the country, governors and mayors for decades have been negotiating generous retirement plans (most far more generous than Vermont’s) in exchange for union acceptance of smaller wage hikes. The wage increases have to be paid now, during the mayor or governor’s term. The retirement benefits will be somebody else’s responsibility. By one estimate, states and localities face a $2 trillion retirement obligation shortfall.
Seen from that perspective, Vermont’s problem seems manageable, but chances of reaching any kind of agreement dimmed last year when Spaulding established a seven-person “Commission on the Design and Funding of Retirement and Retiree Health Benefits Plans” without naming a worker representative to it, though one of the members is an employee of VSEA, Rep. Terry Macaig, D-Burlington. Adding insult to that injury, (from the unions’ perspectives) the commission retained as a consultant the Indianapolis law firm Ice Miller, which claims on its web page that it can “solve difficult employee issues and resolve disputes before they ever rise to the level of a lawsuit or a union organizing drive.”
That’s jargon for, “We bust unions.”
The Vermont-NEA understood it was going to have to give way on the retirement age and employee contribution, but it insisted on getting something in return. What it got was that 60 percent ceiling plus health care coverage of a retired worker’s spouse.
But when the Commission issued its report last month, its recommendations, while ambitious, were not draconian. It did call for raising the age of full retirement eligibility and the employees contribution to the system. But it also proposed raising the basic retirement benefit to a maximum of 60 percent – rather than the current 50 percent – of how much an employee had earned while working.
That’s still “the lowest in New England,” Spaulding said, but perhaps enough of an improvement, in the view of NEA spokesman Darren Allen, to attract more top-flight young teachers into the state’s system.
Though Douglas took the Commission report as a done deal, incorporating its $29 million reduction in his budget proposal as though it had been adopted, instead of just recommended, Spaulding, the legislative leaders, and the Vermont-NEA obviously saw it as the next step in the negotiating process.
As it happened, the negotiations didn’t take long. The Vermont-NEA understood it was going to have to give way on the retirement age and employee contribution, but it insisted on getting something in return. What it got was that 60 percent ceiling plus health care coverage of a retired worker’s spouse.
As health care costs continue to rise, that could be a big plus.
Ironically, the Commission had rejected recommending spousal coverage, even as a topic for discussion. But it appears to be significant that Spaulding was in the minority on that vote, joined only by Macaig, the Commission’s most liberal member.
The final “score” is that the teachers will pay 5 percent rather than 4 percent of their salaries into the retirement plan (an average of an extra $550 a year), and more (though not all) will have to wait until they are 65, instead of 62, to retire.
That leaves some of the 1,800 or so (out of about 9,500) teachers in their late 50s or early 60s wondering what’s in it for them. If they can’t take advantage of the new spousal benefit, either because they are spouseless or because their spouse has access to his/her own retirement health care plan, some could decide they’re better off retiring now.
“We could be sitting on an unprecedented wave of retirements this year,” Allen said, perhaps welcome news to school boards who can replace a highly paid veteran with a lower-salary rookie, or not replace the veteran at all.
As is usual in these matters, all parties had political interests. The advantages to Spaulding are the most obvious. He appears as an official who has done his job effectively and saved the state some money. He’s also preserved the defined benefit pension plan of a union whose members vote in Democratic primaries. Spaulding decided last year he didn’t want to run for governor this year. But he’s only 47. There’s an election every two years.
As for the Vermont-NEA, this is not a bad time for it to appear to be accommodating. With school budgets rising even as school populations fall, the union has faced increasing criticism for winning wage and benefit increases for its members.
Winning such benefits is precisely what unions are supposed to do, but in this case the employers are taxpayers who are more likely to feel stingy in a troubled economy.
VSEA has the opposite problem, especially among its own members. It has been quite accommodating, if mostly because it had little choice. The union has accepted hundreds of layoffs, a two-year pay freeze, and now a 3 percent pay cut. It would seem to be in Kraus’s interest to be seen by his own members as being as tough as possible.
Besides, he said VSEA’s situation is not the same as the teachers. His union’s pension plan is “pay as you go,” he said, and is closer to being fully funded than the Vermont-NEA plan. Spaulding said “informal talks” were going on with the VSEA, but in the meanwhile Kraus is adroitly playing the legal challenge card. He got prominent attorney Beth Robinson, she of the Vermont Freedom to Marry organization, to prepare a legal brief which concluded that, “if the Legislature chose to adopt the Commission’s proposals, it would subject the State of Vermont to very substantial risk of litigation leading to injunctive relief, possibly an award of damages, and possibly a substantial attorney’s fee award to aggrieved state employees.”
Right now, then, a deal with the VSEA doesn’t appear likely. But then, a few weeks ago, a deal with the Vermont-NEA didn’t look likely, either.
