W. Va. Educators realize the benefits of a Defined BENEFITS retirement vs. a defined contributions retirement

From John Curry, June 5, 2008
Subject: W. Va. Educators realize the benefits of a Defined BENEFITS retirement vs. a defined contributions retirement‏

Charleston Daily Mail,June 5, 2008

Teachers relieved at pension results

"I was very pleased that I'm going to be able to retire," teacher says

by Kelly Holleran
Daily Mail staff

Teachers gave each other high fives as they walked through the hallways at Cheat Lake Middle School in Morgantown after they discovered they could switch back into the state's old Teachers Retirement System.

Judy Wagoner (photo by Tom Hindman), a teacher at Hayes Middle School, was relieved to hear that she could switch back to the Teachers Retirement System. She was in the Defined Contribution system and was worried about her ability to retire. But now she knows she will be able to retire in a timely fashion."It was really big news," said Sam Brunett, an art teacher at the school.

A school nurse passing Brunett in the hallway jumped off her feet and gave him a high five, he said with a chuckle.

Almost 15,000 West Virginia school employees elected to switch from the new Teachers Defined Contribution system, a 401(k)-type retirement savings program, into the TRS, a program that guarantees a pension benefit based on final salaries and total years of service.

The average teacher had saved just $33,944 in his or her TDC retirement account, according to state data. Of the 1,100 enrollees age 60 or older, only 23 had more than $100,000. None had more than $157,000.

For people like Brunett, who has been teaching for 15 years, the news came as a big relief.

"In the new system, I had less than $75,000 in my retirement," he said. "Even had I waited it out, I probably still would have had less than $150,000 to live out the rest of my life on. I probably would have died in the chair I was teaching in. I was very pleased that I'm going to be able to (retire)."

Judy Wagoner, a teacher at Hayes Middle School in St. Albans, said she will no longer have to worry about how to spend her money.

"Those of us who have been in the new plan and realized how important it was for us to switch back into the old plan, our lives have been on hold," she said. "You don't know where to put your money. You hesitated every purchase you made. Now I know how much money I'm going to make when I retire. I'm just thrilled that it passed."

For school employees to have been allowed to switch to the old retired plan, at least 65 percent had to vote by May 12 in favor of transferring. An astounding 78.3 percent, or 14,871, employees voted in favor of the switch.

In the defined contribution plan, teachers were only required to contribute 4.5 percent of their earnings, while those in the retirement system were required to contribute 6 percent. Therefore, those who opt to switch back into the TRS must 1.5 percent of their salary for every year they've worked, plus a four percent interest rate.

That is a substantially lower cost than what they would have been forced to pay had less than 75 percent of employees voted in favor of switching into the TRS, which would have cost employees tens of thousands of dollars more.

Employees want to switch back to the TRS but can't afford to may elect to receive only 75 percent of their normal TRS benefits without paying the buy-in costs.

Brunett was elated when he found out so many were in favor of switching.

He would have had to pay about $36,000 in order to switch into the old system if less than 75 percent had voted in favor of the change, but now he is only required to pay $8,000.

"Had it passed less than 75 (percent), I would have had to take only the 75 percent retirement," he said. "At least now I can get a loan and pay off my loan."

Debra Elmore, a third-grade teacher at Anstead Elementary in Fayette County, was equally excited when she heard just how many of her co-workers voted in favor of the switch. Like Brunett, that will save her a lot of money -- about $15,000.

Elmore has been teaching for 17 years and will not be able to retire for a while, but that didn't stop her from breathing a huge sigh of relief.

"To retire with full benefits, it'll be a while," she said. "It's just nice knowing that when I do, I'll have the money to do it."

Elmore was one of many teachers who said they felt tricked into entering the defined contribution plan.

"Many of us were deceived when we were told we had to go into the TDC system because the TRS system was going bankrupt," she said. "I'm just glad the problem is fixed."

The Legislature tried to solve the problem in 2005 by letting school workers vote on whether to return to the traditional retirement system, but they required that if the majority voted to, all would be required to do so.

That didn't go over well with many teachers.

The law was later overturned in Kanawha Circuit Court after some participants argued that the state illegally took money away from people who wanted to stay in the defined contribution plan.

"For two and a half years, we've been in limbo," Elmore said. "I just appreciate the work the House of Delegates did to get this through. I'm glad that we have an answer to the problem."

But Wagoner, who has been teaching for 22 years, is worried that many people were still misled about not returning to the TRS.

"A lot of people encouraged them to stay in plan and promised them a 13 percent return on their investments," she said. "I'm really concerned about those people."

She is appreciative for those who helped pass the most recent legislation.

"I have so many feelings about it," she said. "By the time we recognized it, we were so far into it. WVEA and teacher's unions have been very supportive. They have fought for us."

It's still not clear, however, exactly how much extra teachers will make in their retirement.

Brunett is not quite sure how much extra he will earn by switching to the TRS. He said his investment in the defined contribution plan was difficult to gauge.

"Now I'll be receiving the full retirement benefit," he said. "I feel it's going to be a significant amount more, especially when I only have $75,000 in my retirement account now. You can see how that would have been a major burden on my family and I."

Elmore estimates she will make at least $500 more per month by switching systems.

Under the TDC, she probably would have made less than $2,000 per month, but now will make about $2,500 per month.

Still, the loan Brunett will have to take out in order to switch is significant and probably will be for many of his fellow teachers, too.

"An $8,000 loan is a pretty big loan to somebody who is only making $40,000 a year," he said. "We've won a great battle, but I really don't feel like the war is over yet."