More info on a pickup and a pickup-on-the-pickup

From John Curry, September 27, 2010
http://www.zanesvilletimesrecorder.com/article/20100927/NEWS01/9260301

Schools' perk pads pensions

BY JESSICA ALAIMO AND BRIAN GADD • Staff Writers • September 27, 2010

Click image to enlarge.

ZANESVILLE -- Many public school administrators pay nothing toward their own pensions. But the perk doesn't stop there.

A lucrative deal allows 84 percent of Ohio superintendents to retire with a higher pension than they otherwise would have earned -- all at additional taxpayer expense, according to an analysis of public records by CentralOhio.com and the Times Recorder.

About half of Ohio districts also give this benefit to other certified administrators, although it's far less common for other school employees -- only 29 of Ohio's 613 school districts statewide give the perk to teachers or classified staff.

More than 70 administrators in Coshocton, Morgan, Muskingum and Perry counties have their pension contributions paid for and an extra 10 percent added in.

While 13 of 18 local districts only provide the benefit to superintendents, treasurers or both, the other five -- Zanesville, Tri-Valley, West Muskingum, Franklin Local and Morgan Local -- extend the additional benefit to curriculum directors and principals as well.

In Muskingum County, this practice, officially called "pickup-on-the-pickup," cost districts $41,567 per year.

School districts pay the employee share of the individual's retirement contribution, or 10 percent of their salary, and then consider it extra salary for pension purposes at a total cost of 26.4 percent of the employee's salary. The mandatory portion is 14 percent.

While practiced widely at many schools, this method has received virtually no attention on the state level. Many close to the public pension system process are unfamiliar with the practice, and apparently it has never been the focus of statewide legislation.

It only is offered in the pension funds for school employees. Ohio's other three retirement funds decline to participate.

HOW IT WORKS

Pickup-on-the-pickup does not put extra money in the workers' pocket immediately. But for a school superintendent retiring on a $100,000 base salary it means an extra $169,620 in retirement over 20 years because the pension is based on a reported salary of $110,000.

The extra cost to the employer amounts to 2.4 percent of the employee's annual salary, in addition to making their 10 percent employee contribution.

Some officials say the extra benefit helps districts hold on to top talent and is a way for administrators' take-home pay to keep pace with teachers who receive regular step increases.

Dale Dickson, who has been superintendent of the Perry-Hocking Educational Services Center in New Lexington for 13 years, said if pension pickup and pickup-on-the-pickup were taken away, many administrators who receive the benefit would be asking for a raise to make up for the amount they would then be required to pay into their pensions.

Andy Jewell, a researcher for the Ohio Education Association, said most local bargaining units for teachers have not pursued a pickup-on-the-pickup. When they do propose it, it's just another item on the table in the collective bargaining process. The union has no official policy on the pickup-on-the-pickup, he said.

HOW DID IT BEGIN?

The Ohio Supreme Court ruled in 1980 that once earned, sick time could not be taken away from public employees. In doing so, the ruling expanded what could be considered salary.

"It should be obvious that sick leave credits, just as other fringe benefits, are forms of compensation," the court's opinion stated.

Language officially made the ruling part of state law in 1986, opening the door for overtime, sick and vacation time, certain fees and commissions and disability leave to be considered salary for pension purposes.

Each of Ohio's five pension funds is governed by a different section of the Ohio Revised Code. They all have similar definitions of earnable salary. None mention pension pickups, but all give the pension funds the final authority on what can and cannot be counted toward one's final average salary.

The pension systems representing teachers and school employees then allowed pension pickups to be considered salary.

The systems representing state and municipal employees, and police and fire employees declined.

Mary Beth Foley, legal counsel for the Ohio Police and Fire Pension Fund, said that once an employee share is picked up, it becomes part of the employer share. The employer share does not count toward the worker's salary, she said.

When asked why the Public Employees Retirement System didn't allow it, spokeswoman Julie Graham-Price simply said: "It's a school system practice."

Pickup-on-the-pickup was permissible in the State Teachers Retirement System starting in 1982. That year, former executive director James Sublett asked former Attorney General William Brown for a legal opinion on the practice. Although he had ruled to the contrary in 1979, he reversed that opinion citing the 1980 Supreme Court case.

"The rationale was that this was compensation," said Tom Ash, director of governmental development for the Buckeye Association of School Administrators, on why the pension funds allow the practice.

One of the first districts to allow a pickup, and one of the few that give a full pickup to teachers, is Osnaburg Local Schools in East Canton. The pickup came out of a change in the health insurance program in the 1980s, said Larry Morgan, currently the superintendent of the Stark County Educational Service Center. Teachers got the pickup-on-the-pickup as a trade-off for having to pay more for health care, Morgan said.

ADMINISTRATORS

Ash said there are a number of reasons why districts give administrators this benefit. Primarily, everyone else does, so in order to attract the best candidates they need to offer competitive benefits.

If a district were to roll this back, they'd likely have to increase salary to either attract viable candidates or appease current administrators, Ash said.

Northern Local Treasurer Elizabeth Arnold said district records show the school board first approved the extra pickup-on-the-pickup for the superintendent and treasurer positions in 1988.

She said the board "has never even entertained" the possibility of expanding the extra pickup to more administrators, in an effort to contain costs. Arnold and new Superintendent Thomas Perkins receive the pickup-on-the-pickup.

While former superintendent Jack Porter was always concerned with the district's financial stability, providing the extra pickup-on-the-pickup was a way the district could help "entice or retain" administrators, she said.

"We don't have cars and annuities like administrators in big city districts," Arnold said. "And we aren't necessarily on a time clock. It's a 24-7 job. That's just a part of what we do. And this (pickup-on-the-pickup) is part of the board's acknowledgment of that."

Zanesville City Schools paid out $2.5 million in total pension contributions in 2009, both mandated by the state and those they have agreed through contracts to contribute. That is down from almost $3.1 million in 2007.

The pickups have decreased over the past three years, from $115,354 in 2007 to $80,625 in 2009, while other school districts' costs have either remained steady or increased. For example, Tri-Valley's total pickups have risen from $116,130 in 2007 to $126,243 last year.

Zanesville City Schools Treasurer Cindy Nye said the decrease can be attributed to the fact that pickup-on-the-pickup is not offered to new administrators. Currently, eight Zanesville school administrators receive the pickup-on-the-pickup. Two others who did, former Roosevelt Middle School Principal Dick Lear and Director of Curriculum Kathy McCray, retired before the start of this school year.

Nye said the Zanesville district has had the policy in place since at least 1990, the earliest she can find that paperwork was sent to the state on the issue.

"I believe the thought behind the pickup-on-the-pickup was due to the fact that the superintendent and treasurer do not get salary steps as teachers do until they are at the top step," Nye said.

In Franklin Local, Superintendent David Branch along with nine other administrators get the pickup-on-the-pickup, which will cost the district an additional $8,212 in the next year.

That number is down about $200 over last year, Treasurer Chris Miller said, after the school board approved 10 percent salary reductions for both herself and Branch in August through the retire-rehire process.

Miller said pickup-on-the-pickup for the superintendent position was approved by the Franklin Local Schools Board of Education in 1986, with the assistant superintendent and principals added in 1988. The treasurer position was added into the mix in 1997.

"Although we were not here at the time, we believe the pay difference between teachers and principals was not great and this was a way to give additional benefits without increasing salaries," Miller said.

The additional benefit for administrators also guards the district against the possibility of losing a valuable and experienced member of the staff, she said.

"Not all districts pay the retirement for principals. We have had other districts contact our administrators and we do not wish to lose these administrators," Miller said. "When the pickup is figured into their salary, they have decided to stay."

Tri-Valley Local Schools provide the pickup-on-the-pickup to 15 administrators, including Superintendent Mark Neal.

Based on current salaries, Tri-Valley will voluntarily pay $147,377 for the 15 administrators' pensions, according to a Central Ohio.com analysis of information provided by the district. With the mandatory employer share factored in, the total pension tab for these individuals is $313,771.

On Neal's $108,000 salary, the district pays $28,512 to the pension fund on his behalf -- but $13,392 of that is voluntary.

Treasurer Ryan Smith said Tri-Valley's school board had approved the pickup-on-the-pickup plan in June 1988 on a 5-0 vote.

In Perry County, Crooksville Exempted Village Schools Superintendent Kyle Newton is the only administrator in that district to be offered the pickup-on-the-pickup, Treasurer Michael Hankinson said.

Newton, who was hired earlier this year, receives a $90,000 salary, with his employee contribution of $9,000 picked up and an additional $900 for the pickup-on-the-pickup, Hankinson said.

Superintendents Dr. Larry Rentschler (New Lexington) and Dale Dickson (Perry-Hocking ESC) also receive the pickup-on-the-pickup benefit, as does Southern Local Treasurer Jeff Kaaz.

All of these districts have offered the benefit since at least 2003, although the plan for Kaaz was just approved in 2008, according to documents.

The contract for Kaaz also froze his salary at $61,696 for the first three years of his five-year contract and eliminated salary steps.

Echoing Miller and others, Dickson said the added benefit is one incentive school districts offer in an effort to hold on to experienced administrators.

"I only know of one superintendent who did not have that (pickup-on-the-pickup) offered," Dickson said. "This is my 13th year as superintendent, and it has always been covered here."

Dickson said in the great scheme of things, the extra amount picked up by school districts is a small amount when compared to the salaries and other compensation that is offered.

For instance, both Franklin Local and Morgan Local schools pay out between $8,000 to $9,000 annually for the pickup-on-the-pickup, or one-hundredth of the administrative salaries.

And districts have to balance the cost to taxpayers versus the cost to the kids if experienced administrators are not in the classrooms, he said.

NO ATTENTION FROM STATE

It is highly unlikely that pickups will be addressed in any Ohio pension legislation soon. In fact, employee pickups have never been the focus of statewide legislation.

While local employers are required to notify the pension funds of pickup plans, the involvement ends there.

"STRS Ohio's only focus is on making sure both member and employer contributions are correct and received on schedule," Laura Ecklar, spokeswoman for STRS, said in an e-mail.

Tim Barbour, spokesman for Ohio's School Employees Retirement System, agreed.

"We only need employers to provide notice as to whether there is a pickup so that we can account for the contributions," Barbour said in an e-mail.

State Rep. Dan Dodd, D-Hebron, is a member of the Ohio Retirement Study Council, which oversees the pension funds. He said lawmakers view the pickup-on-the-pickup as a local issue.

"We expect local districts to do things that are in their own best interest financially," he said.

Rep. Lynn Wachtmann, R-Napoleon, another member of the Ohio Retirement Study Council, is advocating for major cuts to public employee pension benefits. As for pickups? He thinks they should be outlawed.

Wachtmann said the Legislature has never addressed it because most lawmakers see it as a local control issue.

"It's long overdue that we looked at it," he said. "These issues could be solved by taxpayers refusing to vote for levies."