Milwaukee Public Schools Shave $1 Billion in Unfunded Liability from Teacher Retirement Program

A new study has shown that the unfunded liability created by post-retirement benefits for former employees of Milwaukee’s Public Schools (MPS) has decreased by a billion dollars in the past year. These savings, which were created by raising the eligibility requirements needed to qualify for retiree benefits, are a direct result of the district using 2010’s controversial Act 10 to alter employee benefits in order to cut costs and dedicate more money to the classroom.

While Milwaukee’s public pension program was in good shape in 2011, all was not well in Brew City. The districts Other Post-Employment Benefits (OPEB) had reached an untenable mass. The city had $2.4 billion in unfunded liabilities due to the costs of retiree health and life insurance programs. If left unchecked, this debt was on pace to grow to over $5 billion by 2017.

This debt included big obligations not only to teachers, but also to their spouses, secretaries, board members, and lunchroom workers. The share of unfunded liability created solely by the 5,030 individuals who were not educators added an estimated $55 million to MPS’s financial burden in the 2009-2010 school year alone.

Now, MPS is using the tools found in Act 10 to fix their situation and reduce the debt that will be laid upon a future generation of teachers. Spokesman Tony Tagliavia noted that Milwaukee will save over $1.4 billion in the long term thanks to the actions that the Milwaukee School Board has taken in 2011-2012. Approximately $1.1 billion can be traced to the district’s ability to change the eligibility requirements for post-requirement benefits.

These new standards will help ensure that more funding is being directed to the classroom rather to post-employment benefits. However, this change will also have a significant effect on the district’s teachers. The district is anticipating a wave of retirements from educators who are looking to lock in their benefits before the eligibility changes are ushered in. As a result, MPS Superintendent Gregory Thornton is anticipating that between 500 and 700 teachers will end their careers with the district in 2013.

Despite the potential loss, the district appears to be optimistic in the face of $1.4 billion in savings. The reduction in OPEB costs will help lift a large burden from MPS’s back, but there is still plenty of work to be done with another billion in debt looming. Milwaukee will have to continue to work in order to get back in the black when it comes to their fiscal responsibilities for retired employees. Fortunately, the steps taken in 2012 are a good start.