The Perils of Pension Portability

In spite of steep odds, AASA renews its effort to ease the financial sacrifice of border-hopping superintendents by LINDA CHION-KENNEY

Larry Zenke, 59, first thought about retiring two decades ago when youth was on his side and his resumé was pages shorter. He figured it this way:

Seven years as a teacher and principal in Illinois were not enough to net him any retirement income because he needed three more years to be vested. Likewise, his six years in Florida would fall four short.

Then there was his ambition to become a superintendent. In Florida, with only 67 school districts, he figured the odds were against him, especially when about two-thirds of the positions were filled by election, not by board appointment.

So in 1976, Zenke moved to Oklahoma to become superintendent of Tulsa Public Schools, realizing he needed to stay put for a while or "wind up at the end of my career without much of a pension."

Still, there was a glitch.

Zenke knew he'd lose the seven years in Illinois, but he didn't particularly want to lose credit for his time in Florida, especially since in Oklahoma, with 13 years of employment, his retirement would net him just $15,000 annually. That figure would have been even lower had he not bought credit for the maximum five years' worth of experience earned elsewhere.

Consequently, Zenke and his wife Jo Ann, who was a teacher, decided in 1989 to return to Florida, which allowed both of them to become fully vested in the Florida state pension system. He served for eight years as Duval County superintendent. That move alone will push his retirement income up to $55,000, including the $15,000 he'll get from Illinois and the $40,000 from Florida, once he absorbs a 10 percent penalty for retiring two years early at age 60. His retirement becomes official in June.

Had he stayed in one state his entire 37-year career, Zenke calculates he would have been eligible for close to $30,000 more. But had he stayed in Oklahoma, his retirement benefit would have been thousands less.

Optimism for Change
Zenke's case illustrates the price many educational leaders, especially those in the superintendency, must pay for being career-mobile--unless, of course, they remain in one state or work in higher education. The private retirement system at colleges and universities allows employees to tote their pensions with them when they accept a job in another state. Zenke's plight shows why the push is on for a similar program of pension portability for K-12 educators.

The incredibly complex and political issue has stymied AASA for decades. But Bruce Hunter, director of public policy, believes this new round of advocacy is different.

"People are finally paying attention to the need for quality teachers, principals and superintendents, particularly where there are shortages," Hunter says. "And you can't recruit across state lines very successfully when people are trapped by their retirements.

"I don't know where this is going to end," he adds, "but I do know that if you want the free flow of school leadership across America, so that every school board has a chance to hire the best people possible, then you have to have a retirement system able to accommodate that."

Differing Perspectives
Not every school leader, though, is in favor of pension portability, a lesson Miles Turner learned shortly after he became executive director of the Wisconsin Association of School District Administrators in 1987. Some people wanted the state group to push for pension portability, so he decided to survey the membership.

"There were those who said, 'It's about time we did this, thank God someone is taking it on,'" Turner says. "But there were others who asked, 'Are you out of your mind? Why should we reward state-jumpers, when we want to keep the best people here and not let them go?'"

The membership was split down the middle.

"I was tremendously surprised because I thought it was an open-and-shut case,'' says Turner, a former district superintendent, who himself had been adversely affected by interstate career moves. "I thought everybody would be in favor of pension portability, but I was wrong."

The results might be different today, Turner admits, because more out-of-staters have joined the Wisconsin membership. Still, he adds, with so many other pressing issues in education, "I don't think pension portability is a high priority."

An Uphill Climb
Nobody is underestimating the challenge.

Generally, state retirement systems factor an average annual salary over a set number of years, multiplied by a specified factor (which varies from state to state, but is in the neighborhood of 2 percent), further multiplied by the number of years of eligible employment.

For example, a superintendent with 30 years of experience in one state, whose salary over the last three years averages $100,000, would, with a multiplier of 2 percent, earn an annual retirement benefit of $60,000. If that same superintendent split his time equally among three states, earning an average salary of $30,000 in one state, $60,000 in another and $100,000 in the third, the same formula would yield an annual payout of $38,000--more than a third less.

Correcting such inequities is difficult on three fronts, Hunter says.

First, the goal of state retirement systems is to reward longevity, so there is no incentive to recognize those who leave early. Second, some state pension systems are woefully underfunded, which means insufficient money is in the pot to cover all who are eligible if they all decided to retire. And third, plans differ from state to state. Multipliers vary, as well as the number of years needed to become vested, making it difficult to determine how much a person's pension in one state is worth in another.

"Historically, the people who run state pension systems said (portability) just won't work," Hunter says. "They've done that successfully over the years because state pension systems frequently are the largest single holding of dollars in the state and the largest investor in the state, which makes them very powerful politically."

Could that obstacle be buckling, though, to changing times and demographics? Will it have to?

Legislative Initiative
The proponents of pension portability cite many reasons for their optimism. More and more districts are looking for able leaders as the average tenure of the superintendency in large districts drops to about three years. Meanwhile, the applicant pool is shrinking as the job becomes more challenging and political--and thus less attractive.

Reports are growing of a looming nationwide shortage of educators, particularly in certain fields. The going is tougher for place-bound professionals, owing to the growth of dual-career marriages and the expectation that a typical worker today will change jobs from four to eight times over the course of his or her career. And society as a whole is increasingly mobile. "It's time for us to cut the red tape and knock down the barriers to portability so retirement savings and planning is simpler for America's workers,'' Rep. Earl Pomeroy, D-N.D., said last spring.

Pomeroy, along with Rep. Jim Kolbe, R-Ariz., introduced a bipartisan bill that would make it easier for workers to take their retirement savings with them should they change jobs. The Retirement Account Portability Act of 1998 drew 50 co-sponsors, as well as the support of the Clinton administration and numerous associations, including AASA, the American Association of Retired Persons and the American Federation of State, County and Municipal Employees.

Senators Jim Jeffords, R-Vt., and Jeff Bingaman, D-N.M., introduced comparable legislation in the Senate.

A similar legislative push is expected this year. Legislation like the Retirement Account Portability Act, though, would not be the far-reaching solution school system leaders might be seeking. It would eliminate obstacles that prevent people who switch jobs among the public, private and non-profit sectors from taking retirement benefits with them, but it would not affect a school official moving from one state pension system to another, says James Delaplane, legislative counsel to Pomeroy.

However, the legislation would allow school officials to dip into their tax-sheltered annuities, also known as 403-B plans, to pay for past-service credits.

"That would be an attractive benefit,'' Zenke says, "but it wouldn't help everybody.'' That's because the rules vary from state to state.

In Zenke's case, it cost about $10,000 to buy five years' worth of past-service credits in Oklahoma, but the price to do the same thing in Florida--more than $100,000--would have been prohibitive, he says.

Toll of Mobility
At the state level, Hunter says, policymakers should consider efforts like Ohio's, where workers who leave state jobs early can take both their accrued individual and employer retirement contributions, as well as a prescribed rate of interest. What they lose, though, is a claim to future health-care benefits, which are a part of the state retirement package.

"The new optional cash settlement is encouraging teachers to take the money and run, thereby relieving the system not only of a future pension obligation, but also of any support for the person's future health-care needs in retirement," says Herbert Dyer, executive director of the State Teacher Retirement System of Ohio.

Dyer acknowledged, though, that Ohio has enough money in the bank to honor all the promises it has made, which is not the case in many other states, where pension systems are weakly funded.

For that and other reasons, Zenke sees little hope for widespread pension portability, making it crucial for school leaders to plan ahead.

"As superintendents, we manage multimillion-dollar budgets for school systems, but in many instances, we do a poor job of managing our own retirement planning," he says. "It's incumbent upon us to recognize that if we're going to cross state lines, we need to work with our school boards to set up private retirement systems.''

Such was the case for Joseph Marinelli, superintendent of the Wayne-Finger Lakes BOCES in upstate New York. At age 55, he has accumulated 19.5 years of service in Florida and five each in Michigan and New York.

Being career-mobile across state lines, he knew he'd lose out in the end unless he took action. He placed the small pot of money he was allowed to take from Michigan into a stock mutual fund. He negotiated with the school board in New York to continue paying premiums for the whole life insurance policy started for him by the school board in Livonia, Mich. And from every paycheck, he withdraws money for a tax-sheltered annuity.

"I still don't come out ahead," Marinelli says, "but that's my way of compensating for not staying in one state my entire career."

Linda Chion-Kenney reports on education in Hillsborough County, Fla., for the St. Petersburg Times. E-mail: ChionInk@aol.com.