Miller, Donald S. - National Council on Teacher Retirement

Views of the National Council on Teacher Retirement (NCTR)
Submitted by Donald S. Miller, NCTR President, and Executive Director, Teachers' Retirement System, City of New York
Any debate on the future of Social Security requires the counsel of those most closely involved in retirement policy -- the administrators and trustees of this Nation's public retirement systems. Accordingly, as the Executive Director of the Teachers' Retirement System, City of New York, and President of the National Council on Teacher Retirement, I am pleased that I have the opportunity to take part in the Conference. These remarks will summarize NCTR's views on Social Security reform.
NCTR had its beginnings in 1924; it affiliated with the National Education Association in 1937; and became an independent association in 1971. As such, it is one of the oldest continuously operating organizations devoted to retirement issues. The organization is composed of 73 retirement systems that serve over 13 million public school teachers and other state and local government employees. The systems provide retirement, disability, and other benefits. These benefits are funded through contributions by the state or local government. the employees themselves, and investment earnings.
The retirement systems that belong to NCTR are governed by boards of trustees that are made up of employees, retirees, employers, and members of the public. These board members are fiduciaries who are charged with overseeing the administration of the retirement system for the exclusive benefit of plan participants. They also prudently invest the assets in the systems' funds, which are held in trust and therefore separate from the general funds of the sponsoring state or local government. Collectively, NCTR members hold $1.1 trillion in assets. NCTR members are a testament that governmental pension funds can be successfully managed and prudently invested without interference by the sponsoring governmental entity.
NCTR recognizes that Social Security has successfully provided basic retirement and other benefits to Americans since the 1930's. It has raised many older Americans out of poverty and allowed them to spend their retirement years in dignity and, in fact, is the primary source of retirement income for many senior citizens in this country.
Because of the impending retirement of the 77 million baby boomers, Social Security's financing is on a precarious basis. Accordingly, NCTR calls upon the President and Congress to take action that will ensure the long-term solvency of the Social Security Trust Fund by maintaining the economic security of current and future Social Security beneficiaries. Moreover, such action must not impair in any way the guarantee of an inflation- adjusted retirement income.
In meeting these goals, policy makers must not make changes that would weaken existing retirement programs. I am specifically referring to proposals that mandate Social Security coverage of newly hired employees of states and localities whose employees do not now participate in the Social Security System.
Under the mandatory coverage proposals, the affected employer and employee would each pay the 6.2% into the Social Security Old Age, Survivor, and Disability Insurance fund. This amount would be in addition to the contributions already made by both the employer and the employee into the applicable governmental retirement system. Proponents of mandatory coverage argue that it provides 10% of the revenue needed to bring system into financial balance. What they fail to recognize is the tremendous cost and dislocation that affected state and local government employees and their employers would face.
By way of background, the Social Security act signed into law by President Franklin Delano Roosevelt on August 5, 1935 did not include state and local government employees. Concern existed whether the federal government had the constitutional power to require states and localities to pay the Social Security tax. By the 1950's, many states and localities were interested in voluntarily affiliating with the Social Security System. Accordingly, Congress approved so-called "Section 218 Agreements," under which states and localities may participate in the system. Many jurisdictions availed themselves of this opportunity, including most of the retirement systems in both the State and City of New York.
Approximately four million state and local government employees are not currently covered by Social Security. Most affected would be police and fire fighters of whom 75% are not covered and public school teachers of whom 40% do not participate. When fully phased in, mandatory coverage would cost states and localities $8 billion a year and affected employees, an equal amount, totaling $16 billion.
It is unrealistic to assume that affected employers and employees can readily pay the additional 12.4% into Social Security. A second tier of benefits would have to be added to existing retirement systems for the new employees. The new tier would provide lower benefits than those for employees in the existing benefit structure. With part of the money previously available to fund the retirement system now paid into Social Security, the reduced level of funding may not be sufficient to provide both 1) adequate benefits in combination with Social Security benefits and 2) adequate financing of the retirement system's unfunded actuarial accrued liability. In addition, a lower contribution rate for new employees into the state or local government retirement system would also decrease the rate of growth in the trust fund and cause a decline in the amount of investment return.
In summary, as the debate on Social Security reform progresses, NCTR urges the President and Congress to make changes that maintain the economic security of current and future Social Security beneficiaries, while not undermining existing retirement programs of states and localities. Again, thank you for the opportunity to participate in the Conference.
For more information, contact Mr. Miller at 212-386-5203 or Cynthia L. Moore, Washington Counsel, National Council on Teacher Retirement 703-243-3494.