ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS”

1. A PERSPECTIVE REPORT Presented by Lee’s Summit R-7 School District Dr. David McGehee – Superintendent Mr. Jon Plaas – R-7 Board of Education PSRS / PEERS ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” Thursday, March 12 Testimony Veteran Affairs, Pensions, and Urban Affairs Committee (SB383) *Also presented at 2008 MSBA Conference with the assistance of Board Member, Mr. Jeff Tindle

2. ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” INTRODUCTION At a time when “Hot Topics” for many school districts in Missouri and across the nation include rising fuel costs, the fallen housing market, property tax reform, energy consumption and school safety, lost is the impact that these and other factors have on the ability to fund employee retirement systems. In 2002-2003 the PSRS / PEERS governing Board of Trustees was grappling with the challenge of sustaining Missouri’s quality retirement system in the face of a projected $5 Billion shortfall. In an era of rising costs and declining revenues, fiscal solvency of our quality retirement system has been challenged. 1

3. ENSURING LONG-TERM SOLVENCY“INITIATIVE ARISES FROM R-7 GOVERNANCE MODEL” Board/Superintendent Agreement 2008-2009 Action Items 1) Implement year three of the Comprehensive School Improvement Plan and review and revise as necessary in preparation for implementation of year four of the five-year plan. 2) Continue to evaluate the value of membership in the Cooperating School Districts of Greater Kansas City and make a recommendation regarding R-7 participation. 3) Continue ongoing informational campaign to inform voters about progress on 2008 no-tax-increase bond issue projects and the positive impact of the 2008 no-tax-increase Prop C waiver continuance. 4) Successfully manage the 2008 bond issue projects. 5) Initiate an informational campaign informing R-7 citizens about the district enrollment status, Comprehensive Facility Master Plan, program and facility needs and possible future tax levy and “no tax increase” bond issues. 6) Continue to emphasize, through communication and practice, the importance of meeting the needs of each child through the implementation of year-two of the Professional Learning Communities Concepts in all schools in the district. 7) Review and recommend for consideration effective preK-12 teaching schedules that are fiscally sustainable and embed adequate collaboration opportunities. 8) Conduct a comprehensive wage and salary study in order to move forward the goal of developing fair and cost effective salary schedules, to address competitiveness across the schedules and to meet the long-term needs of our growing district. 9) Develop and implement a plan for the district’s transition to an All-Day Kindergarten Program. 10) Conduct a K-6 boundary study by organizing a credible representative committee and make boundary adjustment recommendations to the Board of Education that consider enrollment projections and building capacities while balancing enrollment at all schools. 11) While emphasizing the importance of protecting the benefits afforded to current and future retired employees of the R-7 School District, communicate the financial constraints of the District related to budgeting for mandated contribution increases, and lobby for research aimed at identifying additional solutions to assure fiscal sustainability of the Public School Retirement System and the Public Education Employee Retirement System. 11) While emphasizing the importance of protecting the benefits afforded to current and future retired employees of the R-7 School District, communicate the financial constraints of the District related to budgeting for mandated contribution increases, and lobby for research aimed at identifying additional solutions to assure fiscal sustainability of the Public School Retirement System and the Public Education Employee Retirement System. This “Perspective Report” will center on retirement funding data and inclusion for all stakeholders through one Missouri School Board’s approach to studying the issues: “encouraging discussion about alternative solutions to ensure solvency” and “protecting the quality retirement opportunities for public school employees.” 2

4. ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” ISSUE: DEALING WITH LONG-TERM PSRS / PEERS SOLVENCY! Contributing factors……. • Funding of “Benefit Improvements” ($3 Billion) • Recovery from “Portfolio Shortfall” ($2 Billion) • Rising Costs of preserving quality Retirement System Benefits Benefit Costs Contributions and Earnings 3

5. ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” RESPONSE: SINGLE SOLUTION APPROVAL! • Legislation 2003 (HB #346, #174) allowed “uncapped” contribution rate increases • Employer / Employee annualrateincreases • + .5% PSRS, + .25% PEERS* • Current year contribution and match rate • PSRS 13% PEERS 6.25% Benefit Costs Contributions and Earnings *Assumes 8% annual return on investments 4

6. ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” IMPACT: PSRS, ANNUAL INCREASE TO CONTRIBUTION RATE • Allows trustees to require both school districts and employees to increase contributions up to 0.5% more each year • Plans are to raise contributions from 10.5% to 14.5% over eight years assuming a PSRS portfolio return based on 8% • Result statewide is a $20 Million additional matched contribution each year • In FY09, the fifth year of planned increases, statewide the impact is $100 Million CONTRIBUTION RATE INCREASES Contribution rate increases are not in response to the Systems’ inability to provide promised benefits for the foreseeable future. Instead, they are about ensuring that future generations will inherit a system as strong and reliable as the one we have today. Short-term declines in the stock market can affect PSRS/PEERS pre-funded ratio, and cause contribution rate increases to continue longer than expected. 1 5 1 A Quarterly PSRS / PEERS Investment and Funding Update

7. ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” PSRS RETIREMENT CONTRIBUTION RATE INCREASE IMPACT $384,500 $390,000 $465,858 $481,875 $500,000 Note: Numbers above reflect actual growth in retirement budget line and include the impact of increased FTE and salary enhancements, as well as the increase in retirement match. Denotes actual dollars directly and solely associated with the retirement match increase, excluding all staffing growth and salary enhancement impact. What does this mean to your district? 6

8. The Public School & The Public Education Employee Retirement Systems of Missouri ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” CONSIDERATIONS: COLLABORATIVE, DATA-DRIVEN APPROACH! • PSRS / PEERS initiate appropriate research and studies • Educational organizations dialogue on Solvency Issues (MSBA / MASA / MRTA / Teacher groups) Research and study topics may include anything related to supporting and sustaining a quality retirement system. • Sensitivity to School District / Employee contribution tolerance and sustaining quality retirement system 7

9. ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” ISSUE: STAKEHOLDER REPRESENTATION IN DECISION-MAKING • Involve all stakeholders (contributors), including School Boards, in PSRS/PEERS Board of Trustees data-driven decisions • Conduct and communicate various actuarial PSRS / PEERS studies, findings, and reports • Identify a plan of action • If necessary, seek legislative support for the Long-Range plan 8

10. ENSURING LONG-TERM SOLVENCY “CONCERNS FOR MISSOURI SCHOOLS” SUMMARY This “Perspective Report” is not about reducing Missouri Public School Retirement System employee benefits. Rather,it is about: • Contribution tolerance (School District / Employee / Patron) • Representation for all stakeholders • Data-driven (actuarial) decision-making • Competition for budget dollar alternatives • Enhancing the attractiveness of our profession • Long-Term quality Retirement System Solvency! These things are truly a concern for all Missouri Public School Districts and related education associations and organizations. Addressing them in a timely manner is appropriate and necessary for teachers and other school employees, school Boards of Education and our respective Professional Learning Communities! 9