The teachers' retirement fund, formed in 1943, had been underfunded for decades. In the past, benefit increases were granted to members of the retirement system without those benefits being funded by the Legislature. The money came out of the pension system.
The Gabriel Roeder Smith & Co. report found that the Teachers Retirement System during the 2012 fiscal year received 116 percent of the amount of money it needed from the state to fund the plan for the 2012 fiscal year, which ended June 30. In 2011, it received only 78 percent of what is called the annual required contribution from employers and dedicated state revenue.
The pension fund required $588.3 million in the 2012 fiscal year from the state as its share to pay benefits and expense as well as debt service; it received $681.6 million, Wilbanks said. Of the $681.6 million, $281.8 million came from dedicated revenue sources, he said.
The Teachers Retirement System gets 5 percent of the annual collections from each of the corporate income tax, the personal income tax, the sales tax, the use tax, the lottery and other taxes.
Nearly half, 47.8 percent, or $134.7 million, comes from personal income taxes. The state's contribution for the 2013 fiscal year is projected to be $286 million.
Wilbanks said discussions to reduce or gradually eliminate the personal income tax would have an adverse effect on the Teachers Retirement System unless another funding source was found. Lawmakers earlier this year considered several proposals to reduce the personal income tax's top rate of 5.25 percent, but couldn't agree on a plan.
“If there are going to be continued discussions about reducing or eliminating the personal income tax,” he said, “we're going to be in the position of protecting that revenue that comes to the system and engaging in the discussions of, if there's an income tax reduction that means we're losing revenue. Where is that going to be made up? Any significant revenue loss would jeopardize us being on the path towards fully funded.”