CalSTRS is not in crisis; do not begrudge the teacher’s pension that I earned
As a public school teacher, I am often gratified by the show of support that parents and others throughout California show for members of my profession. Everyone I talk with says they value education and the need to inspire and engage our youth to lead our nation’s future.
But I’m offended when I hear grumblings over teacher salaries and pensions. News reports of rich public pensions paid to local government officials lead many to reason that CalSTRS and its members are also to blame.
I take those criticisms personally. After all, given my education, training, and service, I’ve earned the pension I’ve spent a career in building.
Most CalSTRS members do not retire into a life of luxury. Ours is a modest pension, secured over nearly three decades of service. The median CalSTRS pension replaces about 60 percent of our working income. Unlike most workers, teachers in California do not earn any Social Security benefits for their classroom service. As such, the CalSTRS pension represents the only source of reliable monthly income a retired teacher receives. Moreover, most public school educators in the state retire without employer-sponsored health care after age 65.
Nor is it a taxpayer giveaway. Over the life of their careers, CalSTRS members contribute 8 percent of their monthly pay to help finance their retirement. Employers kick in another 8.25 percent of monthly pay (75 percent of which is offset by not having to pay Social Security taxes), the state contributes a little more than 2 percent, and the returns garnered by CalSTRS investments do the rest. These taxpayer contributions represented less than 28 percent of the resources used in the past 15 years to pay benefits.
In the past decade, the financial health of public pension funds, including CalSTRS, has been undermined by the dot-com bust and global recession. However, our situation is not as dire as many would have you think. As of June 2009, CalSTRS benefits were 78 percent funded and the system had sufficient assets and projected contributions to pay benefits until 2044.
Public pension funds like CalSTRS are not in crisis. Our long-term rate investment return of 8.2 percent for the past 20 years exceeds our assumptions. Our benefits are paid for and funded over decades.
Local and state governments, including California, must make hard decisions to ensure the solvency of their public pension systems. CalSTRS acknowledges that changes must be made to its system and is working with affected stakeholders to develop a responsible strategy to address the system’s projected long-term funding shortfall. While a fix is not immediately needed, the longer we wait to address funding issues, the costlier a solution will be.
We can manage our funding problems without eliminating the Defined Benefit pensions that California’s public educators have worked for and deserve.
Dana Dillon is an intermediate grade school teacher from Weed. She has served on the Teachers Retirement Board of CalSTRS since her election in 2003, including stints as chair and vice-chair. Dillon has been active in the California Teachers Association for more than 26 years, serving as state council representative, and was recently elected to the board of directors.
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It’s very simple, Dana. If the state doesn’t have the money, then we can’t fund your taxpayer-funded pension. Feeding at the public trough has drawbacks, and this is one of them. If you thought there were guarantees in life, then the delusion that unions live in has encapsulated you as well.
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Even with recent increases in the stock market, STRS remains massively under-funded and by all reasoned accounts I’ve read, is likely to remain so unless the contribution rates are substantially increased.
Given that Ms. Dillon believes that “we can manage our funding problems,” I’d be very interested to hear specifics on how she proposes to do this. Would she, for example, recommend increasing the employee contribution rate from 8 to 21 percent (roughly the level of increase that STRS’ actuaries believe is needed to fund the system)?
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Dana is correct. CalSTRS is not “massively underfunded” by any means. The scare talk about funding shortfalls never take into consideration that the shortfall needs to be divided by a factor of 30 to get a realistic estimate of the CURRENT shortfall, because part of the shortfall corresponds to what is needed for teachers who are currently still working (and will be working for many years to come), and the remainder is for retirees who will be collecting pensions over several year.
While it would take five years of 20 % gains back-to-back to bring the fund back to full funding, it doesn’t have to occur in five years. All that is needed is reasonably decent returns over the next 30 years, combined with modest changes in contribution levels and full retirement age to bring the fund back to 100% funding.
On the other hand, private sector employees stuck in 401-k plans, probably will never see their losses from the financial crises recovered.
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The funds are fine and the pensions deserved. These attacks on workers are the lowest level slime attempts to kill govt and hurt people ONLY because they work for the govt.
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“I earned it.”
If that were the case we wouldn’t be having this discussion because the fund wouldn’t need public subsidy. The public subsidy is the part you didn’t “earn”. The fund’s losses on Wall St. aren’t your fault but they aren’t mine either and since no one is making up my losses, why should I make up yours? The reason STRS funds were invested in stocks instead of US Bonds like Soc. Sec. funds is because the actuarial calculations would not have given you that defined benefit your want without the risk and (supposed) rewards of stocks. So you indirectly took the risk and and now you know what risk is. It means you can lose money.
If defined benefit retirement plans are not viable without public subsidy to make up losses, then they are not viable. Period.
John says private co. employees have defined benefit programs but he needs to give some numbers. I have never met any such person. The responsible cos like IBM bought out their employees’ retirement benefits years ago and the irresponsible ones declared bankruptcy and threw it onto the fed’s plate.
The local HS district, Fremont Union, pays the teacher’s share of the contribution. I wrote district, but I should have said taxpayers. So the teachers contribute nothing whatever. Is this the only union in the state that got that benefit? I doubt it.
John says that only a few get $200K+ annual retirement benefits. And how much does that amount to? Any numbers? 1,000 = $200+M/yr, 10,000=$2+B/yr. More to the point, if you are going to argue that CalStrs is equivalent to social security, contrast that number with the number of Social Security retirees getting that much, i.e., zero. Looking at the local school districts, every one I know of from San Jose on up the peninsula to San Francisco pays their superintendent $200+K /yr with asst. and associate supers not far behind. Highest is Cupertino Union at $277K; Fremont Union is at $272K, etc., etc. Contrast that with the Governor’s salary of $212K/yr.
And again, why do I have to make up your retirement plan’s stock market losses when no one is making up mine? If you don’t answer that question, nothing else you say will matter at all.
Teachers need to get on Soc. Security, and manage their own retirement 401Ks like everyone else.
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Forget CalSTRS pension, ask about OPEB. Is your district funding its future liability or just paying current OPEB?
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STRS’ most recent actuarial valuation study does indeed document that the system is massively under funded and that it would require a huge increase in contributions to fund the system, even when stretched out over a 30-year period.
According to the study, bringing the fund back into funded status would require “an increase of 13.908% of Earned Salaries for a period of 30 years.” This, however, is only if the 13.9 percent increase were implemented in 2009. Delay, however, is costly. According to the study “Based on a July 1, 2011 date, the additional revenue needed is about 15.5%
of payroll.”
Thus, even with a 30-year payment plan, and even with the STRS’ rather optimistic 8 percent annual invest return assumption, returning STRS to long-term solvency would likely require an increase in the contribution rate of 15.5 percentage points, or more than doubling the current employee and employer contribution rates.
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“Feeding at the public troughs” is offensive. We are doing our jobs, and doing them well. Calling us pigs isn’t the answer. We add value to the economy by training the next generation of workers, entrepreneurs, and corporate millionaires. The public pays us because it sees the value in an educated citizenry that will continue to grow our economy into the future. The notion that teachers are takers from the public is misguided.
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But all of their compensation is paid by the public. What makes the pensions that were bargained for and earned different?
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I can answer that. When the stock market was earning 15%, STRS accumulated at 8% for the teacher. I know, because I sold investments (series 6 and 63) at night while trying to put myself through school. It seemed like teachers were getting ripped off at the time, and they sure let me know it. But, I didn’t see an outcry from the public to pay higher teacher pensions.
Now, STRS is still at 8%, and being considered to be revised lower.
Why you “have to”make up our losses is tough to answer, but I will try. We became teachers to serve the public good and to do it professionally. My hope is that we all see the value that teachers add to society, and we pay them accordingly. Teaching is a profession that does not afford the opportunity to advance in ways that pay dividends in the manner that the private world does. In the private sector, risk and hard work pays very, very well. (And I believe that it should.) Teachers don’t get that chance if we devote risk and hard work into the lives of our students. The investment a teacher puts into a student is not financially realized the individual teacher, but by the state as a whole.
You think very well, and ask good questions. Thanks for keeping us on our toes. The last thing most teachers want is to rip off anyone. Most of us are doing are absolute best despite some very vicious cuts and even more vicious attacks. We just want to make the kids in our classrooms the best that they can be.
John
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Whatever issues some folks may have with CalSTRS pensions, the state has legal obligations to fulfill all pension promises for past services rendered. There is no option here. The legal requirement to provide pensions for prior service can’t be abrogated. Even under state bankruptcy, federal courts are likely to order the state to fulfill past pension obligations before all other liabilities.
Some realistic options for pension reform exist. Pension benefits for future work may be renegotiated and pension conditions for new hires can be changed. But, legally, no changes can be made with regard to pension benefits for past labor provided.
It is a waste of time and energy to argue about those aspects of teacher pensions that legally can’t be altered. It would be more productive to look for financial solutions that are realistic. Like it or not, these earned pensions are here to stay. It is fantasy to imagine otherwise.
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Just yesterday I helped a teacher friend review her retirement accounts; She’s in STRS and also: contributes to a 457 account on the side, pays into some sort of annuity, and has a Roth IRA.
I was astounded to see details in the paperwork about retiring at 55. FIFTY FIVE? Really? You mean to tell me there are no more good years in a teacher at that age? I would like to see that number up just a little bit higher. She was outraged about the same thing with police and fire — in her words: “There aren’t desk jobs those guys could do?” We both worry for the massive entitlement deficit in this country. It makes the current national debt look like a gnat on an elephant.
My own employer, a regulated utility, is one of the few private sector employers with a DB plan left. Still, I’m saving in a 401k and a Roth IRA; my previous employer threw me out of the pension with a lump sum after I left. I like the idea of DB plans, or some combination DB/DC program — matters like pensions should be about income and retirement security, and spreading the risk runs part and parcel with that mission.
That said I do not believe it’s the taxpayers’ job to fully fund retirements for 55-year-olds. It’s on everyone to save a lot more. We would all do better to cut back not just on the entitlements but on our own sense of entitlement.
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Good discussion on a topic I will revisit in coming months. Blame me for picking up on Dana’s use of the word “crisis” and putting it in the headline. When the state faces severe gaps in spending, and the Legislature is asked to up its contributions to public pensions to make up for projected shortfalls in payouts for retires – not for services to the public – call it what you will: That’s a big problem. See here for my post last week on on CasSTRS’ financial situation.
Substituting “higher risk” for “crisis” lends a more objective perspective. Unlike corporate defined benefit pensions, which, as readers have pointed out, many companies have abandoned, public pension programs are, the courts say, compulsory obligations of the public — certainly in meeting payments to retirees and current obligations to current workers. Therefore, funds should be invested conservatively, because taxpayers and employees will be on the hook to make up shortfalls. Outside consultants and the CalSTRS staff are saying that the 8 percent annual return on which benefits payouts are based is too optimistic. Mark Shapiro may see the 25 percent drop in market value in 2008-09 as a one-time fluke, followed by more go-go years but taxpayers shouldn’t bank on that. Even at 7 3/4 percent return, which the CalSTRS board agreed is more prudent, consultants say there is only a 30 percent chance that the system could meet its obligations over the next 30 years. Stanford graduate students last year said that the returns should be tied to government bonds, in the 4 percent range. That’s too conservative. But the point is that whenever you lower the rate of return on investments, you have to either raise the contribution levels of the employer (taxpayers in the end in this case) and/or the employee – or adjust the benefit levels for future and current employees. The contribution levels should be readjusted gradually, to account for market returns over time, but right now, the Legislature is being asked to raise/phase in the contribution levels, as a percentage of payroll substantially, from 18.25 percent to 33 percent. That’s huge.
One more thought: Benefit levels for many state workers, starting with safety officers and prison guards, are richer than for teachers — in terms of early retirement and payout — and the pension system shortfalls facing independent municipal pension systems in many cities (hello, San Jose) and counties are far more ominous.
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When I buy a house, back in the day when any of us COULD afford to buy a house, it is not required that I have the full cost of the house in the bank. I make payments over time. Likewise, when it is said that the pension system can’t afford to pay what it owes is too often based on the unrealistic assumption that everyone in the system will retire today. Pensions are paid over time, not all at once. But, that assumption/lie drives the debate. Would that we could all have a discussion rather than putting forth false conclusions in order to sway.
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You didn’t read Ms. Dillons’ article, did you? Teacher are excluded from Social Security. As a result we are involuntary contributors to STRS. We pay 8% of our pay a month; our districts match that and DO NOT contribute to social security, which would cost 75% of the district contribution. I am a 30 year teacher. I earn 70K and I contribute $700 a month to my retirement. I do not know of any teachers in the state of California making 200 K or even 100K. Administration is not in STRS–it is for teachers.
When folks were earning 13% on their 401Ks from the stock market, I’ll bet you weren’t complaining about STRS….
STRS is not in trouble and is not looking for a public bail-out…unlike banks and, apparently, those invested in the stock market.
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No, it isn’t. Read Ms. Dillon’s article.
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To Anne Johnson — Administrators are in STRS. Most started out in teaching and are allowed to continue to participate in STRS.
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As others have pointed out, we must consider that although the combined local/state contribution to STRS stands at 10.25% of payroll, school districts would otherwise be paying 6.45 percentage points in employer-paid Social Security contributions. Don’t begrudge a retirement benefit that costs the taxpayer 3.8% of payroll (eventually a bit more, depending on future investment returns, on how state government decides to address the long-term unfunded liability, and on how the extra contributions are split between employers and employees).
A more productive approach would be to consider total, career compensation for teachers, relative to teachers’ personal investments in higher education, testing, certification, continuing education, and classroom equipment and supplies. Workload is also important to this debate. Yes, the state may eventually have to kick in a few extra percentage points to cover STRS’ long-term unfunded liability, but the workload of many elementary teachers has grown from 20 (CSR) student contacts per day to 32, and that of many algebra teachers, from 100 students per day (Morgan-Hart) to 180, with no increase in compensation. Teacher pay varies widely from district to district, but it would be ridiculous to call teachers well-paid.
To those who want to reduce teacher pay and benefits, see whether the people who will still be willing to do the work will meet the exacting standards you’ve set under NCLB.
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You are on the money Joey. Teachers like Dana do not realize that they get advice from CalSTRS representatives using words like “guarantee, for sure, no risk” those of us in the private investment adviser sector would be fined for using. One CalSTRS rep we talked with was a recently hired former teacher with no real world experience in investing giving advice for a poor lay’s total retirement funds. Scary! Look back and you will find CalSTRS sued the State of California to get cost of living increase money, then allowed the State to not fund it in subsequent years.
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You should read the article before commenting. Teachers in California pay for their own pensions by making contributions to CalSTRS and through the investments made by the CalSTRS fund. The state covers 2.5% which is meant to cover inflation over time. This is not a tax payer-funded pension by any stretch of the imagination of a critical reader.
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Dana, you are drinking the union coolaid. You are correct in that you contribute about 8% (8.25%), your district contributes about 8.5%, one of the state contributions is 2.25%, but you left off another 2.5% of another funding from the state. That’s 21.5%. By the way, I know your union wishes to distance itself from the other Calpension, but CalPirs or Calstirs are about the same when it comes to cost to the taxpayer. Your union likes to point fingers to the cases where the employer pays the employee contribution as part of some compensation packages, but don’t try to redirect the basic problem, its not your contribution that is the problem. It is the state’s contribution of nearly 14%. Compare that number to the private sector employers contibution of 2.1%. It doesn’t take a math major to figure out the problem. Also, the private sector looks for retirement at about 67 years old to collect their social security. You on the other hand can retire at 60 or sooner, and the state or city employees can retire after 55! Thats the other problem. Reform is needed, but I don’t propose to change your retirement, you signed on at that rate and the publis allowed it, so you should get it. BUT, new hires should be something along the lines of taking away the state contribution of 5%, let the districts negioate their own contribution based on what they can afford, and increase retirement to 65. Won’t much help the budget problem for several years, but we must do it now for our children and grandchildren.
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Well, at least you are backing up your ad hominem attacks with evidence…
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Was directed at reillyfam…
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hey Joey,
Why would anyone work for anyone if the pension they pay into isn’t there when they need it? you seem to not have read the article and just made a blanket statement about something you know nothing about. To not payout a pension that is funded and in a contract is STEALING. These people pay into their own pension, and they deserve it. Even if you Go the route of what percent the taxpayers pay, it is less then what you will draw on your social security, which they wont get. So, even to go your route, you would still have to pay them back the money they put in, with interest.
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Readers of this thread will probably be interested in http://ed100.org/pensions which includes a graphical representation of pensions as a component of total teacher compensation.
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Regarding “teachers need to get on Soc. Security,…”
They won’ t let us. CALSTRS was in existence before social security and the feds would not let us pay in. In fact, if we DID pay into social security on other jobs ( like I did) and then teach until we had a retirement from CALSTRS they CUT what we SHOULD have gotten for SSI by 50-60%. It’s called WEP for windfall elimination provision. If I wanted to collect on my husband’s social security then they cut my benefit even more, all the way to “$O”. That’s called the government offset.
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Can we get beyond all this pension scare talk?
I’m quite willing to pay MORE into my pension, and even take a hit if I retire too soon (though that’s already built into the program) If the state wants to bargain, then let’s do that. If the state’s real goal is to get rid of unions, then let’s be honest about that.
Have the state cover the SAME amount that any private company would do in Social Security payments. I’m quite willing to make up the difference to our current total savings with an added point, but once we do that all this nonsense has to end, and the focus has to go back funding the education of the children of California. If the nation wants to solve the problem with social security, then people need to realize that their contributions should also go up. It would help a lot if people paid what teachers are currently paying. Throw all this into the financial markets? That would be insane, but what a huge profit it would be for Wall Street and all those currently invested. Please save us from that route to salvation.
We, the people of California, are responsible for educating 1/10 of the Nations’ children. The federal government gives us some of our taxes back to do this, but as a state, we have NOT being doing our job for a long long time. I don’t think you even have to factor in the major cost of living factor for California or just the cost of gas here verse elsewhere, but you should.
Or, we can put our heads in the sand. Blame the unions and pensions, and all expect the tax breaks will equal what the added costs eventually be. Defunding the state’s University system? Really? Let’s just forget we were ever in the top ten of the world’s economies. Let’s let some fools privatize everything in sight and pay us pennies for public infrastructure they will use to run their business. Genius!
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Your statement is mis-leading. If a teacher retires at 55, they will recieve MUCH less than a teacher who retires at 60… even if they both have the same years of service.
Teachers actually have the option of retiring at 50, but only if they have 30 years of service.
If it sounds like a really good deal, you should give teaching a try.
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I guess Dana didn’t know they lowered CalSTRs in 2010 to 7.75 and if they did it once they’ll do it again since CA. pension s are underfunded by $200 Billion.
http://www.cta.org/Professional-Development/Publications/Educator-Dec-10-Jan-11/MAD-Q-A-CalSTRS.aspx
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Anne, I did read the article. Part of the problem is not understanding how the pension works. You put in x amount, the state then matches that amount. The issue people have is that when you retire at age 55, if eligible, chance are you will live until 78. That means that for 23 years your “60%” has to be maintained.
I am a financial adviser for public employees, 457’s and 403b’s. Met with a client with 38 years of service, she makes $100,000 a year. She will retire with around 99% of salary. She put in $250,000 in STRS over 38 years, she is 62, so after year 2.5, the “investments” of the STRS program need to produce enough for another 13.5 years? Then add in the “non-COLA’s”… Are you serious?
DO you get how this works? I adore this client, and feel she is the best teacher in the world, but even she confesses this is too much.
By the way, I know 60% is thrown around a lot as the average, but I always seem to meeting teachers that forget what the average SSI payment is. Should be darn sure you dont pay into that…
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“It’s very simple…” Contract law still applies here, does it not? In third world, corrupt countries, I suppose it doesn’t, much.
“Feeding at the public trough…” From which trough do you feed? Everyone needs to eat, including you. You must have a trough from which to feed. Is it in the so-called “financial services industry”? Is your trough somewhere else in the so-called “free market,” perhaps at a multinational corporation employing slave labor, in which the profit motive is all-important Please describe your trough and help us understand its inherent superiority.
“…the delusion that unions live in…” — no match for your delusional world view. Apparently civil rights, due process rights, and human rights have no place in your world. How sad it must be for you to live in a world devoid of “guarantees in life.” It sounds like a very impoverished place. Perhaps it is a third world country in which cronyism, nepotism, corruption, “political strongmen” or others of disproportionate means lord it over the majority. There would be no guarantees in a country like that. You must be posting from a third world country of some sort. You must be angry at having to live so far from civilization.
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After 27 years teaching in an impoverished community school district I will make $2,500 per month if I retire at age 55. I will not collect social security. I will have to somehow survive on this amount for the rest of my life. How is this such a terrible drain on society? Please explain to me how terribly society is burdened if a long-term teacher in good standing for 27 years gets that amount of money each month for the rest of their remaining years.
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Im not sure if I am understanding this article, bt It sounds to me as if CalSTRS is asking the state for 65billion to cover shortfall. I’m scared! What are a teachers options? Can I go it on my own and opt out of CalSTRS?
http://www.recordnet.com/apps/pbcs.dll/article?AID=/20120410/A_NEWS/120419991/-1/A_NEWS04
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You say, “Teachers need to get on Soc. Security, and manage their own retirement 401Ks like everyone else.” Guess what, I would love to but I AM REQUIRED TO PAY IN TO CALSTRS AND CANNOT OPT OUT! I do not even have the option of paying into social security (thank God). Instead of complaining, help us eliminate the requirement that binds us to Cal Strs! Then you’d see more of us doing exactly what you want…
You say, “making up your retirement plan’s stock market losses when no one is making up mine?” Again, don’t complain. Instead, manage YOUR portfolio better! Don’t attack us because YOU managed your portfolio poorly!
Many of us highly educated, extremely talented people become teachers rather than EARNING MORE MONEY IN THE PRIVATE SECTOR in part because of the promises made to us by the State: GUARANTEED BENEFITS in exchange for our services at a much lower rate of pay than we can earn elsewhere.
I am a high school math teacher and I am good at what I do. I guarantee you cannot do my job anywhere near as well as I do. I also guarantee I CAN do your job better than you!
Before you decide to make the teaching profession undesirable, think about the impact that would have on your country! Hello Third World!!!
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The above comment was in response to Michael G’s “I Earned It” (posted 2/7/12)
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