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Assembly Dems to take aim at CalSTRS liability

By Josh Richman
Wednesday, January 29th, 2014 at 2:09 pm in Assembly, education, John Perez, Rob Bonta.

Assembly Democrats say they’re ramping up an effort to solve the long-term, crushing unfunded pension liability in the California State Teachers’ Retirement System (CalSTRS).

“The Assembly will pursue a solution to the STRS shortfall this legislative session,” Speaker John Pérez, D-Los Angeles, said at a news conference today in Sacramento. “Further delay only means further cost and further exposure for the state’s general fund. We believe there must be shared responsibility for a funding solution between school districts, the state and teachers. Our end goal is a State Teachers Retirement system that is 100 percent fully funded.”

Assemblyman Rob Bonta, D-Alameda, said the Assembly Public Employees, Retirement and Social Security Committee he chairs will start holding hearings next month.

“I am eager to begin this process and confident that an equitable and permanent solution can and will be found to the CalSTRS funding problem,” he said. “Ensuring the long term financial security of California’s hardworking and dedicated teachers is a goal we are hopeful we can achieve this year.”

As Jessica Calefati reported Sunday, CalSTRS’ unfunded liability is around $80.4 billion and constitutes a huge chunk of the looming costs threatening the state’s long-term fiscal health.

State Treasurer Bill Lockyer and Controller John Chiang, both of whom serve on CalSTRS’ governing board, immediately welcomed the lawmakers’ call to action.

Perez and Bonta “are spot-on in calling for immediate action and shared sacrifice in addressing CalSTRS’ unfunded liability gap during the coming year,” Chiang said in a news release. “If lawmakers can meet the challenge with courage and fiscal prudence today, Californians can avoid a risis tomorrow that imperils not only teachers, but taxpayers and the education system in which they have entrusted our children’s future.”

It’ll be interesting to see how the state’s teachers’ unions buy into this (or don’t) especially regarding Perez’s call for “shared responsibility” including teachers.

The CalSTRS shortfall “does not have to be paid overnight,” the California Teachers Association states in its retirement position paper. “Like a mortgage, this is an amount that will need to be closed over a 30-year period. The shortfall has to be addressed, and teachers are committed to partnering with CalSTRS in finding a long-term funding solution.”

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  • Elwood

    Riiiiiiiiiiiiiiiiiiiight! Will any significant action take place before or after the zombie apocalypse?

  • JohnW

    The teacher pension situation is different from other pension problems. This CalSTRS problem is that the legislature deliberately underfunded it. The pension benefit for teachers is not nearly as generous as the 90% at 30 deal for public safety of the 75 percent at 30 plus Social Security for general workers. Teachers don’t get Social Security.

  • Willis James

    No, the “problem” is that it is $100 billion dollars short.

    The minimal fix is the state throwing in a extra $5 billion each and every year for 30 years. (that on the news

    today).
    So how about Jerry Brown telling us again about the $1 billion dollar surplus. Or those in the legislature who are now urging more spending on programs that had been cut in the past.

    Reality is that we are still over $4 billion dollars in deficit each year if we start putting away the needed STRS payments that are needed.

    Of course, we haven’t even begun to talk about the unfunded CalPERS pensions.

    On the issue of “teachers don’t get Social Security”.
    That is not true. Some teachers don’t get Soc. Sec.
    However the average teacher retiring on a STRS pension is age 61, and has been teaching for only 26 years.
    Assuming they’ve been working, full or part time since age 20, they have 41 years of work, of which only 26 years were doing teaching.
    Thus they have 14 other years in which they were paying into Soc. Sec and they will get that when they retire.. (reduced by a very small amount)
    So if they get perhaps $800 from Soc. Sec. they may have that reduced by $200 netting $600. There are ways to calculate this.)

    Anyway, that 26 year teacher will on average, get over $51,000 from STRS, plus the ?$7,000+? from Soc. Sec. for total of $58,000+ in pension, and that starting at age…62, while the rest of us out here normally will still be working until age 66 or age 67.

    The teachers are not doing bad.

    BTW, a person who begins teaching at age 24 and who continues until age 64, and who makes over $75,000 a year, will get over a 96% pension for life.
    Plus any Social Security they may have earned in their youth or during their summer vacations (very common).
    So they might easily earn over 100% of their highest salary.

    (The average salary of a teacher in California is over $68,000 a year and the average salary of a teacher in their final 2 years is well above that. Thus my use of $75,000. Many are well above that. Example Pleasanton. )

    Is working until age 64 all that long?
    My father worked under the STRS system for 41 years, retiring at age 68,
    My sister taught past that age.

    Age 61, the average is very young.

  • JohnW

    We agree, the teacher pension fund is short. I believe it’s about $71 million short, not $100 million. I also agree with you about the bogus claim that the state now has a surplus.

    But a major factor in the teacher pension fund shortfall is that the legislature gets to decide each year how much to put in and, for too many years, has deliberately put in too little.

    Nobody is more critical of public employee pensions and retiree health benefits than I am. But I was trying to make the point that the teacher benefits are far less generous that most local and state public employee retirement plans in California.

    Local and special district plans vary, but a 2.5% accrual rate is typical — 75% after 30 years plus Social Security plus fully paid health care, with little or no employee contribution toward the pension — or they get raises to cover the contribution.

    Law enforcement gets a 3% but no Social Security. But somebody starting at 25 can retire with 90% at 55 and start a new career in security work or whatever.

    If a teacher, retires at 55 after 30 years, the accrual rate is 1.4%. So, that would be a 42% pension. It’s 2% at 60 and 2.4% starting at 63. A career teacher starting at 25 and retiring at 65 after 40 years would get 96%. That’s wrong. It should be capped at about 70%. But let’s remember that the teachers contribute 8% toward the pension. So, about a third of the benefit comes from the teacher’s own contributions.

    Another difference is that cost of living adjustments for teachers are far less generous than for others. Some plans have 3 or 4 percent guaranteed COLAs, even if inflation is zero. Teachers get 2%, and it’s 2% of their starting pension benefit. It’s not compounded like the others.

    The premiums that teachers have to pay for their retiree health benefits are so high that many teachers don’t bother and buy coverage at better rates outside of the plan. The premiums are structured to discourage retired teachers from participating.

    Again, a career teacher gets no Social Security benefits. You can come up with all kinds of scenarios about people who started teaching as a second career after working in the private sector, or who retire early from teaching and then start a private sector career. But most teachers start teaching right after college. Those who retire early and start second careers in the private sector would typically do so at age 55 or earlier, when the accrual rate is only 1.4%. As you noted, the SS benefits earned during short private sector careers are subject to reduction due to the Windfall Elimination Provision.

    A final point is the employer cost of funding the pension. To sufficiently fund teacher pensions probably requires that the employee and employer combined contribute 25% of the teacher’s salary. Teachers contribute 8% of that. That leaves 17% for the employer. However, that is offset by that fact that, unlike other public and private sector employers, the school system, doesn’t have to contribute 6.2% to SS. So, the net employer cost for the pension is more like 11%, As a taxpayer, I don’t find that excessive.

  • Willis James

    You mean billions, not millions.

    Anyway, one of the things that bothers me is the way the CTA lies.

    Example.. go to their pension “truth” site for the “facts”
    Average monthly benefit $3,300

    http://www.cta.org/~/media/Documents/PDFs/Issues%20and%20Action%20PDFs/Retirement/final%20pensionWEBversion4611.pdf?dmc=1&ts=20140130T1557137334

    Then go to the STRS site where you are given the current picture of those teachers retiring 2011-2012

    http://www.calstrs.com/pod/fast-facts

    Average monthly benefit $3,980
    Over $8,000 more each year than told by the CTA.

    From STRS, the following
    Average service years 24.9 years
    Average age at retirement 62.2

    Average career for the rest of us, over 40 years.
    You cannot expect a full pension for working only a fraction of years of your working life.

    BTW, not even taking retiring before the rest of us do at 66, the teacher who only works 24.9 years between age 25 and 62, has 12 uncounted years.
    If they worked any normal job and got social security, they’d be getting hundreds of dollars each month from social security added onto their $4,000 pension.
    The “offset” only takes away a small portion of that Soc. Security.
    So, think about retiring at age 62 with a pension of about $55,000 a year.

    Not that bad for age 62.
    If they work until the age that the rest of us must, they average over $60,000 a year with Soc. Sec included.

    Let me conclude with the following.
    I do NOT think teachers are over paid.
    I do NOT think teachers pensions are too high.
    If anything teachers should be paid more.

    I just get tired of the facts getting distorted by the CTA and others trying to portray teachers with 25 years of service as having put in a full career and being paid peanuts.
    My father worked 41 years for his STRS pension and it was no where close to 96 or 100 percent. The rates have been boosted.

    Lastly, the 2.5% and 3.0% pensions you speak about were all bumped up following the legislature’s 1999 passage of SB400 and subsequent legislation.
    Worst of all the jack up in pensions was made retroactive….both looking backwards and especially damaging looking forwards.
    Even with minimal pension reform, a Oakland City employee hired in 2010 will continue to get the 2.7% boosted pension accrual until he retires 30 years later.
    Meanwhile the guy hired in 2012 will get the “reformed” rate.

    In most cities the “reformed” rate is going back to a sensible 2.0%.
    Idiot Jean Quan and the city council only lowered theirs from 2.7 to 2.5.
    A insane financial act.

    OK…The public is so ill informed about all of this.
    Highway robbery took place from 2000 through 2006 when most of this giant hikes took place.

    Long time employees postponed retirement for a few months and got their lifetime pension returns boosted by from $200,000 to over 1 million dollars. $400,000 boosts were quite common.
    Akin to bank robbery.
    Public clueless about it all.
    City councils in on the take, getting their own pensions hiked.

  • JohnW

    Yes, billions, not millions. My bad. I completely agree with you about those “averages” that all the public unions use to make the case that pensions are not excessive. Makes my head explode.

    It will never happen in California, but I favor converting everything to defined contribution, but with employer contributions far more generous than the typical employer plan. Danville has that, and I’ll bet their career employees are very well set by the time they retire. But everything is always fully funded. No spiking, no fraud. No bogus statistics. No COLAs. Everything is transparent.

  • Elwood

    Oh, heck, what’s $29 billion among friends, anyway?

    Unless you agree with Everett Dirksen

  • JohnW

    Right. In fact, just the other day, I bought some stuff at COSTCO for $71 and handed over a $100 bill. They said that, if it was all the same to me, they would just put the change in the small change jar to use for another customer who was $29 short. How could I possible quibble over such a small amount?