As California school districts anticipate possibly the worst budget crisis in a generation many will try to lighten their burden by enticing older teachers into retirement. But as more and more teachers retire -- with a pension averaging 55 percent to 60 percent of salary -- they will be straining a system that already cant meet its obligations.
The California State Teachers Retirement System is sliding down a steep slope toward insolvency. The threat isnt to teachers who have retired or plan to but to the people of California. Taxpayers who
already pick up 23 percent of CalSTRS expenses will be increasingly burdened as the giant pension system fails to meet its obligations.
Were on a path of destruction said Marcia Fritz president of pension-reform group California Foundation for Fiscal Responsibility.
And merely rejiggering formulas for new employees wont rescue the system she said. Simply put: We overpromised.
Among those promises Californians have typically given their public employees richer retirement benefits than have other states according to the nonpartisan Legislative Analysts Office.
Despite the looming disaster CalSTRS is like an ocean liner thats slow and complicated to change course. Gov. Jerry Brown hasnt mentioned overhauling the system that benefits one of his major supporters the teachers union. Nor has the Legislature taken up the issue.
CalSTRS a $146.4 billion system provides the retirement of public-school teachers and administrators. Like its sibling pension system
CalPERS which provides for nonschool state employees CalSTRS collections dont meet its obligations to current and future retirees.
Although CalPERS has imposed higher contributions reformers say CalSTRS formulas can be revised only by legislation a statewide initiative or possibly a constitutional amendment and litigation -- not to mention immense political will. Courts have ruled that retirees are guaranteed the pensions promised them when hired.
No Social Security
Twin reports issued earlier this month amplify the alarm. The Legislative Analysts Office suggested that the state gradually decrease its share and move toward either cost-sharing with teachers or creating a hybrid retirement system with reduced pensions and a 403(b) savings program -- the public- and nonprofit sectors equivalent to 401(k) retirement accounts.
And actuaries for the state Teachers Retirement Board calculated that contributions would have to increase 77 percent to make the system sound.
But the report added that given the states financial distress those contributions likely cant be increased for more than a year. By law each teacher contributes 8 percent of salary to CalSTRS the
school district adds 8.25 percent and the state puts
in about 4 percent.
Compare that to the private sector where employers and workers each contribute 6.2 percent to Social Security and may contribute and match more through 401(k) savings. Teachers do not participate in the Social Security system.
Any move to pare benefits or collect more from employees would affect only future teachers not current employees. Thats why Fritz thinks a constitutional amendment to reduce benefits for current teachers is necessary.
The funds shortage is exacerbated by cutbacks to teaching ranks so fewer teachers are paying into the system. But the core of the problem has roots in the 1990s when California took a contribution holiday paring back payments to the two big state retirement systems and bumping up benefits even retroactively fattening retirees checks. When the economy tanked CalSTRS portfolio dropped 25 percent. Combined with enhanced benefits the system now has a ballooning gap between its promises and income or $40.5 billion in unfunded liabilities.
Jason Sisney the LAOs director of state finance in a video posted on the LAOs website likens the state to consumers paying only the minimum balance on their credit cards -- the overall balance keeps
growing.
Among his offices recommendations are revising contributions ending retroactive benefit increases and paying costs as they accrue rather than deferring them to future generations.
Any proposal to scale back current benefits is sure to raise opposition from teachers and their union. Teachers believe theyve earned their CalSTRS benefits. Its money Ive been paying in for 30 years. It was promised to us when we signed on Pioneer High teacher Anne Kline said.
Although eligible for years to retire Kline calculated her benefits and decided she still cant afford it because of the costs of health insurance.
Although teachers widely agree with Kline that theyre merely reaping their own contributions toward retirement systemwide teachers collectively are drawing out more than not only what theyve personally put in but what their school districts have contributed as well. Many can even take home more in pensions than they netted while teaching.
As California school districts anticipate possibly the worst budget crisis in a generation many will try to lighten their burden by enticing older teachers into retirement. But as more and more teachers retire -- with a pension averaging 55 percent to 60 percent of salary -- they will be straining a system that already cant meet its obligations.
The California State Teachers Retirement System is sliding down a steep slope toward insolvency. The threat isnt to teachers who have retired or plan to but to the people of California. Taxpayers who
already pick up 23 percent of CalSTRS expenses will be increasingly burdened as the giant pension system fails to meet its obligations.
Were on a path of destruction said Marcia Fritz president of pension-reform group California Foundation for Fiscal Responsibility.
And merely rejiggering formulas for new employees wont rescue the system she said. Simply put: We overpromised.
Among those promises Californians have typically given their public employees richer retirement benefits than have other states according to the nonpartisan Legislative Analysts Office.
Despite the looming disaster CalSTRS is like an ocean liner thats slow and complicated to change course. Gov. Jerry Brown hasnt mentioned overhauling the system that benefits one of his major supporters the teachers union. Nor has the Legislature taken up the issue.
CalSTRS a $146.4 billion system provides the retirement of public-school teachers and administrators. Like its sibling pension system
CalPERS which provides for nonschool state employees CalSTRS collections dont meet its obligations to current and future retirees.
Although CalPERS has imposed higher contributions reformers say CalSTRS formulas can be revised only by legislation a statewide initiative or possibly a constitutional amendment and litigation -- not to mention immense political will. Courts have ruled that retirees are guaranteed the pensions promised them when hired.
No Social Security
Twin reports issued earlier this month amplify the alarm. The Legislative Analysts Office suggested that the state gradually decrease its share and move toward either cost-sharing with teachers or creating a hybrid retirement system with reduced pensions and a 403(b) savings program -- the public- and nonprofit sectors equivalent to 401(k) retirement accounts.
And actuaries for the state Teachers Retirement Board calculated that contributions would have to increase 77 percent to make the system sound.
But the report added that given the states financial distress those contributions likely cant be increased for more than a year. By law each teacher contributes 8 percent of salary to CalSTRS the
school district adds 8.25 percent and the state puts
in about 4 percent.
Compare that to the private sector where employers and workers each contribute 6.2 percent to Social Security and may contribute and match more through 401(k) savings. Teachers do not participate in the Social Security system.
Any move to pare benefits or collect more from employees would affect only future teachers not current employees. Thats why Fritz thinks a constitutional amendment to reduce benefits for current teachers is necessary.
The funds shortage is exacerbated by cutbacks to teaching ranks so fewer teachers are paying into the system. But the core of the problem has roots in the 1990s when California took a contribution holiday paring back payments to the two big state retirement systems and bumping up benefits even retroactively fattening retirees checks. When the economy tanked CalSTRS portfolio dropped 25 percent. Combined with enhanced benefits the system now has a ballooning gap between its promises and income or $40.5 billion in unfunded liabilities.
Jason Sisney the LAOs director of state finance in a video posted on the LAOs website likens the state to consumers paying only the minimum balance on their credit cards -- the overall balance keeps
growing.
Among his offices recommendations are revising contributions ending retroactive benefit increases and paying costs as they accrue rather than deferring them to future generations.
Any proposal to scale back current benefits is sure to raise opposition from teachers and their union. Teachers believe theyve earned their CalSTRS benefits. Its money Ive been paying in for 30 years. It was promised to us when we signed on Pioneer High teacher Anne Kline said.
Although eligible for years to retire Kline calculated her benefits and decided she still cant afford it because of the costs of health insurance.
Although teachers widely agree with Kline that theyre merely reaping their own contributions toward retirement systemwide teachers collectively are drawing out more than not only what theyve personally put in but what their school districts have contributed as well. Many can even take home more in pensions than they netted while teaching.
