Pension Reform—Give Everyone A Decent Retirement

[Modern School]

Contrary to the myth that teachers are retiring with fat pensions paid for by the taxpayers, a recent study by the California Foundation for Fiscal Responsibility found that California State Teacher Retirement System (CalSTRS) benefits are smaller than those for almost all other public employees, at least the taxpayer portion, the New York Times reported today. The foundation excluded employee contributions from their calculations, which vary considerably between occupations, thus giving a comparison of what the taxpayers contribute toward their pensions. Compared with other public sector workers, California’s teachers get very little from the taxpayer.

While teachers do pay a relatively large portion toward their own pensions (8% of their paychecks), they are lucky to earn 60% of their working salaries upon retirement. Indeed, the average benefit payment is only $3,300 per month (See CTA website), in a state where rents and mortgages can easily be that much or more. The sad truth about CalSTRS is that almost no one can retire on that alone and continue living in California.

However, rather than calling for better fund managers and increases in state contributions so that benefits could be increased, Gov. Brown has committed to cutting pensions, supposedly to help close the state’s $15 billion deficit. The problem with this strategy is that public sector pensions have hardly any impact on the state budget, especially CalSTRS, where the state only adds an additional 2% over and beyond what the teachers contribute. Furthermore, slashing state contributions would cost the state far more than it would gain—the CTA website says that each $1 in taxpayer contributions to CalSTRS creates nearly $8 in economic output. (Every dollar in a retiree’s pocket is money that can be spent on food, medical care, housing, and leisure).

Ultimately, though, what we should all be demanding is a decent life for everyone, from cradle to grave, including housing, healthcare, good food, and leisure time, especially for our most vulnerable members of society. No one should be forced to move to Mexico or India when they retire just to be able to afford to eat. And no one should be forced to live in austerity now, just to have the chance to retire.

Modern School
http://modeducation.blogspot.com/

[midnight]

1. K&R

[FBaggins]

2. A 60% pension actually appears pretty attractive.

You would be hard pressed to find many like that in the rest of the job market (if there's any pension at all).

I presume that this is one of the states where you don't get Social Security as a retired teacher. Otherwise, 60% would be awfully close to retiring on full pay.

[doc03]

3. I have gone to several retirement seminars and they usually

recommend you have at least 80% of your pre-retirement income to maintain your lifestyle. That is between SS, pension and personnel savings. That wouldn't even be enough if you wanted to travel and enjoy your retirement.

[FBaggins]

4. That's true... In fact many advise 100%

But that doesn't change the fact that there really aren't many pensions out there that pay anything close to that.

Heck... Few employers offer a pension at all these days.

[Modern School]

6. No Soc Sec

CA teachers do not get social security, so 60% is barely better than half your working salary.

[FBaggins]

7. Is the 8% in lieu of the money they would have paid in FICA?

If so then 60% is still a very attractive figure.

The real scandal is what it's 60% of.

[exboyfil]

5. Is the 8% in addition to Social Security or

is it instead of Social Security? I think it is instead of Social Security. How is the survivors and disability handled under California Teachers instead of Social Security? No doubt CALSTRS is much more generous for anyone making over about $30K than Social Security when it comes to a retirement benefit (these are rough calculations - I would like to see other calculations). For that the contributions are larger (8% versus 6.2% for Social Security). Of course CALSTRS is a good deal for the state because it appears they have to kick in 2% versus the 6.2% that employers have to kick in in the Social Security system.

I agree with the article that you are not going to save much money going after the CALSTRS system if the state is only kicking in 2%.

On the flip side teachers are subjected to double dipping formulas when they have income that has been taxed by Social Security. I would not even begin to figure these formulas out, but teachers should remember that after 35 years of credit private workers contributions drop into a black hole as well. Also after reaching about $50K salary private workers are subsidizing Social Security from that point. Additionally, the employers 6.2% serves as a drag on the pay of private workers (I am not going to say their pay is 6.2% less because of it since market forces define salaries, but it does tend to reduce salaries).

What CALSTRS effectively does is exempt teachers and the state from the burden of carrying historic low earners Social Security subsidization. It is a much better deal for the state that the teachers in this regard, but when you figure a person making an average of $50K inflation adjusted per year for 35 years gets a Social Security pension of $1768/mo. Constrast with the pension in the story above.