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The California State Teachers’ Retirement System is sliding down a steep slope toward insolvency. The threat isn’t to teachers who have retired or plan to, but to the people of
“”We’re on a path of destruction,”” said
And merely rejiggering formulas for new employees won’t 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 Analyst’s Office.
Despite the looming disaster, CalSTRS is like an ocean liner that’s slow and complicated to change course. Gov.
CalSTRS, a
retirement of public-school teachers and administrators. Like its sibling pension system, CalPERS, which provides for nonschool state employees, CalSTRS’ collections don’t 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
Twin reports issued earlier this month amplify the alarm. The Legislative Analyst’s 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 sector’s 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 state’s financial distress, those contributions likely can’t 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
Any move to pare benefits or collect more from employees would affect only future teachers, not current employees. That’s why Fritz thinks a constitutional amendment to reduce benefits for current teachers is necessary.
The fund’s 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
Among his office’s 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 they’ve earned their CalSTRS benefits. “”It’s money I’ve been paying in for 30 years. It was promised to us when we signed on,””
Although eligible for years to retire, Kline calculated her benefits and decided she still can’t afford it, because of the costs of health insurance.
Although teachers widely agree with Kline that they’re merely reaping their own contributions toward retirement, systemwide teachers collectively are drawing out more than not only what they’ve 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.
‘Buying’ bigger pension
CalSTRS’ formula, which is based largely on employee salary, age and longevity, tends to reward retirement at age 61 1/2 . For example, a teacher who has worked for 35 years, making
A pension reform group has drafted a proposal that would cap the state share of future benefits at about 11 percent of salary.
In contrast to the proposed overhaul, teachers’ pensions on average currently amount to 55 percent to 60 percent of their salaries, CalSTRS counselor
The pension reformers hope to find a sponsor for their legislation soon, said ?Dan Pellissier of California Pension Reform. And if
“”We have seen polls that 80 percent of likely voters know something needs to be done,”” said Fritz, an accountant and former CalPERS consultant. “”They’re listening.””