School pensions: an argument for not bargaining?

As state and local governments in California face soaring public pension costs, unions insist that cost-cutting changes must be bargained, not imposed by legislation.

But there is one major exception: schools.

Teachers and non-teaching school employees in California are in unions that do not bargain pensions. Instead, their pensions are in big statewide pools that have some of the lowest costs for employers and some of the lowest pension formulas for retirees.

Bargaining for pensions is used extensively only in California and a few other states. One of the first pension reform proposals to include ending bargaining came last month in Rhode Island, where bankrupt Central Falls is drawing national attention.

The Rhode Island auditor general, Dennis Hoyle, said an end to bargaining for pensions and retiree health would make benefits more visible to the public, set a standard and avoid the tendency to save now by pushing employee costs into the future.

In California, particularly in local government, critics say bargaining tends to result in pensions not based on what retirees need or on what governments can afford, but on pensions offered by other government employers.

Often blamed for triggering market-like competition resulting in costly local police and firefighter pensions: a CalPERS-sponsored bill, SB 400 in 1999, enacting a 50 percent pension increase for the Highway Patrol negotiated by their union.

The same competitive pressure can drive up the salaries on which pensions are based. An article in the November issue of Vanity Fair magazine, “California and Bust,” makes the point in a section on pension-troubled San Jose.

“The effect was to make the sweetest deal cut by public-safety workers with any city in Northern California the starting point for the next round of negotiations for every other city,” wrote Michael Lewis, author of “Moneyball” and “The Big Short.”

Another criticism of bargaining is that managers who can curb retirement costs personally benefit from higher pensions. A lawsuit forced the Sonoma County retirement system to release records last month, showing 98 pensions of $100,000 a year or more.

Rod Dole, 59, a former county auditor-controller-treasurer who retired in May is said to have a $254,625 annual pension, $46,600 more than his final pay. Others with pensions above $200,000 are a former sheriff and a former county administrator.

“What’s particularly discouraging to us is how many of those at the top of the pension pyramid are those — former supervisors and department heads — who had the decision-making authority to be part of a solution,” said an editorial in the Santa Rosa Press Democrat, which filed the lawsuit.

Compared to other public pensions, the two school retirement systems where pensions are not bargained have a significantly lower cost for employers, similar or better funding levels, low costs to employees and formulas that provide lower pensions.

Employer costs. The California State Teachers Retirement System receives a total employer contribution of 12.75 percent of pay for teachers and others — 8.25 percent from districts and other employers and 4.5 percent from the state.

The California Public Employees Retirement System receives an employer contribution of 10.9 percent of pay for non-teaching school employees (office, food, maintenance and others).

For employees that do bargain pensions, CalPERS receives employer contributions of 18.2 percent of pay for miscellaneous state workers and 31.2 percent for the Highway Patrol.

At the high end, the CalPERS employer contribution for police and firefighters in 55 local governments, where these “safety” worker costs are a big part of the total budget, is 40 percent or more of pay.

Funding levels. The latest CalPERS valuation, as of June 30, 2010, shows that the non-teaching school employee pension fund has 69.5 percent of the assets needed to fund future obligations.

The five CalPERS state worker funds that bargain have a lower average funding level of 62.8 percent, ranging from 68.3 percent for industrial to 57.6 percent for the Highway Patrol.

The latest CalSTRS valuation, also as of last year, shows a funding level of 71 percent using the actuarial value of assets. Switching to the market value of assets, the CalPERS method, drops the funding level to 63 percent.

(Critics argue that the real funding level of CalPERS and CalSTRS is much lower because the nation’s two largest public pension funds use an overly optimistic forecast of what their investments will earn in the future, 7.75 percent).

Unlike CalPERS and most California public pension funds, CalSTRS lacks the power to set annual contribution rates that must be paid by employers. So to build support for rate-increase legislation, CalSTRS has been the most forthcoming about its shortfall.

With no rate increase, CalSTRS expects to run out of money in 30 years. To reach 100 percent funding, CalSTRS needs an additional 14 percent of pay (about $4 billion), more than doubling the current total employer contribution of 12.75 percent.

A phased-in rate hike to reach 100 percent funding may be unrealistic now. But officials say enough of an increase to get the funding level moving up would cut future costs and avoid sinking into calamitous underfunding, as in New Jersey and Illinois.

Employee benefits. Non-teaching school employees in CalPERS, contributing 7 percent of their pay to pensions, may have grumbled about an inequity during the last decade.

State miscellaneous workers contributed 5 percent of their pay to CalPERS. But they had the same pension formula as non-teaching school employees, “2 at 55,” or 2 percent of final pay for each year served at age 55.

Now after negotiating new contracts last year that helped lower state payments to CalPERS, state miscellaneous workers are contributing 8 percent. Non-teaching school employees, who do not bargain pensions, continue to contribute 7 percent.

The new contracts give newly hired state miscellaneous workers a lower pension formula, “2 at 60,” the bottom rung of CalPERS miscellaneous formulas. In addition to “2 at 55,” the others are “2.5 at 55,” “2.7 at 55,” and “3 at 60.”

Newly hired non-teaching school employees continue to receive “2 at 55” pensions. The landmark SB 400 in 1999 increased Highway Patrol pensions from “2 at 50” to “3 at 50” and state miscellaneous workers to “2 at 55” from “2 at 60.”

Teachers and others in CalSTRS also have a “2 at 60” pension formula. Bargaining by teacher unions has given California teachers some of the highest salaries in the nation.

But the powerful teacher unions have not pushed for the right to bargain pensions. Instead, when CalSTRS was fully funded during a stock market boom in the late 1990s, the unions backed several legislative bills that increased retirement benefits.

The big one, AB 1509 in 2000, made CalSTRS a “hybrid” plan by adding a 401(k)-style individual investment plan, the Defined Benefit Supplement, with guaranteed minimum earnings based on the 30-year bond.

Teachers contribute 8 percent of their pay to CalSTRS. For a decade ending last January, a quarter of the teacher contribution, 2 percent of pay, went into the supplement rather than the underfunded CalSTRS pension system.

Unlike non-teaching school employees in CalPERS, teachers are not in federal Social Security. It’s currently funded by 6.2 percent of pay from employees and 6.2 percent from employers.

In 1982 during his previous term, Gov. Brown proposed lower pensions for new state hires. He said it was possible for a state worker to retire at age 62 with more than 100 percent of their final salary from CalPERS and Social Security.

But the teacher unions have not pushed for Social Security. To the contrary, some at CalSTRS worry that Congress may try to close the Social Security funding gap by putting all public employees in the system, imposing big costs on the state and teachers.

Under the current CalSTRS plan, a report to the board said in June 2009, with the pension, the supplement and $100 a month invested in a tax-deferred plan, a teacher at age 63 with 34.5 years of service could retire with 103 percent of final pay.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at http://calpensions.com/ Posted 3 Oct 11

46 Responses to “School pensions: an argument for not bargaining?”

  1. Tough Love Says:

    All Public employees should participate in Social Security and get a 401k-style “match” of no more than 6% of pay… and NO PENSION.

    Sounds draconian ?

    Why ? That’s more than what most Private Sector workers get (are Civil Servants “special” ?)…. and since (per the US Gov’t BLS) Cash Pay is just about equal in the Public and Private sector for comparable jobs …. there is ZERO justification for better (taxpayer-funded) Public Sector pensions and benefits.

    If the want more …. THEY should pay for it.

  2. Gary Ravani Says:

    The problem in our nation isn’t too many people with solid pensions and reasonable benefits. The problem is too few. More income in the retirement population would increase consumption and drive higher employment.

    The problem in our nation isn’t with a public sector with retirement pensions and benefits that are too good. The problem is that retirement, generally, in the private sector is so terrible.

    It wasn’t always this way. Many private sector workers had good pensions and retirement benefits. Private sector workers allowed their unions to disappear based on the siren song of management and promises of what the market could bring them. Well, they’ve got what the market brings: Low wages, no benefits, high unemployment, and awful retirements. As unions have disappeared so has the pressure on the private sector to maintain decent wages and retirements even for non-union workers.

    Time for the private sector workers to unite and organize. The corporate powers are creating jealousy of the public sector so that the last bastions of the middle class, public sector and other unionized workers, will disappear leaving only the rich to harvest the nation’s wealth.

    It is time for people to re-think this situation, identify the real problems. and begin working towards real solutions.

  3. Tough Love Says:

    Responding to Gary (likely a Civil Servant on the receiving end of this largess) …..

    To put it bluntly, Corporate America will reinstate DB pensions (even at half the richness of yours) …”When Pigs Fly”. They are to expensive and too risky.

    YOU, meaning Public Sector workers, have gotten away with this thievery by your Unions BUYING the elected representatives favorable votes on pay, pensions, and benefits with campaign contributions and election support. In any other venue, this would be criminal.

    But be warned, we (the Taxpayers) have smartened-up … and we’re coming after your pensions & benefits.

  4. SeeSaw Says:

    Just stay in NJ and continue to work on taking away those pensions, TL. This is California. They are never going to take away the pensions, of the public workers, in CA.

    Amen, Gary.

  5. Tough Love Says:

    SeeSaw, Unless CA steps up to the plate with SERIOUS reforms (not NEW-employee-only changes, and piddling around the edges) real soon …. even those already retired will likely get caught up in the tsunami approaching.

    The money to pay all promised benefits doesn’t exit, end likely never will.

  6. Rex The Wonder Dog! Says:

    The problem in our nation isn’t too many people with solid pensions and reasonable benefits. The problem is too few. More income in the retirement population would increase consumption and drive higher employment.

    The problem in our nation isn’t with a public sector with retirement pensions and benefits that are too good. The problem is that retirement, generally, in the private sector is so terrible.

    ==
    Gary, you’re a public torugh feeder. GED gov dorks who “retire” at age 50 with $10 million pensionsare a HUGE problem, and it is far too good. Especialy when OTHER peopel pay for it.

    You want OTHERS to pay for YOUR multi million dollar pensions and then claim everyone should get them. The problem is you are stealing from others- YOU DO NOT PAY FOR YOUR PENSIONS-and I don’t want to steal from others-take THEIR retirement money so I can live like a millionaire.

    The biggets threat to American poor and middle class today are public unions and public employees-

  7. Rex The Wonder Dog! Says:

    This is California. They are never going to take away the pensions, of the public workers, in CA.

    ==

    LOL….seesaw, do you know who else said that??? Central Falls RI cops and firewhiners-guess what happened to them?? 55% PENSION CUTS.

    You’re next.

  8. SeeSaw Says:

    Nobody will ever describe you as having, “class”, RWD.

  9. Gary Ravani Says:

    Rex:

    You are being played for a sucker by corporate interests. You don’t think the Wall Street guys paid themselves bonuses with other people’s money?

    Pensions over $100k are not for “government workers,” they are only for very high level executives and amount to a tiny % of pensions overall.

    If you read the article you can see that most with pensions have paid 16+% (8% of salary and 8.5% of general fund revenues that could go to salaries) for their entire career.

    Average pensions for PERS are under $25K per year and STRS is $35k per year. This is after 30 years of service. That is just, barely, a dignified retirement.

    Stop being envious and do something for yourself. Get an education and go join a union!

  10. Gary Ravani Says:

    Right. It’s a great idea to take early retirements away from cops and firemen. I hope only 65 yerar old cops and firemen show up at your house when you need help.

    How soon we forget the heroes of 9-11.

    The US is the wealthiest nation on Earth and CA the wealhiest state. Yet, we can’t afford decent retirements for public employees.

    The wealthy 1% that control more of the economy than the lower 90% are laughing at you.

    I’d suggest you think this through, but I’m not convinced you can.

    Get an education! Join a union! That will help.

  11. Gary Ravani Says:

    TL:

    Do you remember all the outrage about public emplyee pensions before the economic meltdown? No? That;s because there wasn’t any.

    This did not become an issue until the CA budget struggled to cope with the recession.

    That’s what this is about. Don’t look at the banker and broker behind the curtain that caused the problems. Don’t look at Repubs who owe more alliegance to a DC lobbyist (Grover Norquist) than they do to the state that put them in office. They have starved the CA budget for years.

    Public employees didn’t sell phony investment instruments that caused the economy to crash. Public employees didn’t send good private sector jobs overseas. Public employees didn’t eliminate good private sector retirement systems.

    Look at the real problems. Seek out real soultions.

  12. Tough Love Says:

    Gary, The only reason there was no outrage was because few Taxpayers understand the math behind these pensions that will in short order drive many cities into bankruptcy. This math problem has always been there but 10 years of effectively zero stock market gains has shown the truth. Combine the increased taxpayers contributions (to make up for the asset return shortfall) with the reduced revenue from the economic downturn, and the disaster is now upon us.

    Total compensation (for reasonably comparable jobs …or jobs with reasonably equivalent risks if there are no direct com parables) should be near equal in the public and private sectors, and with cash pay in the Private and Public Sectors now very close (per the US Gov’t BLS), there is ZERO reason for ANY greater pensions & benefits for Public Sector workers…. let alone the current structure where Public Sector pensions are ROUTINELY 2, 4, even 6 times (for safety workers) greater.

    It’s WAY past time for a VERY significant reduction (50+%) in the pension accrual rate for CURRENT (yes CURRENT) workers, as well as pre-Medicare age retiree healthcare subsidies comparable to what Private Sector workers get ….. which is usually ZERO.

    While Corporate CEO are indeed greedy …. this is a separate issue which in no way diminishes the greed and theft of wealth by Civil Servant from all other MIDDLE CLASS Taxpayers. Change is coming whether you like it or not, and your continued attempts to distract from this important problem ….. by repeated reference to Corporate America’s greed …….will not work.

    Using YOUR words …. the REAL problem is grossly excessive Public Sector pensions, and benefits.

  13. Rex The Wonder Dog! Says:

    Right. It’s a great idea to take early retirements away from cops and firemen. I hope only 65 yerar old cops and firemen show up at your house when you need help.

    ==
    Hey “hero worshipper” Gary, I can find PLENTY of work for 65 year old GED cops and firehwiners, and they are in a much less physical job than many other trade employees. So put that whopper back in Burger King-OK “hero”.

    You are spouting off the regualr hit air talking points of the typical GED educated gov trouygh feeder who is stealing form the poor and middel class.

    NO, you and your GED cop and firewhienr buddies do NOT derserve taxpayer financed $10 million dolalr pensiosn at age 50.

    Google Central falls RI and see hwo those losers ended up.

  14. Rex The Wonder Dog! Says:

    Do you remember all the outrage about public emplyee pensions before the economic meltdown? No? That;s because there wasn’t any.

    ==
    BULL Gary. Youre a liar.

    This one od for you trough feeder, and I can blow your whoppers out of the water all day long;

    Expert opinions abound, differ on pension costs

    By Jennifer Vigil
    STAFF WRITER

    February 22, 2007
    Aguirre, a critic of pension system boards and administrators, past and present, said he has doubts about Wescoe’s abilities and a January evaluation of the fund that showed the city’s retirement liability had fallen to $1 billion, a $400 million improvement.

    http://www.signonsandiego.com/uniontrib/20070222/news_7m22pension.html

    BAM!!!!!!!!!!!!!!!!!!!!!!!!!!!!

  15. Rex The Wonder Dog! Says:

    The wealthy 1% that control more of the economy than the lower 90% are laughing at you.

    ==
    And tell us Gary-how are GED cops and hosepullers being paid in the TOP 3% IN THE NATION going to help the other 97%??????

    Hint-they wont.

    You clowns area ll the same, trying to stick your fat greedy fingers into everyone elses pocket and steal.

  16. Rex The Wonder Dog! Says:

    Average pensions for PERS are under $25K per year and STRS is $35k per year. This is after 30 years of service. That is just, barely, a dignified retirement.

    ==
    Actually Gary the AVERAGE pension for a public trough feeder with 30 years of service credit in CalTURDS is $68K, plus $25K in medical ($93K total). For the 20 1937 muni pensions it is around $85K plus $25K in medical ($110K toal).

    Gary, your spin will not work here, we are WAY more informed, so you might as well take the public union “talking points” to an SEIU beach party where they will play better :)

    BAM, how did that smack in the choppers feel, do you want me to post the link????????

  17. Rex The Wonder Dog! Says:

    Pensions over $100k are not for “government workers,” they are only for very high level executives and amount to a tiny % of pensions overall.

    ==
    More SPIN.

    Vitriually every cop, firewhiner and dorky prison guard in this state is retiring at age 50 with a 6 figure pension. They are paid in the top3% in the nation and any dork with a GED can be hired for any of the 3 jobs.

    They do not accout for a “tiny % of pensions overall”, they account for 2% of the pensionsers BUT A WHOPPING 10% of the CalTURDS penion expenditures.

    10% of the pension money going out to just 2% of the pensioners!!!!!!!!!!!!!!!!! I know math is nto your strong point Gary :)

    That is NOT a tiny %, but sine you have a tiny brain you probably do not know how to add and subtract very good!

    Grow up junior, you’re in way over your head here, and me and tough love will spank you back to the stone ages all day long son. Your scams are over. The gravy train you have been ripping everyone off with is OVER :P

  18. Rex The Wonder Dog! Says:

    Public employees didn’t sell phony investment instruments that caused the economy to crash.
    ==
    BULL, CalTURDS defrauded everyone with SB400, aka 3%@50, and that was a “phony investment scam” that caused the CA budget to crash for 4 straight years.

    BOOM!!!!!!!!!!!!!!!!!!!!!!!!!!

  19. Tip of iceberg Says:

    At age 55, from the union website, an average retiring teacher with twenty years of service gets almost 4 times the maximum social security benefit that someone in the private sector who has paid the maximum contribution along with their employer(about one and one half times the teacher contribution for a comparable salary) since age 16 or 18 gets at age 62. Note that ALL newspaper articles parrot the union calculation of the retirement benefit for an average teacher’s salary, not an average RETIRING teacher’s salary, to trick the public.

    Or course, some teachers like all of LAUSD get medical benefits after retiring at 55 for LIFE, having paid in no money whatsoever. These are not underfunded pension benefits, but totally unfunded benefits, funded out of current operating revenues of the school district, coming directly out of funds for the children. This is an unrecognized $10billion liability for LAUSD alone.

  20. spension Says:

    For a given level of benefit (of course the California formulas are generally way to high) pooled defined benefit pensions are always more economical than defined contribution systems.

    Anyone who says otherwise doesn’t understand mathematics.

    Defined contribution systems benefit investment banks, mainly. If you love the bankers that just got $10 million bonuses from TARP courtesy of your tax dollars, advocate defined contribution systems.

    The `3% at 50′ and even `2.5% at 60′ were never sustainable. Ever. They were shoehorned in by negotiators who didn’t understand that the stock market goes down sometimes, even over 20 to 30 year time periods. I don’t think any serious public safety employee wants to collect their $100,000 a year pension at the same time their kids or grandkids end up in gutted schools.

    The only way out of California’s mess is a sovereign default, like will happen in Greece, and maybe Ireland, Portugal, Spain, and Italy. Everybody takes a haircut… the Greek bondholder haircut might be 10-50% if rumors are correct. Unless the Greeks riot and lynch all the Germans after spraypainting swastikas on them, which looks increasingly likely.

    The Central Falls, Rhode Island case is very interesting… I think there, the pensions were cut because they were viewed as a City responsibility, but the City issued Munis were backed by the State of Rhode Island. So the State decided its skin would be knicked and all Rhode Island state bond ratings would plummet if they gave Central Falls bonds the same haircut that Central Falls pensioners got. I guess cities and counties in the US can go bankrupt, but a US State is an sovereign entity and its default is more like that of a country. But US state sovereign defaults happened a number of times in the 19th century.

    In the end they screwed elderly Central Falls pensioners with 50% or so cuts to their pensions (or more, down to $10,000/year) while honoring 100% of State muni bond commitments to Wall Street bankers.

    Nice, isn’t it. Break contracts to the elderly so you can pay off the Wall Street bankers who collapsed our economy.

    Makes me understand the campers now out on Wall Street.

    But for California, we must get serious and make sure that the same haircut is given everywhere when California has its sovereign default. Same percentage haircut to both state muni bondholders as to the overall pension system. I would distribute the haircut to the pensioners so that $100K/year would get cut a lot.

  21. spension Says:

    From that great article in Vanity Fair that Ed Mendel linked…

    “In his negotiations with the unions, the (San Jose) mayor has gotten nowhere. “I understand the police and firefighters,” he says. “They think, We’re the most important, and everyone else goes [gets fired] first.” The police union recently suggested to the mayor that he close the libraries for the other four days. “We looked into that,” Reed says. “If you close the libraries an extra day you pay for 20 or 30 cops.” Adding 20 more police officers for a year wouldn’t solve anything. The cops who were spared this year would be axed next, in response to the soaring costs of the pensions of city workers who already had retired. ”

    So, maybe I’m wrong, and safety workers would like all libraries and schools shut down so they may keep their perks and pay.

  22. Tough Love Says:

    Spension … hard as it may be, the answer is to outsource as many Public Sector workers as possible (certainly including firefighters and prison guards, and Police as well, if possible). This ends the “employment relationship” and with that all future growth in pensions … and ends retiree healthcare obligations for those not already retired (or perhaps “vested”).

    Even THIS does not address the current unfunded liability for already accrued pension for PAST service, but at least it stops digging the hole deeper ….. a VERY needed FIRST STEP.

    While I see no great obligation to favor bondholders over Public Sector pensioners, the Bonds purchased were done so in a free market and with transparent pricing, quite unlike the excessive pensions structured in a collusive environment between Public Sector Unions and Politicians more than willing to accept campaign contributions and election support in exchange for favorable votes on pensions and benefits. Certainly if the true cost of these pensions were understood and if there existed someone at the “negotiating table” truly looking out for Taxpayer interests, such rich Plans would never have been approved. With this as the backdrop, a haircut to pensioners seems well justified.

    While a haircut to bondholders may also be appropriate, the consequences cannot be ignored. Regardless of how you and & feel, hair-cutting bondholders may close a city’s access to debt, and most cities simply CANNOT function w/o borrowing, even if just to accomodate mismatched cash in-flows and out-flows.

  23. Tip of iceberg Says:

    Public entity accounting has been a joke. ENRON cooked their books by about $3.5 billion. People called for their executives to be jailed or put to death and Arthur Andersen, their auditor, ceased to exist. The City of San Diego alone cooked their pension and healthcare benefits by $3.3 billion and no one was reprimanded. Cook County in Illinois alone has $110 billion underfunded pension with about 3,000,000 inhabits and declining. The citizens are lied to at every turn about the actual pension benefits and costgs.

  24. spension Says:

    Tough Love…nice coverage of the Vallejo situation, and the San Jose situation in that Vanity Fair article… outsourcing only gets you so far. Existing vested benefits must be trimmed too.

    Wall Street is not a `free market’ and got bailed out by tax $ already. Do they need to get paid back a second time if lots of munis default? Sometimes a company which sold open market bonds goes bankrupt…. and we just have to face up to a new era of sovereign defaults by US states, and similar bond defaults…. it will be one heck of a mess.

    And yes, for 5 or so years, our States won’t be able to borrow easily. Argentina has been through it… lots of countries have been through it… we know there is light at the end of the tunnel.

    The same municipal/government decision makers issued the bonds as negotiated the binding pension agreements. Their flawed abilities should hurt each debt holder similarly, although I do think pensions should be trimmed in a way to protect the $30K folks and trim the $200K folks much harder.

    Tip… don’t think the books were cooked in Cook and elsewhere. It was a trainwreck obvious to numbers people at each step of the way, and only got press and attention only recently. Now Enron, they covered their tracks and did true deception.

  25. Gary Ravani Says:

    This was writen by a “staff” writer? Really?

    The topic of the article was state pensions, as in STRS and PERS, not city/county employees.

    BAM indeed.

  26. Gary Ravani Says:

    Wall Street greed has everything to do with the STRS and CALPERS issues. To the extent the systems are in trouble, and that’s much exaggerated, it is due to the stock market crash that was caused by reckless, likely illegal, and greedy behavior of the investment and financial industries. It is municipal and county retirement programs that are having issues, and those too are exaggerated.

    The statements below are based on audited reports of STRS

    Since the other yokel can’t seem to keep a civil tone (not to mention spell) I consider this discussion over.

    SACRAMENTO, CA – California State Teachers’ Retirement System (CalSTRS) investments took a 3.7 percent hit in the fisca

    year ending June 30, 2008. Even with its first loss in six years, CalSTRS outperformed its benchmark, which dipped 3.8 percent.

    The news from the $162.2 billion fund comes amid the gloom of a 5 percent average loss for public pensions, according to Merrill Lynch analysts.

    “Despite troubled economic times, especially in the equities markets, our portfolio continues to provide long-term stability for our members financial futures,” said CalSTRS Chief Executive Officer Jack Ehnes. “The expertise of our investment staff will guide us through this down market and position us to rebound quickly as economic conditions improve.”

    Following four straight years of double-digit growth, CalSTRS’ investment portfolio, while posting a loss, showed positive returns in three of its five investment asset classes.

    Returns by asset class were as follows:

    Private Equity’s 11.6 percent growth beat its 4.9 percent benchmark.
    Real Estate grew 11.8 percent, falling short of its 13.6 percent benchmark.
    Fixed Income returns showed growth of 6.1 percent, shy of its 6.7 percent benchmark.
    Non-U.S. Equities fell 5.8 percent, beating the 6.7 percent loss in its benchmark.
    U.S. Equities dropped 13.4 percent, underperforming its benchmark, which posted a 12.8 percent loss.
    “I look at single-year returns as a one-mile measurement within a marathon. It’s a long race and we’ve just had a slow mile. Over the last three and five years we exceeded our goal,” said CalSTRS Chief Investment Officer Christopher J. Ailman. “Diversification is the hallmark of our long-term investment strategy, and it has served us well in the worst of times.”

    Despite the single-year loss, the longer term returns continue to exceed the 8 percent average return necessary to meet projected benefit obligations to the system’s 813,000 members. CalSTRS’ return over three years is 9.7 percent and over five years is 11.5 percent.

    Following four straight years of double-digit growth, CalSTRS’ investment portfolio, while posting a loss, showed positive returns in three of its five investment asset classes.

    Established 95 years ago, the California State Teachers’ Retirement System, with a $164 billion portfolio, is the second-largest public pension fund in the United States. It administers retirement, disability and survivor benefits for California’s 813,000 public school educators and their families from the state’s 1,400 school districts, county offices of education and community college districts.

    CalSTRS Home | Contact Us | FAQ | Site Map | Related Sites | Glossary | Privacy
    Site Feedback

  27. Tough Love Says:

    Gary,

    Speaking of …”reckless, likely illegal, and greedy behavior” … NOTHING, absolutely NOTHING compares to the decades long conduct of Public Sector Unions and the incompetent, self-serving, vote-selling behavior of our elected officials who colluded with these Union officials to financially rape the Taxpayers.

    And the rest … just more diversion from the REAL problem …. the grossly excessive Public Sector pensions, and benefits.

    Lets not take our focus off of addressing THIS … via immediate and VERY substantial pension accrual-rate reductions (of 50+%) for CURRENT (yes CURRENT) Civil Servants …. or better yet, outsource 90+% of them.

    And address the Corporate greed separately.

  28. SeeSaw Says:

    Well, the corporations outsourced hundreds of thousands of private sector workers, during the Bush Administration, TL, and we have been witnesses to the worst economic collapse of our lifetimes, since the Depression. And, now, you are wishing to see the same thing happen to 90% of the current, public workforce? Go figure………….

  29. Tough Love Says:

    SeeSaw, Absolutely we should ….. because 100% are are overcompensated, primarily via pensions that are AT LEAST twice (and often 4+ times) the pension that is NECESSARY to attract and retain a qualified/ competent workforce.

    This is an ongoing an unjust financial rape of private sector taxpayers.

  30. spension Says:

    They title of the article is `School’ pensions, where 8.25% of the funding comes from the local district and 4.5% from the State.

    I don’t think teacher’s pensions are excessive…

    http://www.fixpensionsfirst.com/docs/Full_Report.pdf

    “Teachers. Retirement benefits received by this group are significantly less generous than most other public sector employees. This is partly because teachers covered by CalSTRS are not in social security, their retiree health care is provided by school districts and tends to be less generous than the State of California, and their pension formulas for those terminating before full retirement age is less generous than other public funds.”

    Look also at Figure 9A on page 38 of that report… retirement for a full-career teacher is very similar to the comparable private sector. For other cases sometimes the teacher gets more, sometimes less than the private sector.

    However, all of those calculations assume an unrealistic discount rate, which may in fact be only 2 or 3% for the next 30 years, although 3-4% is assumed (*real* rate, after inflation). In that case the state guarantee will break the bank.

    This is *not* a defined benefit versus defined contribution issue. Defined benefit is always more economical, for the same benefit as planned for in defined contribuiton.

    But if unreasonable future returns are assumed and then the defined benefit pension is set too high, the taxpayer gets left holding the bag. That is what has happened.

    And so the State of California is headed for sovereign default just as Greece is. The real point is to plan methodically for it, otherwise Wall Street will (again) get all the taxpayer money, just like TARP and related bailouts.

  31. Tough Love Says:

    spension,

    You don’t think teachers’ pensions are excessive because your comparison is with other even more generous CA Public Sector pension Plans.

    Since Taxpayers pay for 80-90% of these Plans and 85% of Taxpayers are NOT Civil Servants, a more appropriate comparison would be to the pension of a comparably paid Private Sector worker.

    When all elements are properly factored in (e.g., the earlier full retirement age, and the COLA increases, etc.) teachers’ pensions are without doubt 2-4 times greater in value than that of the Taxpayers who pay for 80-90% of teacher’s pensions.

    Conclusion … YES, they ARE excessive…

  32. spension Says:

    From Figure 9A of Page 38 of the report…

    http://www.fixpensionsfirst.com/docs/Full_Report.pdf

    Comparing people who begin work at age 24 and retire at 57….
    base salary $45,000

    Present Value of CalSTRS post retirement benefits is $420,000
    Present Value of Private benefits are… $350,000

    The federal system comparison number is… $850,000

    Other data are in Figures 6A, p. 23; 6B, p. 24; 6C, p. 24; 6D, p. 25; 9C p. 38; no comparison shows CalSTRS pensions exceeding the private sector by factors of 2 or 4.

  33. spension Says:

    I should amend that to mean: no comparison shows the total package of *post-employment compensation* of CalSTRS exceeding that of the private sector by factors of 2-4.

  34. Tough Love Says:

    What teacher retires TODAY after 33 years in CA with a $45K base salary ?

  35. Rex The Wonder Dog! Says:

    Comparing people who begin work at age 24 and retire at 57….
    base salary $45,000
    ===
    You have no idea what the hell you’re talking about.

    The AVERAGE teacher in CA earns $68K in salary, plus $40K in benefits. That is the AVERAGE, working for about 15 years.

    Teachers START at $40K in salary nearly every distict in this state. START! And that is for only working 37 weeks per year. They receive “step” increases for 10-15 years-a raise EVERY YEAR.

    Some teachers are making $150K in base salary for only working 37 weeks, do the math-and add in the fringes.

  36. spension Says:

    Take it up with the California Foundation for Fiscal Responsibility, Dog, they are the ones who chose the comparisons, not me.

    MAIL
    California Foundation for Fiscal Responsibility
    5530 Birdcage Street, Suite 105
    Citrus Heights, CA 95610

    PHONE
    916-966-9366

    E-MAIL
    information(at)californiapensionreform.com

    Meanwhile, you might want to quote the source for your data, Dog. If you don’t have a quotable source than perhaps you’d like to wash that brown stuff you slurped up out of the WC out of your mouth, Dog. It was not chocolate.

  37. spension Says:

    According to the California Foundation for Fiscal Responsibility’s report, footnote, page 129 of…

    http://www.fixpensionsfirst.com/docs/Full_Report.pdf

    (1) average annual pay among teachers under age 25 with zero years of service as of June 30, 2010 is assumed to be $37,000; (2) for service up to 20 years, average pay for a cell is assumed to be 21.9 percent higher than for a cell with five fewer years of service; (3) among cells with a given level of service, pay is assumed to be higher by 0.3 percent for each additional year of age. The resulting distribution produces an average annual pay as of June 30, 2010 among all 441,544 active teachers that is very close to the $59,507 average for the entire group shown in the valuation report.

    They use those numbers to arrive at the post-employment benefits comparison they make with the private sector…

  38. Tough Love Says:

    spension, You said …”The resulting distribution produces an average annual pay as of June 30, 2010 among all 441,544 active teachers that is very close to the $59,507 average for the entire group shown in the valuation report.”

    It’s pretty obvious the pay for the subset of this group (the older and with more service) at retirement age would be much higher, so where did the $45K in the following statement from your earlier comment come from: …”Comparing people who begin work at age 24 and retire at 57….base salary $45,000″

    It appears you used that figure to come up with you comment that …”Present Value of CalSTRS post retirement benefits is $420,000″

    Now this I know is ridiculous because at the ages full career teachers retire, the present value of each $1 paid out annually (in year 1, as a COLA-adjusted annuity) is about $22. Hence your $420K of PV implies the average annual annuity is $420,000/22=$19,091….. which is ridiculously low.

    This certainly is half (and likely much lass than half) of the annual annuity of any full career teacher in CA.

    spension …. your #s are bogus

  39. spension Says:

    My numbers? Those are the numbers of the following organization, which I encourage you to contact and complain to:

    MAIL
    California Foundation for Fiscal Responsibility
    5530 Birdcage Street, Suite 105
    Citrus Heights, CA 95610

    PHONE
    916-966-9366

    E-MAIL
    information(at)californiapensionreform.com

    I believe the $45K/year is the starting salary, and raises etc are factored in, resulting in the $59,507/year average over the entire group, as that group documents in the appendix.

    Right or wrong, at least they document their work. Please cite documentation for your claims, Tough Love and Dog, that private sector post-employment benefits are up to 4 times lower than CalSTRS.

    As for my numbers… note that the CalSTRS employer contribution and the *TOTAL* social security OASDI are both about 12%. The present value of the SS in Fig 9A of that report, for the private sector (note CalSTRS employees don’t receive or contribute to SS) is about $100,000.

    *That* would also be a *fair* present value contribution for the CalSTRS pension. But due to the taxpayer guarantee, the present value of the CalSTRS pension is higher…. probably $400,000.

    Healthcare is $120K for CalSTRS and $30K for the private; the private gets a $170K DC contribution, from Figure 9A, and a $65K
    DB pension present value, IMO.

    A fairer comparison: CalSTRS… $400+120= $520K

    Private: $100+30+170+65 = $375K.

    Now actually that report assumes a 6% discount rate. I’d have assumed 4%.

  40. Rex The Wonder Dog! Says:

    I believe the $45K/year is the starting salary, and raises etc are factored in, resulting in the $59,507/year average over the entire group, as that group documents in the appendix.

    Right or wrong, at least they document their work. Please cite documentation for your claims,
    ===

    See how well your school district pays its teachers, superintendent

    Published: Wednesday, Jan. 26, 2011 – 12:00 am
    Last Modified: Monday, Jan. 31, 2011 – 11:13 am

    The average teacher salary last year was $67,932, an increase of 1.4 percent from 2009, according to new state figures. The average superintendent salary last year was $158,622, an increase of 0.6 percent from 2009

    Read more: http://www.sacbee.com/2011/01/26/995141/see-how-well-your-school-district.html#ixzz1aJztn6fv

  41. Rex The Wonder Dog! Says:

    AVERAGE PAY- %100K, for 37 weeks per year-36 hours per week. Top of the pay scale is $150K!

    District County Teachers Avg Yrs Teaching Average Pay

    MONTECITO UNION ELEMENTARY Santa Barbara 35 22.49 $99,905

    MOUNTAIN VIEW-LOS ALTOS UNION Santa Clara 199 11.18 $99,353
    PORTOLA VALLEY ELEMENTARY San Mateo 49 13.91 $96,673
    LAGUNA BEACH UNIFIED Orange 149 14.39 $93,120
    LOS GATOS-SARATOGA JOINT UNION Santa Clara 165 16.29 $92,725
    WOODSIDE ELEMENTARY San Mateo 35 $90,022
    LAS LOMITAS ELEMENTARY San Mateo 83 16.03 $89,216
    MENLO PARK CITY ELEMENTARY San Mateo 153 14.01 $88,438
    ST. HELENA UNIFIED Napa 99 15.21 $87,430
    FULLERTON JOINT UNION HIGH Orange 612 14.36 $87,245
    TAMALPAIS UNION HIGH Marin 238 14.77 $87,130
    KING CITY JOINT UNION HIGH Monterey 82 15.02 $86,703
    MOUNTAIN VIEW ELEMENTARY Los Angeles 424 17.27 $86,668
    HILLSBOROUGH CITY ELEMENTARY San Mateo 110 15.11 $86,080
    ORANGE COUNTY OFFICE OF ED. Orange 392 16.14 $85,391
    PALO ALTO UNIFIED Santa Clara 733 12.58 $85,360
    ALAMEDA COUNTY OFFICE OF ED. Alameda 46 10.91 $84,632
    SAN MATEO UNION HIGH San Mateo 395 14.17 $84,416
    SAVANNA ELEMENTARY Orange 102 11.87 $83,349
    CARMEL UNIFIED Monterey 155 17.31 $83,123
    PLEASANTON UNIFIED Alameda 725 10.27 $82,958
    ANAHEIM UNION HIGH Orange 1,358 11.04 $82,395
    SEQUOIA UNION HIGH San Mateo 418 11.99 $81,807
    NEW HAVEN UNIFIED Alameda 658 14.16 $81,674
    NEWPORT-MESA UNIFIED Orange 960 12.56 $81,376

  42. Rex The Wonder Dog! Says:

    Now add in $40K in benefits to ALL of the “average” cash teacher salary and you have total compensation.

    $68K average cash salary + $40K in benefits= $108K TOTAL COMPENSATION for the AVERAGE CA school teacher, who works 37 weeks per year, 36 hours per week,

    That is around $80 an hour, and since they have bullet proof job security you should add in another 30% premium to reflect that benefit.

    Total compensation for the AVERAGE CA school teacher with the job security multiplier premium= over $104 per hour.

  43. Rex The Wonder Dog! Says:

    What teacher retires TODAY after 33 years in CA with a $45K base salary ?

    ==

    No teacher in CA today makes less than $45K after mroe than 3 years in the job. Depending on the district, the top “step” increase comes from between 10 years (LAUSD) up to 15, 16 17 years in some of the more mis-manageaged districts.

  44. spension Says:

    Dog, your source omits 15% of California districts, so is inaccurate, and not necessarily in contradiction with the $59,507 average found by the California Foundation for Fiscal Responsibility.

    Dog, you answered your own question… the California Foundation for Fiscal Responsibility is very clear that $45,000 is the average starting salary for a 24 year old, and then raises are applied through their career. Hard to tell what your hyperventilating about.

    Dog, you’ve produced *nothing* that contradicts the California Foundation for Fiscal Responsibilities comparisons of *post employment benefits*; those comparisons indicate that teachers post-employment benefits are not the 4X higher than the private sector, which is what Tough Love says.

    But if you object to the California Foundation for Fiscal Responsibility’s *post-employment numbers* I suggest you contact them directly:

    MAIL
    California Foundation for Fiscal Responsibility
    5530 Birdcage Street, Suite 105
    Citrus Heights, CA 95610

    PHONE
    916-966-9366

    E-MAIL
    information(at)californiapensionreform.com

  45. spension Says:

    From Dog’s source, here are the average salaries (averaged over all years of experience, not just starting pay) that Dog decided to omit from his list, because, of course, he has no intention of being accurate:

    Don’t see any $100K average pay on this list. And as I’m sure Dog well knows, most of the school districts he lists are known as `basic aid’ school districts (like Montecito Union) where rich Republican homeowners keep their property taxes local, and use that money to lure away the best teachers into their districts.

    OK, whatever, local rich people do what local rich people do. But to then use the salaries paid in rich Republican basic aid districts to smear all the other state school districts, where salaries are indeed much lower, is simply dishonest.

    PANOCHE ELEMENTARY San Benito $35,280
    PLAINSBURG UNION ELEMENTARY Merced $36,387
    FRENCH GULCH-WHISKEYTOWN ELEM. Shasta $36,963
    KIRKWOOD ELEMENTARY Tehama $39,137
    BLAKE ELEMENTARY Kern $39,140
    MOUNTAIN UNION ELEMENTARY Shasta $39,250
    ALVINA ELEMENTARY Fresno $39,974
    WILLOW CREEK ELEMENTARY Siskiyou $40,200
    CIENEGA UNION ELEMENTARY San Benito $40,624
    MONTAGUE ELEMENTARY Siskiyou $41,624
    THREE RIVERS UNION ELEMENTARY Tulare $41,651
    HORNBROOK ELEMENTARY Siskiyou $42,153
    GAZELLE UNION ELEMENTARY Siskiyou $42,766
    BURREL UNION ELEMENTARY Fresno $42,799
    NEW HOPE ELEMENTARY San Joaquin $42,938
    CALIENTE UNION ELEMENTARY Kern $42,959
    MARCUM-ILLINOIS UNION ELEMENTA Sutter $43,038
    MATTOLE UNIFIED Humboldt $43,357 9
    ELK HILLS ELEMENTARY Kern $43,359
    BURNT RANCH ELEMENTARY Trinity $43,676
    DUNSMUIR JOINT UNION HIGH Siskiyou $44,286
    WILLOW GROVE UNION ELEMENTARY San Benito $44,548
    CUDDEBACK UNION ELEMENTARY Humboldt $44,583
    BRIDGEVILLE ELEMENTARY Humboldt $44,622
    GARFIELD ELEMENTARY Humboldt $44,668

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