CalSTRS surprise: It’s a pension/401(k) ‘hybrid’

Under little-noticed legislation a decade ago, the nation’s second largest public pension fund, CalSTRS, became what is now advocated by several reformers — a “hybrid” combining pensions with a 401(k)-style individual investment plan.

CalSTRS was not cited as an example earlier this year when switching public employees to hybrids was proposed by Gov. Brown, the nonpartisan Legislative Analyst and the watchdog Little Hoover Commission.

That’s not surprising. The California State Teachers Retirement System has rarely, if ever, called itself a hybrid. But that changed last week when the term was used during a CalSTRS board meeting and again the next day in a news release.

“It might be a surprise to hear us refer to our system as a hybrid plan, because we haven’t discussed it that way in the past,” Peggy Plett, CalSTRS deputy chief executive, told the board. “But we really do have a hybrid plan.”

To the regular CalSTRS monthly pension guaranteed for life, legislation in 2000 added a new program, the Defined Benefit Supplement, that is similar to a 401(k) individual investment plan receiving contributions from the employer and employee.

The hybrid Brown and others advocate presumably is intended to reduce employer costs and risk. In a typical hybrid, a smaller pension is combined with an investment plan that rises and falls with the market.

The smaller pension cuts the employer’s long-term retirement debt, which spans decades and helped push firms like General Motors into bankruptcy. Employees still have the security of a lifetime pension check, with additional money from investments.

But CalSTRS is not a typical hybrid.

Pensions for newly hired teachers were not lowered, and the supplement investments have a guaranteed return based on an annual average of the 30-year Treasury bond, now yielding 4.2 percent.

Importantly, the supplement program undermined the seriously underfunded CalSTRS pension fund in two ways.

1) Money that should have gone into the pension fund was skimmed off to build the supplement during the first 10 years, ending as scheduled last Jan. 1.

A quarter of the annual teacher contribution to the CalSTRS pension fund (2 percent of pay from a total of 8 percent of pay) was diverted into the supplement, which had a market value of $6.2 billion last June.

The 2 percent of teacher pay diverted into the supplement is about a tenth of the total contribution the pension fund should have received during the last decade (teachers 8 percent of pay, employers 8.25 percent and state 2 percent).

2) The minimum guarantee of earnings in the supplement has added to the long-term debt or “unfunded liability” of the CalSTRS pension fund.

Most 401(k)-style investment plans, which do not guarantee a minimum rate of return, had major losses during the deep economic recession and stock market crash in the fall of 2008.

The unusual minimum guarantee protected CalSTRS members against investment losses. But the guarantee based on 30-year Treasury bonds was higher than CalSTRS investment earnings, which averaged 3 percent during the last decade instead of the assumed rate of 8 percent, lowered last December to 7.75 percent.

Covering the gap between the supplement guarantee and actual earnings added $1.5 billion to the CalSTRS unfunded liability as of June 2009. As markets fluctuated during the decade, earnings above the guarantee did not pay down the long-term debt.

Instead, the CalSTRS board approved additional earning credits to the supplement of 2.49 percent for fiscal 2005 and 4.41 percent for fiscal 2006. (See page 102 of the CalSTRS 2010 Comprehensive Annual Financial Report)

Now the CalSTRS pension fund has a $56 billion unfunded liability as of last June and a funding level of 71 percent, according to an actuarial report given to the board in March.

Getting to an estimate of 100 percent of the funding needed during the next 30 years would require an additional contribution of 14.3 percent of pay or about $4 billion, nearly doubling the current total contribution of roughly $5 billion.

That assumes earnings will average 7.75 percent, a forecast critics say is overly optimistic. Adopting a lower earnings assumption would sharply increase the additional contribution needed to reach full funding.

Much of the CalSTRS funding problem is due to massive investment losses. The CalSTRS pension fund peaked at $180 billion in October 2007 before dropping by more than a third to $112 billion in March 2009.

The CalSTRS pension fund was at $153 billion last week with a 21 percent gain 11 months into the fiscal year, following a 12 percent gain last year. The recent gains have not changed the view that CalSTRS needs to phase in a major contribution increase to close the funding gap.

Part of the funding problem is that when the stock market boomed a decade ago, pushing pension funding levels above 100 percent, CalSTRS and the California Public Employees Retirement System and UC Retirement all made the same basic changes.

In what can look like questionable management now, contributions were cut and pensions raised. Among a half dozen CalSTRS legislative bills, including a pension increase for persons already retired, was the creation of the Defined Benefit Supplement.

“No (state) general fund effect and no effect to the solvency of STRS,” said the analysis of AB 1509, unusually brief for legislation shifting billions of dollars. “The STRS surplus will absorb the cost of DBSP (Defined Benefit Supplement Program).”

When AB 1509 moved through regular committees, it dealt with a different issue, credit cards. The cut in contributions to the CalSTRS pension fund apparently was negotiated during the state budget process, presumably with powerful teacher unions.

Rolling back some of the changes made a decade ago, state worker unions in CalPERS and UC regents have approved what has become a common response to pension funding problems:

Increased employee contributions (and employer contributions at UC) and lower pensions for new hires.

CalPERS and the UC regents have the power to set contribution rates for employers. Pension benefits for CalPERS and UC Retirement are customarily set through bargaining with unions.

Unlike most California public pension funds, CalSTRS lacks the power to set employer contribution rates, needing legislation instead. And CalSTRS pension benefits have been set by legislation, rather than through bargaining with unions.

So far there has been no legislation proposing that CalSTRS join CalPERS and UC in raising employee contributions and giving new hires lower pensions. The political clout of teacher unions may be one reason.

Another potential obstacle: Under state education law, CalSTRS lawyers say any increase in employee contributions would have to be offset by giving employees another benefit of equal value.

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at Posted 6 Jun 11

34 Responses to “CalSTRS surprise: It’s a pension/401(k) ‘hybrid’”

  1. Dr. Mark H. Shapiro Says:

    Pension programs should be intended to provide retirement security, not to be a gamble on the market. The experience from both the CalSTRS “hybrid” and private 401Ks during the steep market decline of 2009 showed that these plans were a disaster for retirees who depended on them. They helped only the corporations that offered them in place of real retirement security.

  2. Rex The Wonder Dog! Says:

    Pension programs should be intended to provide retirement security, not to be a gamble on the market. The experience from both the CalSTRS “hybrid” and private 401Ks during the steep market decline of 2009 showed that these plans were a disaster for retirees who depended on them.

    Pension programs are/were be intended to provide retirement security, not make gov employees multi millionaires at age 50.

    If there gov DB pensions used a REASONABLE ROI, had a REASONABLE employee contribution (CalSTRS does require a reasonable employee contribution, but they are the only ones), had a reasonable retirement age (not age 50, 55 or 60) then there would be no funding crisis, would there.

    The reason we have a problem is the gov trough feeders got greedy, wanted to work HALF a career and make MORE money in retirement than when they actually worked. Sorry, Homey, those salad days are over.

  3. Rex The Wonder Dog! Says:

    “hybrid” and private 401Ks during the steep market decline of 2009 showed that these plans were a disaster for retirees
    No, they were not a “disaster”, they were part of a normal business cycle. If the 401K contributions had gone onto T-Bills they would have done fine.

    The problem with people like you Dr. Mark H. Shapiro is YOU do not want to SHARE the losses, but want to keep all the GAINS, of investments. Pass YOUR LOSSES off on the poor and middle class while feathering your bed with big returns-when they are there.

  4. Tough Love Says:

    Public Sector Unions and the elected officials that approve this financial rape of the taxpayers (via grossly excessive, unjust, and unnecessarily rich pensions) are a CANCER on society.

  5. Dr. Mark H. Shapiro Says:

    Rex, the normal business cycle doesn’t pay the medical bills or put food on the table for retirees. Regular pension plans average their earnings and losses over many years to ensure that retirees are not at the mercy of greedy bankers who cause the markets to tank from time to time. 401Ks eat up a lot of the the retirees’ money in excessive fees that enrich the investment companies while helping to impoverish the investors.

    I’m sorry if your 401K did not work out too well for you. But being envious of those who have defined benefit retirement programs won’t help you or the country.

  6. Dr. Mark H. Shapiro Says:

    @Tough love. I’m not in favor of grossly excessive, unjust, or unnecessarily rich pensions either. But I am in favor of defined benefit pensions that will keep retirees out of the poor house, and that will allow them to live in dignity during their sunset years. At present, the vast majority of CalPERS pensioners receive benefits that do exactly that – the average pay out is about $2200 per month – of that $462 comes from the taxpayer, $330 from employee contributions, and $1,408 from earnings on investments.

    I am in favor of formulas that encourage employees to work until age 62 or older to receive substantial benefits, I am against pension spiking, and I am in favor of limits on employee income that is pensionable. What I am not in favor of is penalizing the average employee who plays by the rules and receives a modest pension for the excess of the few who abuse the system.

  7. Tough Love Says:

    Dr. Shipiro,

    First, your “average” payout includes (a) part time employees, (b) short career employees, (c) spouses receiving partial pensions after a worker’s death, and (d) those who retired LONG ago with lower salaries. As such it is meaningless and deceptive (but you knew that). Isn’t the more appropriate figure the typical pension of FULL career workers who retired recently … which, per CalPERS for 2010 retirees, that figure is $67,000+ ?

    Second, there are only 2 original sources of contributions, that from the employee, and that from the employer (meaning taxpayers). The employees contribution is typically $1 for each $5-$7 the taxpayers must ultimately put in. So shouldn’t the investment income also be so proportioned … since had taxpayers not been forced to fund such excess (and yes, the Plans ARE excessive), the investment income associated with their contributions would have stated in THEIR pockets. So spare me the deception and doubletalk, the employees pay for 10-20% of their pensions with taxpayers contributions and the interest earned therefrom pay for the 80-90% balance.

    And, “excessive” is a relative term. I care to call them excess when, with cash pay in the Public and Private sector being relatively close, the much much much greater public sector pensions result of far greater “total compensation” in the Public Sector. Read on for another perspective on this “excess”, and who pays for it:

    So let’s cut to the chase …….

    Private sector employers typically contribute 3%-8% of an employee’s cash pay towards retirement, yet the total cost (expressed as a level annual % of cash pay throughout one’s career) of Public Sector Defined Benefit pensions (for a 30-year employee retiring at age 55) ranges from 29% to 58% depending on the richness of the benefit formula (with safety workers generally at the highest end).

    More specifically, for the noted formulas, the level annual %s of cash pay are as follows:
    2% per year of service w/o COLA – 29%
    2% per year of service with COLA – 39%
    3% per year of service w/o COLA – 44%
    3% per year of service with COLA – 58%

    Even after deducting the typical employee contribution of about 5% of pay, that still leaves the employer (meaning TAXPAYERS) contributing 24% to 53% of pay. The middle of these %s is 38.5% vs 5.5% (the middle of the range of what Private Sector employers contribute) or SEVEN (yes SEVEN) times greater.

    This is completely absurd, and the very modest “tweaking” at the edges by practically begging employees for a few more percent of pay contributions will NOT even begin solve the HUGE financial problem.

    TOTAL COMPENSATION (Cash Pay plus Pensions plus Benefits) should be comparable in the Public and Private Sectors for similar jobs, and with Cash Pay in the Public Sector now AT LEAST equal to (if not greater) than that in the Private Sector, there is ZERO justification for greater Public Sector Pensions and Benefits .

    Not for PAST service, but for FUTURE service, Public Sector pension accruals must immediately be brought FULLY down to the level of their Private Sector counterparts. Due to the huge reduction needed, the ONLY way to do this is to freeze the current defined benefit plans for CURRENT (yes CURRENT) workers, and switch everyone into a 401K-style Defined Contribution Plan with an employer contribution in the same 3%-8% range granted Private Sector workers.

    Additionally, since Private Sector retirees rarely get any retiree healthcare subsidy before eligibility for Medicare at age 65, similar restrictions should apply to Public Sector retirees.

    It’s TAXPAYERS’ money and Civil Servants are NOT more worthy of bigger pensions and better benefits.

  8. Keen Observer Says:

    As usual, Tough Love just cuts and pastes, as he does on many sites, his amateurish calculations. Do the Koch brothers pay you to do this full time?

  9. Tough Love Says:

    Hello Keen … Doing you duty to “protect you turf” ?

    You wouldn’t last 6 months in a Private sector job where RESULTS counted.

  10. Keen Observer Says:

    Love to see you try an urban high school classroom. You wouldn’t survive three days.

  11. Tough Love Says:


    We’ve got near me as well. It’s all in the family. If the family don’t give a cr*p, why should we ?

    I have no issue with your cash pay (assuming you’re a teacher, not a safety worker … in which case the CASH pay alone is often too high as well). But when the ridiculous DB Plan benefits are added in, your total compensation is 25% too high. It’s killing everyone else (the Private sector taxpayers) who pay for 80-90% of your pension.

    I doing my part to effect badly needed change. I wouldn’t expect you to be pleased. Change IS coming (and for CURRENT workers) … the “math” leaves no other option.

  12. spension Says:

    Sorry, Tough Love, in CalSTRS, employees have always contributed 8% of their cash pay. But they don’t contribute to Social Security. Neither do cops or firefighters.

    CalSTRS has been *way* better than CalPERS or UCRS at making regular contributions. CalPERS and UCRS stopped making regular contributions when the market was high, which messed them up.

    The early retirement benefits in CalSTRS are not as generous as the other state systems… quoting Chapter 1 Page 17 of:

    “Pensions under the CalPERS design used by the local employer include generous early retirement benefits that are important in this scenario. This is in contrast to CalSTRS, which has a benefit formula that does not include generous early retirement factors.”

    Both the DB plans (CalPERS, CalSTRS, UCRS) and DC plans usually play the stock market to increase benefits and/or reduce contributions. Can’t really attack on or the other as worse in this respect. Social Security invests in Treasury Securities, and it would be quite reasonable to invest some SS funds in very widely diversified and low-fee stock index funds. I thought the George W. Bush Admin proposed this, and was on the right track.

    However, for the same intended benefit, DB plans are more economical than DC plans, because of the same statistical benefits that insurance provides. If everyone had to save enough to replace their car, home, defend personal trip and fall lawsuits in their home, etc, that would be prohibitively expensive. Instead we pool our funds through insurance.

    If you rely on a DC plan, you must plan for you and your spouse to 95. Every single DC saver must do that. But when a retirement fund is pooled by a large employer, they need only plan for paying for people to live until about 85, and they will be correct on the average, since as many people will die before 85 as survive past 85.

    The problem with the California DB public pensions was that benefits were raised without sufficient mathematical analyses to be sure the funds could cover the benefits. The right move is to reduce benefits (for everyone in the plans, retirees, vested employees, and new employees) but stick with the DB structure.

    Of course retirees and vested employees don’t want to see reductions in their benefits… they feel they have a binding contract. And they do! But frankly they should voluntarily surrender some benefits for the good of the State.

  13. Tough Love Says:

    spension, Everything you said in your first few paragraphs is true (including the fact that CalSTIRS benefits are often lower than calPERS). That’s WHY I said teachers “total compensation” (cash pay + pensions + benefits) is 25% higher than it should be. If it were calPERS DB Plans, the 25% would have been considerably higher.

    As to your comment that DB Plans are more economical, that would be true when compared to a DC plan that provided the identical pension level as that of typical Civil Servant DB Plan. That’s not what must be done. As a matter of fact, it doesn’t matter whether future accruals are via DB or DC.

    The VERY necessary objective is to SIGNIFICANTLY reduce the benefit level. That’s where we will be shortly, for CURRENT, as well as new employees … because the “math” shows that there are no other options.

    But I’m sure you’ll continue your roll to deceive and to delay … and likely be kicking & screaming when the inevitable changes come about.

  14. SeeSaw Says:

    Spension, You must have been imbibing something, when you suggested that public retirees should be willing to give up some of their respective benefits, for the good of the state–how about the likes of Meg Whitman surrendering part of their billions, to help house, feed, and cloth the thousands that they laid off, to send those jobs overseas.

  15. spension Says:

    Huh? Kick, scream, deceive, delay? Useless non-sequiturs that solve nothing.

    It matters a lot: DB plans, for a given benefit, are more economical to the taxpayer than are DC plans. By a lot. If one wants to save the taxpayer money, use a DB plan rather than a DC plan.

    Sure, reducing benefits is he main objective. I’d start with pegging all public pensions at twice the state median yearly salary. Then 2% at 65 for everyone.

  16. spension Says:

    Well, SeeSaw, haven’t you identified the problem, that greed is now expected and institutionalized? We can stay intransigent until the Chinese own everything, not just most of our Treasury Bonds, in your view.

  17. SeeSaw Says:

    TL, You deny the average pension amounts published by CalPERS, because you do not think all the retirees worked long enough or earned enough, and therefore should not be included in such calculations. You, instead, resort to cherry picking. The total pension amount of a typical, new CalPERS retiree is much less than $67,000. Your figure is the average of a specific group–each retiree, in your quoted group, had a 30-year, or longer, career. There were thousands more retirees, in the same year, with differing tenures, and pensions averaging, $38,000. The average age of a CalPERS service retiree is 60. (I receive $50,000 in yearly pension benefits, based on 36.4 years credit, and my pension is in the above-average, CalPERS group.)

  18. SeeSaw Says:

    To add a litte more, TL: Those high CalPERS averages emanate from the inclusion of the very large pensions that are being received by the retired CM’s and others that served in high-level positions. My former CM receives six times more than I. He was never a union member, as most managers weren’t and aren’t. But, hey, TL, you go on referring to union membes as a cancer on society–your days, would not be complete, without your allowing yourself to spew that particular invective.

  19. SeeSaw Says:

    Spension, did you see the film, “Inside Job”?

  20. spension Says:

    Did see Inside Job… love Bill Black, Walker Todd, Brooksley Born. Now those are some great public servants.

    Two wrongs don’t make a right, though. California got too generous with its pensions in many cases… although the specifics of the 2008 crash involve criminal Wall Street behavior, the 200-year history of stock market returns predicts that kind of crash. Given the history, it is was not prudent on the part of California pension executives to assume `this time is different’ and raise benefits (over the last 30 years) and reduce contributions. They were irresponsible although not personally as greedy as Goldman-Sachs etc.

    3% at 50 is unreasonable. I think 0.5% at 55 ramping up to 2% at 65, with a cap at 2X the California median salary would be fine. Absolutely must have indexing to the cost of living… the inflation circa 1980 proves it.

    I’d sure consider asking for a 2X California median salary cap applied to all retirees. Wouldn’t hit you, SeeSaw…. probably about $120,000 or $140,000. Just too hard to ask taxpayers to support retirees making that much money.

    When (as predictable) well-pensioned retirees refuse, I’d put a special big State tax on high public pensions (above 2X the State median). No problems with the law, I’d bet. Heck, do it on *all* pensions, private too, to avoid discrimination. I’m sure the conservatives would love to solve the pension problem with higher taxes.

  21. SeeSaw Says:

    Give with one hand; take back a portion with the other hand. That is bad, and will never fly. It might also encourage more CA resident-retirees to move to income tax free states, and it would then deprive CA of the tax income it already gets from the retirees who remain here.

    I think one thing that 3% at 50 has done, is to provide more funds for the Pension Plan coffers. No one retires at the age of 50. As far as miscellaneous workers go, the 3% plan allowed workers, like me, to receive a formula increase of .53% per year. I did not plan for it or ask for it, but was glad to get it, when it was offered–so much for my, “cancerous” attitude. (My former entity no longer offers the 3% formula for miscellaneous new hires, and it has changed the 3% at 50 for PS to 3% at 55.)

  22. Tough Love Says:

    Quoting spension …”Then 2% at 65 for everyone.”

    While that would be an improvement IF (a) for those collecting before age 65 these was a true actuarial reduction of roughly 5-6% per year of age earlier than 65, (b) pensionable compensation was based on base pay only, (c) post retirement COLAs were eliminated permanently, (d) pensionable pay were based on a 5 year average, and (e) all for of spiking were were eliminated.

    However, EVEN WITH all of the above, the 2% at 65 would STILL yield just about double the pension of the comparable Private Sector full career worker. With cash pay roughly equivalent in the Public and Private Sectors, there is ZERO justification for ANY greater pensions whatsoever.

  23. Tough Love Says:

    Seesaw & spension,

    Just yesterday an article showed that the total pensions owed to the 20% of all gov’t workers is greater than the total Social Security owed to the 80% of Private Sector non-gov’t workers.

    Seem likes this supports my long held postion that Public Sector pensions are WAY to generous…. especially when considering that taxpayer contributions (and the interest earned thereon) pay for 80-90% of these Public Sector pensions.

  24. Tough Love Says:

    Quoting seesaw …”But, hey, TL, you go on referring to union membes as a cancer on society–your days, would not be complete, without your allowing yourself to spew that particular invective.”

    There you go again. It’s not the Union MEMBERS, it’s the Public Sector UNIONS that are a cancer on society. Of course, THEY, along with the elected officials more than willing to accept Union campaign contributions and election support in exchange for favorable votes on Public sector pay, pensions, and benefits.

  25. Tough Love Says:

    Quoting spension …”3% at 50 is unreasonable. I think 0.5% at 55 ramping up to 2% at 65, with a cap at 2X the California median salary would be fine. Absolutely must have indexing to the cost of living… the inflation circa 1980 proves it.”

    Another interesting proposal, but just like I discussed earlier, this too results in 2x the pension of comparably paid Private sector workers retiring at the same age and with the same # of years of service.

    With cash pay roughly the same in the 2 sectors, the pensions of Public Sector workers must be ZERO % greater.

  26. Tough Love Says:

    Quoting seesaw …”I think one thing that 3% at 50 has done, is to provide more funds for the Pension Plan coffers”

    That statement is delusional….. more funds perhaps, but any extra funds FROM THE EMPLOYEES is miniscule compared to the additional funding thrust upon taxpayers.

  27. spension Says:

    I don’t agree that a 2% at 65 DB requires twice the contributions of DC plans in the current apparent private sector. I say apparent because there are some amazing deferred compensation plans out there in the private sector, which are generally ignored in these discussions.

    It is a mistake to use the high percentages now computed lately for public pension contributions… those are appropriate only because with the market downturn. The long term average contribution is much less.

    Perhaps a special tax on all pensions above 2X the median national income can be implemented on *everyone* at the national level.

    BTW, the comparison of Social Security with public pensions may or may not be flawed… need to compare the total contributions in the 2 cases, not the total outlays, because pension systems general have earned way higher returns in the markets than Social Security. Of course that may not persist, which is part of the reason why those who ran the public pension systems were way to generous in their promises.

    As for 3% at 50… it has inflamed rank-and-file taxpayers so much that it was never worth it. Add to that the ludicrous reclassing of certain attorneys as `Safety Workers’ and it looks totally corrupt.

    Odd that military pensions never come up here. They are completely pay-as-you go, as far as I know. As such, they cost the taxpayer roughly 3X per dollar of benefit paid to the retiree, compared to invested DB pensions. But oh well.

  28. spension Says:

    For 2% at 65, 30 year employment tenure, I get that a regular 9.6% of salary total contribution would do it, into a defined benefit plan. For a defined contribution plan, you’d need to contribute 19.7% of salary, because you have have a `pool size of 1′ and must plan to cover payments through age 95, and because you have to plan for the worst-case 4% sustained withdrawal rate/year.

    So a public plan with 5% from the employee and 5% from the taxpayer would do it.

    On the private side, according to Capitol Matrix at…

    Chapter 2 page 13, looks to me like the private contribution is 8.8%. Compare that with the taxpayer 5% of the plan I propose above.

    Let’s not get fouled up with retiree health care. The US healthcare system is a mess, and we’ll be lucky to afford to ever see any doctor anywhere in about 10 years.

  29. Tough Love Says:


    Under your formula, a long career employee with 35 years of service at retirement at age 65 would get a COLA-adjusted pension of 2%x35=70% of final (or 3-yr avg.) pay, COLA-increased for life.

    The inclusion of a COLA increases an otherwise formula-equivalent non-COLA pension by about 25% for a retirement starting at age 65 (by more for a younger retirement age). Therefore, your 70% of pay COLA-increased pension is roughly equivalent to a 1.25×70%=87.5% of pay Non-COLA pension. This is MORE THAN double even the more generous DB pensions of the largest American corporations. There is ZERO justification for this … ZERO…. especially with Private Sector taxpayers’ contributions (an interest earnings thereon) paying for 80-90% of it.

    As for your deferred compensation comment, yes, senior level employees in private corporation often do get such perks, but these are generally for employees making $250+K … few and far between. Such comments are often used by supporters of the status quo in Public sector Plans to justify their greater Pensions. This is absurd, as it means that ALL Civil Servants (yes ALL, at EVERY income level) should benefit (at taxpayers’ expense) because a VERY small share of private sector executives get very large pensions. Also, lets not forget that Corporate shareholders pay for any excesses in Private Sector pension Plans, NOT taxpayers.

  30. Tough Love Says:

    spension, I just ran the #s … a 2%/yr. COLA- adjusted pension to a 65 year retiring at the end of a 30 year career would require a level annual contribution of just about 29% of pay (TOTAL , the split between employee and employer is not relevant). Yes, I’m ell qualified to do thees calculations. Clearly you are not if you think 9.6% would have been sufficient.

    And, you are confused as to the cost differential between DB and DC Plans. Other than the somewhat higher administrative expenses of a DB Plan, the funding costs of a DB and a DC Plan are the SAME, because the accumulated value of the funds invested at the point of retirement can, under the DC Plan, be applied to buy an annuity identical in value to that of the DB Plan annuity.

  31. spension Says:

    Well, the amazing deferred compensation packages in the private sector (which usually is never mentioned in pro-Private Sector arguments) infect the public sector through the claim that top public sector execs deserve the same as private sector execs.

    Exhibit #1… public hospital administrators!

    Exhibit #2… UC execs!

    and on and on. Then the outrageous deferred compensation packages trickle down the public sector from its top.

    But in the private sector, of course, greed is good, so the deferred compensation does not trickle down. The execs of the private sector mainly export all lower paying jobs to China anyway.

    So, let’s agree to tax *all* deferred compensation, public or private, in the US income tax code, that exceeds twice the national median wage at 99.9999%.
    That should take care of an awful lot. See how high taxes can be helpful?

  32. spension Says:

    No, I don’t agree with your calculation, nor does Capitol Matrix Consulting.

    You have omitted the `insurance’ effect that forces DC pensions to plan for survival to 95 years of age, while DB only have to plan for survival to 85,
    and the `worst case withdrawal rate’ of 4%/year that afflicts DC plans.

    Annuities are not the same deal at all. If you die at 75 you lose 1/2 of your DC money.

  33. spension Says:

    Whoops I meant if you die at 75 (10 years after purchasing the annuity) you lose more than 1/2 of the DC money you bought it with.

    With a DB, the money was never yours in the first place. Nice thing about DB plans… they reward taking good care of your health and living a long time, unlike health insurance.

  34. File for Bankruptcy Says:

    I feel sorry for. The bankruptcy.

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