How much CalSTRS debt due to mismanagement?

Some still have hard feelings about what happened when CalSTRS, now deep in the red, had a brief funding surplus more than a decade ago: Teacher and state payments into the fund were cut, and retirement benefits were raised.

At a CalSTRS board meeting last week, Lois Shive, a representative of a retiree group, zeroed in on legislation in 2000 that for 10 years diverted a quarter of the annual teacher contribution from the pension fund, a total of $4.9 billion over the decade.

The legislation shifted 2 percent of teacher pay (from the total teacher contribution of 8 percent of pay) into a new individual investment plan, the Defined Benefit Supplement, with a guaranteed minimum return based on the 30-year Treasury bond.

“We didn’t see the side car rolling through the Legislature of a rogue member, who went to a legislator and asked that legislator to please pass a bill that would give that member his own private bag of money,” said Shive.

“That was our 2 percent side car that established the DBS fund,” she said, “and short-funded this wonderful pension fund by a huge amount, building on to what we have now is a snowballing effect.”

Shive represents the California Teachers Association-National Education Association Retirees. As vice chair of the CTA retirement committee in 2000, she “lobbied tirelessly” for pension improvements, a CTA newsletter said.

“I pretty much said what I needed to say there,” Shive said this week, declining to identify the “rogue” member. She said the diversion was a small part of the current funding problem and the focus should be on the rest of her remarks.

A lobbyist, a CalSTRS staff member and others at the Capitol said the bill emerged from negotiations, but they did not recall a push from a “rogue” member. The author of AB 1509, former Sen. Mike Machado, D-Linden, was unavailable for comment.

The bill that made a major change in CalSTRS structure, converting it to a “hybrid” plan combining a pension and 401(k)-style individual investment plan, apparently was never heard by a legislative committee.

The subject of AB 1509 was credit card disclosure when the bill moved through the Assembly and a Senate committee in 1999. In June 2000 the credit card bill was removed from the inactive file and amended on the Senate floor with the DBS language.

A “gut-and-amend” was not uncommon at the end of a legislative session, when a deal was struck with little time for committee hearings. But both houses approved AB 1509 early in the year on June 22, the Assembly voting 62-to-9 and the Senate 34-to-1.

The floor analyses were unusually brief and misleading for a bill that would divert nearly $5 billion from a historically underfunded pension system.

The Assembly analysis said: “fiscal effect : No General Fund effect and no effect to the solvency of STRS; the STRS surplus will absorb the cost of DBSP.” (Defined Benefit Supplement Program)

The Senate analysis said: “According to the Assembly Third Reading analysis, no General Fund effect and no effect to the solvency of STRS, the STRS surplus will absorb the cost of the Defined Benefit Supplement Program.”

A half dozen other bills in 2000 that increased CalSTRS retirement benefits were sent to the governor in late August and early September, the end of the session. The CTA sponsored three of those bills, but not AB 1509.

Funding level history in CalSTRS valuation report, June 30, 2011

Funding level shown in CalSTRS valuation report, June 30, 2011

After being about 30 percent funded during the 1970s, CalSTRS funding slowly improved with an increase in state funding in 1990 and then large investment fund earnings during a high-tech boom later that decade.

As funding peaked at about 110 percent around 2000, the “surplus” was not regarded as a cushion to offset future investment earnings shortfalls. As often happens with public pensions, the surplus was viewed as a windfall that should be spent.

Legislation began divvying up the windfall in 1998 when the surplus was still a projection. A cut began in the state contribution, 4.3 percent of pay, that would reduce the rate by half, a drop in pension funding of 2 percent of pay similar to the teacher diversion.

The cut in the state rate (AB 2804) was linked to pension boosts for unused sick leave for members hired before 1980 (AB 1102) and an increase in the pension formula (AB 1150) from 2 percent of final pay for each year served at age 60 to 2.4 percent at 63.

What happened to the California State Teachers Retirement System during the boom years around 2000 is not as well-known as the California Public Employees Retirement System sponsoring a trendsetting pension increase for state workers, SB 400.

CalPERS, which unlike CalSTRS has the power to set employer rates, gave the state a contribution “holiday” and dropped the state payment to its pension fund from $1.2 billion in 1997 to $157 million in 2000.

Another similarity is that CalPERS told legislators in 1999 the SB 400 pension increase would be paid for by a surplus and “superior” investment returns without costing taxpayers “a dime.”

One of the half dozen CalSTRS benefit increases in 2000 was said to be “equitable with CalPERS.” As in SB 400 for state workers, retired CalSTRS members were given (AB 429) a 1 to 6 percent increase in their pensions.

Some of the CalSTRS benefit increases in 2000 were intended to encourage teachers to stay on the job longer, a move to retain valuable experience and ease a teacher shortage.

Teachers with 25 years of service can base pensions on one year of highest pay (AB 821) rather than a three-year average. A longevity bonus (AB 1933) added $2,400 a year to pensions for 30 years of service, $3,600 for 31 years and $4,800 for 32 years.

Pay earned beyond the regular school year (summer school, overtime, etc.) goes into the new Defined Benefit Supplement (AB 2700), viewed by some as a curb on improperly boosting or “spiking” pensions.

A previous increase for pensions of less than $15,000 a year was extended (SB 1505) to more members. Medicare Part A hospitalization was provided (SB 1435) for those without it, many hired before 1986 when districts were required to pay Medicare taxes.

Unlike the CalPERS SB 400 pension increase, two of the big CalSTRS changes were temporary and lasted a decade. The diversion of a quarter of the teacher contribution into the DBS automatically ended Jan. 1, 2011, along with the longevity bonus.

The teacher pension formula “2 at 60” is less generous than most CalPERS formulas, “2 at 55” for state workers and as much as “3 at 60” for some local government employees. Gov. Brown’s pension reform, AB 340, gives non-safety new hires “2 at 62.”

Teachers do not receive Social Security in addition to their pensions, unlike most CalPERS members. And most teachers, depending on the school district, do not receive retiree health care.

“Pension package will restore dignity,” said a CTA newsletter headline in 2000 as the Legislature approved the benefit package. Shive was quoted: “I’m more than a happy camper. I’m elated! It’s a glorious day for all of us.”

The CTA newsletter said the benefit package was “worth approximately $12.1 billion and funded from excess earnings of the CalSTRS fund.” No current estimate of the cost of the changes was available from CalSTRS.

The brief apparition of “excess earnings” vanished like a mirage when the high-tech bubble burst around 2000, beginning a long decline in the pension fund investment earnings expected to provide about two-thirds of CalSTRS revenue.

The CalSTRS investment fund peaked at $180 billion in 2007, dropped to $112 billion in 2009 and was back up to $161 billion as of Jan. 31, still well below the high water mark set more than five years ago.

Actuaries said that if investment earnings since 2000 had hit the current assumed rate of return, 7.5 percent, CalSTRS would have been 103 percent funded as of the last valuation, June 30, 2011.

But earnings were well below the target. A new estimate from Milliman actuaries puts the CalSTRS funding level last June at 66 percent with an “unfunded actuarial obligation” of $73 billion.

Last week, the CalSTRS board sent the Legislature several options for reversing or slowing a projected decline in funding expected to empty the investment fund by 2047.

Full funding would cost $4.5 billion more a year, a 75 percent increase in the $6 billion total annual payments now being made by teachers, school districts and the state. The cheapest option, $1.5 billion a year, would delay depletion of the fund until 2058.

The author of legislation in 1990 that increased the state contribution to CalSTRS, former state Assemblyman Dave Elder, D-Long Beach, was asked for a comment about the current funding shortfall.

“They lowered the contribution from the teachers, they lowered the contribution from the state, and they increased the benefits,” said Elder. “So it was a perfect storm for a huge and unfunded liability.”

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 15 Feb 13

45 Responses to “How much CalSTRS debt due to mismanagement?”

  1. Tough Love Says:

    Interesting history, so;

    (a) Workers … you can’t have it BOTH ways. YOU got the 2%, but in a different pocket of YOURS (not ours), so you can shift the money BACK into the DB Plan or suck-it-up and get a smaller pension..
    (b) reverse the retroactive increase in benefits granted to both members and retirees. the “surplus to “pay for it” being illusory.

  2. SeeSaw Says:

    I doubt its true that “most” CalPERS members receive SS. It was not the norm when I worked. I never had SS in my 40+ years of public employment. My entity brought it in in the early 90’s for new employees. Retirees who have SS as well as CalPERS, lose a calculated amount of SS, based on the federal Windfall Benefits Provision. And then, other factor regarding SS, CalPERS members like myself are subject to the Government Pension Offset, completely canceling, for me, the SS benefit that is for “most” spouses of SS beneficiares. Let’s don’t make it sound like CalPERS members have an advantage over the retirements of teachers, just because “most” of them have SS and the teachers don’t.

  3. Michael Genest Says:

    SeeSaw, it’s best not to rely on anecdotal information to make those kinds of assessments. Take a look at the study located at (titled, “California Public Sector Retirement Programs and Compensation”). It shows that, all things considered, teachers get a much lower total pension than CalPERS retirees. In fact, many CalPERS retirees get Social Security, but I don’t know whether it’s a majority since many “safety” employees do not. Of course, local employees (both CalPERS and independent) get even better pension deals than state CalPERS in most cases. The report documents these conclusions by examining the present value of the entire retirement plan (pensions, SS, health care) for a variety of types of workers under a variety of different plans. It also clearly shows what we all know intuitively, that public pensions, even STRS, are much better than even the better private sector pensions. The report doesn’t say that is bad or good, right or wrong. It just presents the numbers.

  4. SeeSaw Says:

    I get it that you are a professional advisor to the politicians and I am not. Sometimes, anecdotal information is the only thing that gets the truth out, instead of the silly stuff like, “all public sector pensioners are in the category of the rich and not the middle class.” Its time to start celebrating statistics coming from the Studies that say pensions sustain the economy and help create jobs. Its time to stop this, “Divide and Conquer”, mindset!.

  5. Tough Love Says:

    SeeSaw, Statements like THIS (below) that show how financially uneducated you are.

    ” Its time to start celebrating statistics coming from the Studies that say pensions sustain the economy and help create jobs.”

  6. SeeSaw Says:

    I am 77 years old TL–mortgage and debt free. If that isn’t financially educated, I don’t know what is. The statement that you attribute to me was made by me, yes, but it was made from facts I recall reading in a CalPERS article, which quoted statistics from a PEW Study. That study found that every dollar spent by a pensioner has a multiplier affect severeal times, and is effective in job creation.

    Stay up there in your little crow’s nest in NJ, and lets us take care of our own business in CA, TL. You might spend some time financially educating yourself about how pensions fortify our aging society.

  7. Tough Love Says:

    SeeSaw, A financially educated person would see how absurd your statement is………..

    Is the excess … at least 50% of all pension payments to Public Sector workers, of greater value (and contribute more to job creation) BECAUSE it is being spent (unjustly) by Public Sector workers instead of (more justly) having remained in the Taxpayers’ pockets to have been spent by them ?

  8. Captain Says:

    Thank you for this article Mr. Mendel: “How much CalSTRS debt due to mismanagement?”

    I’m guessing the number is significant and it’s past time this topic comes to light. While many defend the issues you raise, often justifying what CalSTRS has gotten away with by claiming CalPERS has done worse, it doesn’t solve the problem we face ragarding CalPERS Unfunded Pension liability nor does it address the issues regarding CalSTRS Unfunded liability. Ultimately what both of these organizations are doing is asking taxpayers to cover the cost of their own own mis-management and greed, to the absolute benefit of their members, while erronousely claiming it’s for the sake of public safety and “the children”.

    Mr. Mendel, I’m absolutely sick & tired of hearing of the BS from the unions, the onslaught of legal claims against the taxpayers from the unions regarding pension reform, and the barrage of lawsuits from unions that claim some supremacy clause justifies all their theft of tax dollars. For people that have been paying to attention to this issue, for years, it is obvious the unions have undue influence over our governor, the democrats working in Sacramento, the PERB Board, Senate Pro-Tem Darrel Stienberg, the Boards of both CalPERS & CalSTRS, the school boards that are busy promoting parcel taxes & school bonds while agreeing to Capitol Appreciation Bonds (CAB’s) that cost taxpayers 3-4 times normal rates – to satisfy the building trades need for work, city councils that approve contracts the cities can’t afford, and the PERB board that has never seen a union cause they won’t approve/endorse.

    And now even our Attorney General needs to be prodded into defending our governor’s already gutted pension reform plan – from being gutted again. Is it any wonder these pension managers/boards are as brazen as they appear? Or is it just easier for them to succumb to the demands of the unions knowing the stupid taxpayers are stuck paying the tab in the end?

    In closing, I find many of the 2000 pension enhancements as debt due to mismanagement. It appears that CalSTRS is really no different than CalPERS in the sense they both claimed excess as earnings as their own and have distributed them to their members, even though that money (excess earnings) never actually belonged to them.

    CalSTRS doesn’t have any legal right to COLA’s, so why is CalSTRS still paying the COLA’s? Why haven’t they discontinued the COLA’s and applied taxpayer funds that have been diverted from the pension plan to the plan that guarantees 85% percent retiree buyer protection plan? Why is CalSTRS paying longevity bonuses of up to 400 per month when the plan is severly underfunded and asking taxpayers for more money? Why is CalSTRS paying Medicare part A & B for members from the same funds that pay pensions?

    I think it’s only about 20% of local government entities that provide social security benefits & pensions. It seems the CTA likes to claim otherwise to soften the perception of their pensions (up to 2.4@63 plus $400 per month in longevity bonuses), and highest 12 months salary depending on years of service. From an article I read today (CalSTRS Minutes actually) it also appears that the majority of members do in fact receive retiree medical benefits.

  9. Captain Says:

    SeeSaw Says: “I am 77 years old TL–mortgage and debt free. If that isn’t financially educated, I don’t know what is. The statement that you attribute to me was made by me, yes, but it was made from facts I recall reading in a CalPERS article, which quoted statistics from a PEW Study. That study found that every dollar spent by a pensioner has a multiplier affect severeal times, and is effective in job creation.”

    Seesaw, The multiplier effect applies to anyone that spends a buck. In other words, if the taxpayer was able to spend one less buck paying toward bloated pensions, or even your pension, and spent that dollar on their own kids (or anything), the same effect applies. Just because you read it on CalPERS doesn’t mean CalPERS has exclusivity over the theoritical multiplier effect.

  10. SeeSaw Says:

    Well, yes, Captain–you can get the multiplier affect from a pensioner who has the dollar to spend from his/her pension, or you can get it from a non-pensioner who is spending a DSS benefit that you and I both provided, also. CalPERS is my bread and butter. I feel good, knowing that the pensions are a positive for society, in general. I still plan to go out and spend some pension dollars, and I know that it is hellping someone else down the line–because the PEW Study said so. CalPERS did not make it up.

  11. Tough Love Says:

    Seesaw said …”Well, yes, Captain–you can get the multiplier affect from a pensioner who has the dollar to spend from his/her pension, or you can get it from a non-pensioner who is spending a DSS benefit that you and I both provided, also. ”

    OR …. you could have gotten it from the run-of-the-mill Private Sector taxpayer spending an additional dollar that they would have had if didn’t have to pay that dollar in incremental taxes to support the unjust & unnecessaryly excessive Public Sector Pensions.

  12. SeeSaw Says:

    How silly, TL. Where do you think the private sector would be without the existence of the public sector. Some restaurants and other businesses in Sacramento failed during the years between 2008 and now, due to the global, financial world crisis and the state- worker furloughs. They got a lot of their business from the state workers–especially on Fridays. Think about it, TL. I am as entrenched in the private sector as I am in the public end of things. My spouse spent his entire working life as a carpenter and construction superintendent in the private sector–my children and their children are all in the private sector. Your, “Divide and Conquer”, stratedgy just isn’t going to bear you any fruit. Sorry.

  13. SeeSaw Says:

    OMG, Captain. I just read your post. You must have “lightening” spurting from your eyes, ears, nose, and mouth! Just don’t put out any manifestos, and you will be ok.

  14. Michael Genest Says:

    The real multiplier effect has to be looked at across generations. If pensions were fully covered by the contributions made while active plus the earnings on them, then you would have a situation where the pensioner creates a multiplier effect in the future but the taxpayer had, so to speak, a negative multiplier in the past. It is possible that one would be larger than the other but I know of no reason to think that would be the case.

    However, what you really have is some of the above and a whole bunch of the pension cost shifted onto future generations. That’s because the promised benefits are locked in, but the amounts contributed and earned are NOT sufficient to cover those pay outs. So, future taxpayers and/or public employees will “pay”, meaning that the multiplier in the future is negative. That’s not really an economic issue so much as it is a moral issue.

    As to the implication that those of us who want to scale back public employees benefits must think government is useless, that is simply wrong. I recognize that no private sector economy in history has ever functioned in the absence of government, at least not very efficiently. Government is essential to the economy and to civilization. I would go so far as to say it is our most essential institution. But, that does not mean it should always get bigger and always cost more. Sometimes, and now seems to be one of those times, we need to scale back and roll back government, both what it promises to do for us and what it costs to do even the things we all agree it must do.

  15. Tough Love Says:

    Quoting SeeSaw …”How silly, TL. Where do you think the private sector would be without the existence of the public sector. ”

    In financial heaven !

  16. SeeSaw Says:

    I refuse to accept blame for what you consider a, “moral”, issue. I and all of my past and present colleagues, simply worked hard and followed the rules. The pension reform bill passed by the legislature was a start, after the pension reform experts, who spent 8 months studying the proposed hybrid plan, decreed that if enacted, it would only make things worse, not better.

    There was a quote in the recent weekly report from my former City Manager, atttibuted to Herbert Hoover. It was in so many words, “Blessed are the young, for they will inherit our debt”. Where have we heard that before.

  17. spension Says:

    Well, without the public sector, the private sector would be Somalia. Anarchy. Chaos. Anyone like Tough Love arguing for total absence of regulations, public utilities, roads, electricity, police, fire, sanitation, hospitals, etc, is sadly mistaken.

    And anyone who focuses exclusively on union excess (which for sure exists) but ignores the excess influence the private sector has on government (at least $2 trillion welfare to Wall Street for the bailout including both TARP + Fed Reserve components, maybe as much as $24 trillion at the end of the day, according to Neil Barofsky, Special Inspector General for TARP) is unbalanced.

    No doubt the CalSTRS benefits increases in 2000 were a terrible idea, were misrepresented in cost, and a major source of CalSTRS pension underfunding. But it sure would be refreshing to see the what if plot, what if none of those increases had not been implemented. That would be nice for Stanford or Fix Pensions First or someone to work out.

    But I still believe the root problem is innumeracy on the part of politicians and lack of a strong backbone and knowledge among the various pension actuaries. No sane analyst would ever feel comfortable with a 100% funded pension plan.,. anyone investing in securities knows that volatility should utterly remove any comfort when the fund looks momentarily fully funded.

    Comfort should only set in at maybe 200% fully funded. Benefits should *never* be raised until that threshold is reached. Because a major market downturn can take a system from 200% fully funded to 100% fully funded in 2 or 3 years (think 1929-1933).

    That any comfort and ability to raise benefits existed at 100% funded proves the ignorance or weakness in all who made decisions on CalSTRS (and CalPERS and UCRP).

  18. Tough Love Says:

    Spension, Quoting…”Anyone like Tough Love arguing for total absence of regulations, public utilities, roads, electricity, police, fire, sanitation, hospitals, etc, is sadly mistaken.”

    There you go again, tell ME what I’m “arguing for”. Do you have a mental defect?

    #1, I didn’t say ANY of that, and

    #2. 95+% of essential services currently performed by Public Sector “employees”, could and should be outsourced where we aren’t subject to the absurd compensation (primarily via grossly excessive pensions) that our self-serving Elected Official routinely grant Public Sector “employees” in exchange for campaign contributions and election support.

  19. spension Says:

    TL, you certainly said:

    “Quoting SeeSaw …”How silly, TL. Where do you think the private sector would be without the existence of the public sector. ”

    In financial heaven !”

    How do triangulate `without the existence of the public sector’? Financial heaven can only mean.. you’d be dead from a mob breaking into your house, or, perhaps from the cholera in your water.

    Perhaps you could provide documentation that 95+% of essential services could be outsourced…

    Privatizing electric utility exchanges in California was a total disaster… remember Enron? Seems to me that is the prototype for all privatization efforts in the US… business just wants to get taxpayer dollars and deliver their version of graft and corruption, which is supported by guys like Tough Love. So you guys are the red team… the blue team is unions who also deliver a different version of graft and corruption.

    For example, in Defined Contribution pension plans, wall street merely wants high fees, at the level of $100’s of billions. Wall street graft is a prominent driving force toward DCs.

    Conversely, DB plans are inherently more economical, but have been abused due to innumerate politicians and union influence.

    As far as I can tell, Tough Love, you just want your friends to benefit from the corruption.

    Personally, I do believe in absolute truth and the sterilizing effect of openness and sunshine. Both private business and union lobbying need more and more openness to combat their influence.

  20. Tough Love Says:

    Spension, VERY simple (even for you). We can deal WITHOUT the Public Sector ..meaning it’s EMPLOYEES …. by Outsourcing the meaningful & necessary parts of what they do …. and NOT having to overcompensate them (via absurdly great pensions) …. which is currently a convenient mechanism for our elected representatives to raise campaign contributions (and get Public Sector Union foot-soldiers in their elections) via the approval of these absurd pensions.

  21. Tough Love Says:

    Spension, Which is a more skilled & responsible job, a NYC Subway system Token Booth Clerk or a NYC Bank Teller ?

    So why do the Token Booth Clerks make 2-3 times the Bank tellers in total compensation?

    Answer: Greedy Public Sector Unions and self-serving elected officials. Outsource the Token Booth Clerks, outlaw the Public Sector Unions and (oh, if we only could) prosecute the self-dealing elected officials.

  22. spension Says:

    And TL you really think the executives in AIG (which crashed due to graft and corruption) deserved the $10 million bonuses on the taxpayer dime? Sure could hire a lot of token takers or bank tellers for that…

    TL you never give examples of how the private sector is just as greedy and corrupt as the public sector. And don’t tell me the private sector expenses are earned or justified… they just hide their digging into the taxpayer more cleverly.

    Ever looked at all the laws that protect auto dealerships in the US? They add about $2,000/new car sale to the price… but no, you’d say, the private sector is pristine perfect competition, in your opinion.

  23. Michael Genest Says:

    Why must this conversation continue along these lines? Why can’t TL state clearly, what he certainly believes, that government is necessary and there are things only government can properly do? Why can’t spension and SeeSaw acknowledge, what they surely know, which is that all government is paid for by taxing the private sector and it’s perfectly reasonable for tax payers to have a say in how much they want to spend on government.

    The public pension issue is emotionally charged because (a) real people have been promised through their entire careers that they could rely on it and (b) it has gotten way out of control and needs to be reined in.

    Like everyone else, I support cops and firemen. But, that doesn’t mean I think we can afford to keep paying their total compensation at the current levels, especially when we correctly assess the value and costs of their benefit packages. I don’t have to say I hate government or think it is a useless burden on the private sector to make the point that I believe we have to pare back its scope, reach and costs from their current levels.

  24. Tough Love Says:

    Spension, No I do not..”think the executives in AIG (which crashed due to graft and corruption) deserved the $10 million bonuses on the taxpayer dime?” I’ve told you that before . Short memory ?

    Quoting …”…you never give examples of how the private sector is just as greedy and corrupt as the public sector.”

    When a Private Sector company is greedy, that greed is reflected in the cost of their products & services, and in most cases (but granted, not all) I can shop elsewhere where the greed element does not exist. When it come to the Public Sector with it’s overcompensation of ALL of it’s employees (via absurdly generous pensions & benefits), that excess is passed along in unnecessary taxes which I must pay … w/o choice. That’s the basis for my advocacy for Public Sector pension reform.

  25. Tough Love Says:

    Michael Genest , Well stated, but since you didn’t specifically say it, the paring-back (in the form of reduced pensions & benefits) must apply to CURRENT (not just new) Public Sector workers.

  26. Michael Genest Says:

    TL, you are correct in that a complete financial solution would require reductions on both current and future employees, and in some cases current retirees as well. However, the exact mix of what is legally possible is different at different levels of government. The federal government could, in theory, change anything for anybody. The states are more restricted due to the contract clause, which prohibits them from abrogating contracts, although there are rare and so far narrowly drawn exceptions to that prohibition. Local governments, on the other hand could face true bankruptcy (if the state of which they are a political subdivision allows that) and in the alternative can simply cease to exist entirely. So, I would say local government employees and retirees are the most at-risk.

    I can not see how the federal, state or local government’s unfunded liabilities and unfunded obligations (retiree health care, medicaid, medicare, social security) can ever be brought to sustainability given the political environment. Arithmetic, however, will ultimately win the argument. That’s too bad because if we acted harshly and firmly now we could avoid the worst-case scenarios.

  27. spension Says:

    Of course I believe taxpayers must have a say in how much they want to spend on government.

    Taxpayers vote regularly to do just that, and it has generally been that the pension adjustments that are now causing fiscal problems were all duly passed (sometimes unanimously) by the California legislature and signed by our Governor.

    I object when anyone claims *only* unions or public employees influence that process. First, taxpayers are free to form interest groups… ask Jarvis and Gann (or their ghosts). Second, private business does lots of influencing too… go try to buy a new car from anywhere but a dealership that benefits greatly from preferential treatment under California Sate law.

    Or go try to get more economical medical care.

    Only focusing on one part of the problem will never solve it. Very few interest groups lobby for fairness and accountability, and the regular person ends up most hurt by that process.

    While many people focus on the apparently unfunded obligations, few focus on really solving problems… like, why isn’t prison guard pay tied to improved recidivism rates? Why aren’t there tax benefits for working hard (not smoking, eating well) to stay healthy, instead of the penalty of paying for those who do not? Why does careful saving lose you money in the end (savings interest is taxed more highly than capital gains)? Why do people who earn below about $113,000 pay a much higher rate in Social Security taxes than those who make >$500,000? and on and on.

  28. Tough Love Says:

    Michael Gensert, Well thought out reply … Thank you.

    If you go back over my several years of commenting on Public Sector Pension issues, one theme will stand out, I do not look to enslave Public Sector workers nor deny them rightful compensation. Nor do I dictate what that compensation should be … other than it (meaning “Total Compensation” = cash pay plus annual benefits plus the annual value of increments to pensions & retiree healthcare subsidies) should be near equal to the Total Compensation of a similarly situated (in knowledge, skills, and work-associated risks) Private Sector worker.

    Right now (especially in States like CA. Ill. NJ. and a few others) that is not the case, with FAR greater Public Sector Total Compensation (not generally to a significant degree in the “cash pay” component, but) primarily via significantly greater Pensions …. the Taxpayer share of which is TYPICALLY 2-4 times (5-6 times for safety workers) greater in “value” at retirement than that of the comparable Private Sector workers retiring at the SAME age, with the SAME years of service, and the SAME cash pay. I say “value” because it is the composite of the richer formulas, the much earlier full retirement ages, the inclusion of post-retirement COLA increases, and the much more liberal definition of “pensionable compensation”

    While I understand the strong desire of current Public Sector workers to keep the rich pension formulas and provisions in place at the time they were hired (as well as any subsequent … often “retroactive” … enhancements thereto), doing so is financially unsustainable (without oppressive taxation), is not necessary to attract and retain a qualified workforce, and is unjust to Private Sector Taxpayers whose Public Sector pension contributions (and the investment earnings thereon) pay for 80-90% of the total cost of Public Sector pensions (YES, that’s true). In addition, maintaining the excessive pension promises in place at the date of hire (or at the date of “vesting” which is rarely more than 5 years later) grants Public Sector workers a MUCH better deal and better protections than those afforded Private Sector Pension Plan participants through ERISA…. under which the Plan Sponsor (generally the Corporate Employer) can, for FUTURE service only, reduce the pension accrual rate or freeze the Plan entirely. There is no justification for the many States, Cities, and Municipalities in financial distress to have less financial options available to them to MATERIALLY address this situation.

    Lastly, I have, generally out of frustration with the pace of reform and the many barriers to reform put in place by the greedy Unions, the politicians, and the Courts, called for outsourcing of Public Sector jobs. While I do feel many SHOULD BE outsourced, it’s clear that that is not appropriate for certain jobs (well beyond police services). A material benefit of outsourcing is it’s IMMEDIATE effect of stopping the digging of the financial hole we are in (via the granting of additional excessive future service pensions credits) even deeper by ending the “employment relationship” and with it any further growth of pensions and benefits. If VERY MATERIAL (50%) reductions to the DB pension accrual rate of CURRENT workers for FUTURE service cannot be put in place QUICKLY, then outsourcing is the appropriate alternative.

  29. SeeSaw Says:

    My spouse was from the private sector, so I suppose you would say that my spouse paid taxes, and I did not. That tune will not play anymore. The total cost of government is paid by all the citizens, private and public sectors, alike. Save all that crap about public employees only using money that they were given by the private sector. You paid for those services and once the moiney left your hands, it did not belong to you anymore. I have a condition of needing to eat three times a day, and I don’t have the choice of not eating. If you insist on blending the apples and oranges to make them all one, then spend some time airing your gripes at the corporations and businesses that can make that happen. We should be aiming upward, not downward when it comes to what it takes to afford workers a decent living.

  30. Tough Love Says:

    SeeSaw, Concentrate for a moment ….

    Corporations won’t be raising their contributions towards their workers’ pensions no matter how much those workers protest. That PRIVATE Sector compensation standard sets the baseline whereupon which Public Sector “Total Compensation” should be set. Which means Public Sector pensions need a 50+% reduction for Future Service of Current workers right now.

    As to those already retired … you’re further down the list for givebacks, but don’t get too comfortable as more than a few retirees will need to take cuts as well.

  31. SeeSaw Says:

    Who sez–TL?

  32. Michael Genest Says:


  33. Tough Love Says:

    Michael, That will fly WAY over her head.

  34. SeeSaw Says:

    Don’t be so condenscending TL. I wan’t born yesterday, and I am far more informed about my own CalPERS pension than you are. I know what the law protects–the only retirees who would have their pensions cut would be those that were found to have been fraudulently caluculated–some were, and CalPERS has been taking action on those.

  35. spension Says:

    Here are 21 private sector post-employment benefits of >$100 million a piece… I challenge anyone to find a single public sector retirement package that costly. Any you bet every company listed lobbies the government at least as hard as the unions do… never hear TL or others complain about all the trillions that go right from the taxpayers to guys like these 21…

    Click to access GMI_GoldenParachutes_012012.pdf

  36. Tough Love Says:

    Spension, What’s the connection for you enduring support of (the CLEARLY excessive) Public Sector pensions via the diversion that Private Sector Plan also have issues ?

  37. Tough Love Says:

    Spension, I should nave included this in my above comment ….

    Take a look at the commentary and chart on page 16 of this link (below). Is that not clear enough for you ?

    Click to access Full_Report.pdf

  38. Captain Says:

    “Teachers do not receive Social Security in addition to their pensions, unlike most CalPERS members. And most teachers, depending on the school district, do not receive retiree health care.”

    I think the number of Calpers employees that receive social security and pension benefits is less than 25%. I base that on numbers provided from John Bartel, an actuary who consults with many CA cities, that puts the number of miscellaneous plans that provide both pensions and social security benefits at below 50% for miscellaneous employees, and almost non-existent for safety employees. I’ve also seen a salary survey (20 bay area cities for miscellaneous employees) where only three of the cities provided both benefits (15%).

    The claim that teachers are somehow short changed, because they don’t also receive social security, is just false. The claim to the contrary is perpetuated by the CTA.

  39. Captain Says:

    What is most concerning to me, which seems to have been lost during this discussion, is the cost to districts (or the states commitment to the K-14 education budget) may well increase by over 13% of payroll, or even more, to help CalSTRS. In the SF bay area I can assure you that our school districts are ae already, and have been for sometime, asking/demanding for additional funding. School bonds, including CAB’s, have been approved for the most part. Parcel Taxes, which have more to do with day-to-day operations seem to appear every election cycle. The dollar amount seems to have little to do with any measurable need other than the fact the polling predicted x dollars would be approved. In the mean time we have a district Director of Finance claiming there are no unfunded liabilities because “we pay the full amount to CalSTRS every year.” WHAT?

    I get the feeling that when the new CalSTRS contribution rates finally take hold we will find many a school district claiming poverty only because they never understood the severity of the problem, ignored the problem thinking it would go away, or assumed when push-came-to- shove the taxpayers would dig even deeper because it’s “for the children”.

    Our local school districts are already claiming poverty. I hate to see the inevitable chaos about to wash over an already struggling CA school system in just a few short years, like a tsunami. My local district has done NOTHING to prepare, nor are they even acknowledging a problem exists. At present time they’re busy trying to determine just how they will spend the few extra dollars expected to roll in from prop 30 funding – and it’s all about what they can provide this year.

    Providing more teacher jobs while reducing class size is a noble cause. Doing so when it probably can’t be sustained beyond next year is just piling on to the current problems.

    It just doesn’t make sense.

  40. Tough Love Says:

    Quoting Captain …” In the mean time we have a district Director of Finance claiming there are no unfunded liabilities because “we pay the full amount to CalSTRS every year.”

    It’s incredulous that the Unions & politicians have been so successful in hoodwinking the Taxpayers that these very generous Public Sector pensions are necessary to attract the “Best and Brightest”. Is THIS GUY an example ?

  41. Michael Genest Says:

    It may be incredible but it’s happening with Obama. 60% of Californians think he’s doing a good job. The other 40%, of which I am a member, think he’s doing a GREAT Snowjob.

  42. Tough Love Says:

    Obaha’s over-the-top support of Public Sector Unions is done to the detriment of Private Sector Taxpayers. Such improper support of your voter base is very disheartening.

  43. spension Says:

    Obama’s over the top support of $trillion bailouts for wall street has walloped all honest people in this country. Reagan and George HW Bush prosecuted the fraudsters, and put about 1,000 in jail.

    Private industry in this country expects to break the law and never go to jail for pay a single penalty. Thank heavens for Elizabeth Warren. Meanwhile, private industry sets up >$100 million retirements funded with their bailouts….

    Click to access GMI_GoldenParachutes_012012.pdf

    I consistently and repeatedly agree that public sector pensions in California were made too generous by innumerate politicians and poorly educated actuarial staff.

    But page 16 of fix pensions first doesn’t indicate a single public pension that costs as much as the >$100 million costs per pension for some in the private sector.

    And it is the bottom of page 24 that pertains to this discussion, since we’re talking about CalSTRS… that is page 24 of:

    Click to access Full_Report.pdf

    Teachers are not greatly above the private sector in post retirement benefits…

  44. Captain Says:

    Spension, instead of trying to justify everything wrong with public sector pensions by throwing out red-herrings regarding private sector doesn’t solve either problem. I agree with you that both unions and corporations are both good and bad and that CalPERS is corrupt. What I don’t like about your argument is that you only know how to deflect critisism.

    Your efforts to diminish one problem by pointing to another problem is getting tiresome. Why not focus on this: “How much CalSTRS debt is due to mismanagement?” I think the number is quite significant

    To be honest, regarding your Red-Herring, I don’t really care if X,Y, or Z corporation goes bankrupt because their mis-management will have little impact on myself. What I do care about is the insolvency, or at least the financial stress, that is appearing in most budgets in California. That has significantly more impact on myself than any corporation who’s products I may or may not support.

    The financial duress of our cities is leading to ever increasing demands for increased fees and higher taxes, more parcel taxes and school bonds to fund jobs for the building trades, and special districts (especially water/sewer districts) asking for more & more. When does it stop if pension costs are still rising? My county has sold POB’s to the point they have little leverage while at the same time GASBy rules are changing and MOODY’s will be downgrading our debt.

    Spension, you can only stack a house of cards so high and I think we’re at the top floor. It’s doubtful that even a recovering economy can bail us out of the current mess. But, this forum is about pensions for the most part. If you have a link to a forum discussing the ill’s of wall street I would be happy to contribute.

  45. spension Says:

    I’ve many times said the solution is sovereign default of California, Captain. That is a solution that will work. Then all creditors of the State of California… pensioners, bond-holders, contractors owed payment… can all take a fair haircut together.

    I never try to `justify everything wrong with public sector pensions’… that is a gross inaccuracy. I repeatedly say public sector pensions were raised to high (given the contributions) in California.

    DB pensions are mathematically more efficient than DC pensions. In many public entities in the US, the California problem has been avoided. Ignoring those facts is bald ignorance.

    I’ve been quite clear in my post above,
    “No doubt the CalSTRS benefits increases in 2000 were a terrible idea, were misrepresented in cost, and a major source of CalSTRS pension underfunding. But it sure would be refreshing to see the what if plot, what if none of those increases had not been implemented. That would be nice for Stanford or Fix Pensions First or someone to work out.”

    Ranting about Moody’s is one of your hoots, Captain. Moody’s was bought off in the 2000’s by all fraudsters on Wall Street to rate their bonds way too high. I don’t care if Moody’s rates California debt Z–… Moody’s is a fraud-plagued organization that enabled $trillions of taxpayer dollars to bail out the private sector.

    “I don’t really care if X,Y, or Z corporation goes bankrupt because their mis-management will have little impact on myself.”

    But that is not how it works. Lobbyists for the X,Y, & Z corporation insure that their corporations get taxpayer bailouts so bankruptcy never occurs, and then use the taxpayer money so diverted to fund their >$100 million dollar pensions.

    Click to access GMI_GoldenParachutes_012012.pdf

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