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The Facts about California Teacher Retirement
From California Retired Teachers Association
The Governor has withdrawn his proposal to end defined-benefit retirement plans for California teachers due to what he called drafting flaws that could eliminate death and disability benefits for police and firefighters. However, he indicated he may bring the proposal back for the June, 2006 election if he cannot reach a compromise with the Legislature on public pensions.
The California Retired Teachers Association opposes closing the current retirement system to new members. The issue is complex but the facts are clear. Elimination of defined benefit plans could be a costly mistake for California and harmful to public education in the state. Consider:
State costs for teacher pensions have declined over the past six years, not increased.
In 1998 and 2000 surplus investment revenue allowed the California State Teachers’ Retirement System (CalSTRS) to increase teachers’ pensions for the first time in more 20 years. Before 1998, the state paid 4.3 percent of teacher payroll into the retirement system. In 1998, that amount was reduced to 3.102 percent and further reduced in 2000 to 2.107 percent. Through fiscal year 2004-2005, those reductions have saved the state $2.7 billion in pension contributions.
(Source: CalSTRS; Analysis of Budget Proposal on Contributions to CalSTRS, February 3, 2005)
Closing the current retirement system to new members will increase, not reduce, state costs.
The actuarial valuation of the Teachers’ Retirement Fund based on assets as of June 30, 2003, showed that new members will contribute more than they necessary to finance the pensions they will receive at retirement age. However, the overall pension system has a $23.1 billion deficit. The state is legally responsible to pay all benefits currently in place. If the system is closed to new members, the potential costs to the state will be higher.
(Source: CalSTRS Actuarial Valuation; Milliman Consultants and Actuaries, June 22, 2004)
Teacher pensions are not lavish—even with long careers, most teachers do not receive adequate retirement incomes.
Even with substantial improvements in teacher pensions in 1998 and 2000, the benefits provided still fall short of providing financial security in retirement for most career educators. An analysis of income replacement ratios found that a teacher needs to work at least 30 years and receive employer provided health care insurance in retirement in order to be financially secure. Only about 40 percent of teachers work that long and even fewer receive health care coverage.
(Source: CalSTRS: Adequacy of CalSTRS Benefits, November 4, 2004)
Most teachers are subject to penalties that severely reduce and often eliminate any income from Social Security, making their CalSTRS pension much more important for financial security in retirement.
The CalSTRS pension system is not integrated with Social Security.CalSTRS members pay 8 percent of their salary toward their retirement benefit, higher than the 6.2 percent contribution rate for workers covered by Social Security. In the late 1970s and early 1980s two penalties were imposed in Social Security to reduce benefits to public employees. The Windfall Elimination Provision reduces the income a teacher would receive from their own employment covered by Social Security by $3,762 per year. The Government Pension Offset reduces a teacher’s spousal and survivor’s benefit by two-thirds the amount of their teacher’s pension—usually eliminating any such benefit. Because of these losses in income they would have received if they had not been a teacher, CalSTRS retirees are more financially dependent on their teacher’s pension.
(Source: Social Security Administration)
California faces major shortages of teachers. Dismantling the current retirement system for new hires will further discourage qualified individuals from pursuing a career in education.
In the last two years, nearly 25,000 public school teachers in California retired. About a third of the state’s teachers are now over 50 and will be eligible to retire in the next decade. By 2014, the state will have to replace 100,000 qualified teachers due to retirements alone. Many highly qualified individuals who wish to teach are willing to work long hours for lower pay than they might otherwise receive in the private sector. But the loss of a certain retirement benefit in exchange for an unknown pension and reduced Social Security benefits will certainly discourage many from entering the profession.
(Sources: CalSTRS: Population Information As Of June 30, 2004, published November 23, 2004
The Center for the Future of Teaching and Learning: California’s Teaching Force 2004: Key Issues and Trends)
In recent years, Californians have demonstrated their strong support of public education in the state by approving measures to guarantee school funding. Everyone recognizes that a good education starts with a good teacher.
Teachers today are highly trained professionals and need to be treated as such. If we are to apply the “business sense” of the private sector, it’s important to note that eighty-three percent of Fortune 100 firms have defined benefit pension plans. These guaranteed pension plans are used to attract and retain the best personnel. That’s exactly what we need for California’s teachers—and for the success of education in our state.
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