Volume 46 Number 3
Setting the record straight
As the fiscal crisis deepens in California and throughout the nation, educators and other public employees have increasingly been scapegoated as being a large part of the problem – specifically because they have earned pensions as part of their compensation package.
It’s time to set the record straight. The economic collapse is the result of many factors, including the subprime mortgage crisis, Wall Street banking scandals, the deregulation of financial institutions, high corporate and consumer debt levels, a high unemployment level and unbridled greed. It is an epic global crisis and it affects all of us. It was not caused by middle-income teachers who worked hard and contributed part of their pay throughout the years so they could live modestly during their retirement. It was caused largely by Wall Street bankers, who instead of going to prison, continue to receive outrageous pay raises and $100 million bonuses.
In California, most community college faculty and K-12 educators belong to the California State Teachers Retirement System (CalSTRS), the second largest public retirement fund in the country. Over the life of their careers, CalSTRS members contribute 8 percent of their monthly pay to help finance their retirement. Employers kick in another 8.25 percent of monthly pay, the state contributes a little more than 2 percent, and the returns garnered by CalSTRS investments do the rest.
No Social Security
Unlike most workers, educators in California do not earn any Social Security benefits, and those who previously worked in the private sector often see their Social Security benefits reduced or eliminated from federal Social Security offsets, despite the fact that they paid into the Social Security system.
Teachers are not the only ones to gain from having a secure retirement. California gains as well. Here’s why: Retiree spending from these benefits creates more than $34.5 billion in total economic output for the state each year.
Defined benefit payments to retired educators have been a powerful economic engine in California’s 58 counties and have a trickle-down effect on the local, state and national economies as well.
Without question, CalSTRS like pension funds worldwide, has taken a hit due to the global recession, but it is not bankrupt nor will it bankrupt the state. CalSTRS has historically been a sound system and until the market collapse had consistently met or exceeded its assumed rate of return. Even under current economic conditions, CalSTRS is 78 percent funded and has sufficient assets and projected contributions to pay benefits until 2044.
Pensions under attack
Why the attack on public employee pensions? Who really benefits by their elimination? Again, the answer is Wall Street. The elimination of public pension systems would be a huge boon for financial planners and companies that stand to invest that money while making profit off of the fees they can charge each individual. But Wall Street will also gain in an even bigger way. Institutional investors, like CalSTRS, have been the biggest champions of executive compensation reform and regulatory reform of the financial industry. Without institutional investors no one would be keeping watch over bad corporate behavior, and there is no guarantee that the money would go back into the state and national economies as it does now.
Some critics claim that CalSTRS is heading toward insolvency, and therefore, should be eliminated. Although it is true that CalSTRS has a $40 billion shortfall, this does not have to be paid overnight. Like a mortgage, this is an amount that will need to be closed over a 30-year period. The shortfall has to be addressed, however, and teachers are committed to partnering with CalSTRS in finding a long-term funding solution, as they have since the system’s inception in 1913.
Instead of attacking teachers over their modest retirement benefits, we should be having discussions about how to create better retirement options for everyone. Eliminating the retirement options for teachers and public employees will not add to anyone’s retirement security.
California Teachers Association
California State Teachers’ Retirement System
California Public Employees’ Retirement System
CalSTRS Pension News & Information
National Education Association
National Institute on Retirement Security