Volume 16 Issue 3
By Dina Martin and Jennifer Baker
With cries for pension reform coming from all corners, it’s no surprise the governor has gotten into the act and unveiled a 12-point plan for teachers and public employees that will likely — in some form — be headed to the November 2012 ballot for voters to decide.
Introduced in late October, the governor’s plan is not without controversy. Among the 12 points are proposals to:
- Implement a “hybrid plan” that combines the current employer-sponsored “defined-benefit” pension with a risky 401(k)-style “defined-contribution” plan.
- Increase the retirement age of teachers and public employees from 60 to 67.
- Change the one-year highest compensation to the highest average annual compensation over a three-year period. (See chart.)
But it’s important to remember that this is only a starting point. The proposal will go through the legislative process with multiple public hearings and opportunities for input and changes. CTA will make sure the Legislature and the governor have full knowledge of teachers’ concerns.
“We share in the governor’s vision of having a strong retirement system for educators, but at the same time, we have concerns about some of these proposals and what the impact will be on the retirement benefits of educators and public education,” says CTA President Dean E. Vogel. “That’s why CTA is taking the lead on this issue. We are meeting with key legislators and are working closely with other labor and education stakeholders. We want to make sure this doesn’t limit the state’s ability to recruit teachers.”
Of particular concern is the governor’s proposal to implement a hybrid plan, which would put teachers’ historically stable defined-benefit plan at risk and make it susceptible to the whims of Wall Street.
“The governor’s proposal would force teachers to become financial experts by having to manage their own investments through 401(k)-style plans,” says Maggie Ellis, chair of CTA’s Retirement Committee on State Council. “That may be fun for some, but most educators want to focus on teaching, and not on playing the stock market.”
Besides, Ellis notes, the State Teachers’ Retirement System (CalSTRS) already offers a supplementary hybrid plan. For example, in order to prevent pension spiking, CalSTRS requires that the pay a high school history teacher may earn from extra coaching duties be placed into a separate supplemental defined-benefit plan that is then managed by CalSTRS.
Converting the defined-benefit plan into a hybrid is not CTA’s only concern. After working an average of 25 years in the profession, many educators are not thrilled with the aspect of working an additional seven years before they can receive their full retirement benefits.
“Teaching is a difficult and demanding job. Although we have members who work more than 40 years, many of our members look forward to being able to retire at 60, after an entire career in public service — and they deserve to,” Vogel says. “This is an area where we will disagree with the governor, and will work to change.”
Another proposal in the governor’s plan requiring that retirement be based on the highest three years of compensation rather than the current highest year is also not necessary for CalSTRS since it already exists for educators who work less than 25 years.
“This has been shown to be an effective tool for incentivizing educators to stay in the classroom longer, something that is desperately needed given the state’s teacher shortage,” Vogel says.
The second-largest public pension fund in the country, CalSTRS has been providing retirement security to teachers since its inception in 1913. Still, the economic downturn affecting the rest of the country has also had an impact on the retirement plan, resulting in a long-term funding shortfall.
“What is needed now is a plan of action to address that long-term funding shortfall, and that’s something only the Legislature and the governor have the authority to do. By bringing them together with stakeholders, we can come up with an appropriate adjustment without making such drastic changes to the entire system,” Vogel says. “We’re confident that can happen.”