Monday, May 30, 2005

California State Teachers Retirement System

Here in California, teachers don't pay into Social Security. No, here we pay a higher percentage of our pay into the State Teachers Retirement System, "stirs" for short, and are guaranteed a certain retirement at some distant point in the future.

Part of the reason for last Wednesday's rally, the one I wrote so much about earlier this week (scroll through the May 2005 archives if you're interested), is that Governor Schwarzenegger wants to change from a "guaranteed benefit" type retirement system, which he claims is bankrupting the state, to a "defined contribution", 401k-style pension system. Leading public unions in the state are of course balking at such blasphemy. I admit that the guaranteed retirement I'm currently promised is a pretty good deal for me personally, and I'd hate to lose it. However, I don't have a solution--and neither does the CTA--for what California should do to fund these future retirements as promised. I should have a pretty good retirement, but at what cost to my fellow Californians?

Some would say that such a retirement is the perk for years of working for comparatively low pay, and there may be some merit to that argument. Others would say that the state promised me such a retirement and should keep to its promises. I agree with that argument completely. Interestingly enough, so does Governor Schwarzenegger--his proposal would only affect workers hired after next year, putting them into a 401k-style retirement while keeping the state's promise to us older workers. Seems reasonable to me.

Then along comes an article in today's major Sacramento newspaper, certainly not a mouthpiece for any Republican administration. Here are the first two paragraphs of the article:

The California State Teachers' Retirement System learned in a new report that the gap is widening between what the pension fund must pay future retirees and what assets the fund will have.

The day of reckoning is about 20 years away, but the fund's trustees must either begin feathering the nest now or cut back on benefits for new hires. Current teachers won't see their pension benefits reduced, because the payments are guaranteed by law.

So what does the CTA say California should do about this? It says what any socialist organization says--raise taxes on the rich! And when will I currently be able to retire? In 22 years. Here's more:

The fund's projected long-term shortfall has increased to $24.2 billion, up $1.05 billion from the last year's actuarial report by the consulting firm Milliman.

California has a population of 30-some million, making this shortfall equal to $750 for every man, woman, and child in the state. Staggers the mind, doesn't it? Expect the CTA to fight this proposal as well:

But CalSTRS officials and experts aren't counting on Wall Street to pull underfunded plans out of the financial hole. Instead, consultants suggest raising contribution rates.

By law, the Legislature must approve any changes to CalSTRS contributions made by teachers, school districts and the state.

Currently, teachers contribute 8 percent of their annual payroll, while school districts put in 8.25 percent and the state adds 2 percent.

To bridge CalSTRS' gap, consultants estimate the combined contribution rate must grow by as much as 4.56 percentage points. This figure has increased along with the shortfall.

I don't mind CTA's fighting such a proposal. I just wish they'd come up with a better resolution than the typically socialist wealth-transfer notion of "tax the rich".

And now on to my personal situation.

I didn't start teaching until I was 32 years old. I paid into Social Security from the time I was 18 until I became a teacher, and with over 40 quarters of payments contributed I've earned a Social Security check when I retire. However, now that I have a state pension system, Social Security will only pay me a small fraction of what I've theoretically "earned". They don't want any double-dippers, you see.

But why shouldn't I be able to double dip? I worked and paid into that system for many years. If I had become a teacher right out of college, I'd have been able to pay into STRS for 30 years and retire with a healthy check at age 52 or 53. But since I didn't start teaching until I was 32, I won't be able to get such a retirement until age 62--and then I'll get the same retirement pay as the 52-yr-olds, because we both put in 30 years as teachers. Yes, Social Security will add a small amount, but not near what it would be if, instead of becoming a teacher at age 32, I had just stopped working altogether.

There's an inequity here. Overturning the "Windfall Elimination Provision" law, as it's called, is supposedly a goal of the NEA every year. However, no one really expects this law to change, at least not with a Republican President and Congress. So while I'll agree with the NEA on this particular issue, I fault them for their inability to change the law because all their eggs are in the Democrat basket.

Update 5/30 5:01 pm: To read about some nifty ideas for social security from a man who worked in the Social Security office in 1940, click here.

Update #2, 12/14/08: Too bad the link above isn't active anymore. If anyone knows how to find that original story based only on what is now in inactive URL, I'd love to learn.

Update #3, 5/26/09: Ah, here it is!


Linda Fox said...

I'm in that exact situation, as is my husband. Worse, current teachers in Ohio can retire, collect their pension, and turn right around and teach for another few years, qualifying for ANOTHER PENSION!

How come THAT isn't considered double-dipping?

Darren said...

Not a good enough reason for me to move to Ohio, but I'll file it away....

Anonymous said...

I just found another way some members of STRS are increasing their pensions. I know of a school district that has recently added the costs of their benefits into the salary schedule. For example, a teacher making $35,000 + also receiving $ 15,000 in benefits can add the cost of the benefits for that their salary is now $ 50,000 for the sake of retirement calculations. Is your District doing this? Do you know of any negatives?

Darren said...

I have no knowledge of this at all!

Anonymous said...

I am an administrator in California and I need to let you know that your computations regarding you as a 62 year old after 30 years of teaching equaling the retirement pay of you as a 52 year old assuming 30 years of teaching. Currently a 52 year old with 30 years of teaching takes a major early retirment penalty (1.2% factor)with the addition of a .2% bonus bringing the total factor to 1.4% for each year of teaching. This would equal a retirement of about 42 percent of your highest single year of earnings. The 62 year old example after 30 years would have a retirement based on 2.4% for each year of teaching equaling a 72% retirement on the highest year of earnings. Big difference even if you take into account the fact of recieving benefits 8 years early.