Wednesday, December 13, 2006

Teacher Retirement

One of the things for which I'm supposed to flop down and worship at the union altar is the vaunted State Teachers Retirement System, or Cal-STRS. I don't pay social security taxes, but I pay a higher percentage of my money into STRS. And STRS is a privately managed program that will provide me with a comfortable retirement on the French Riviera or something.

Except that STRS is finally admitting that there's a "shortfall".

CalSTRS is running out of time. In 10-12 years when the post 1970 era of teachers and administrators are fully retired the system goes belly up. The promises made to these folks will be empty promises, with no money to back up the contracted retirement agreements. It will be flat broke. In fact, they say the problem will last five to six decades, not years, decades.

I had planned on retiring in just over 20 years. Oh well.

This link, from which the above quote comes, includes other commentary as well as the text of an article from the major Sacramento newspaper. Maybe we'll need a tax increase to fund these obligations! Or maybe the state will require teachers to pay an even higher percentage into STRS than we already do. Which proposal do you think the STRS board is trying to sell to the legislature and governor? (Hint: it's not the first one.)

The teachers’ contribution rate would rise to 8.5 percent from 8 percent. Educators would see their payments increase an average $350 a year. As a trade-off, a 2 percent annual cost-of-living increase would be guaranteed by law.

If districts were required to give teachers the entire 2%, there would be no incentive ever to give a higher raise, ever, especially given that

School districts would see the current 8.25 percent rate increase by 0.5 percent a year until it reaches a cap at 13 percent. However, officials said employers could likely meet their obligation with an 11.9 percent rate.

The state rate, now at 2 percent, would increase by 0.5 percent annually to a maximum of 3.25 percent.

I'd say that this is a goat-screw.


Foobarista said...

How does this work? Social Security is 15.7%, half of which is the nominal "employer share", and SS is itself in trouble.

Is there an "employer share" in Cal-STRS?

Darren said...

Yes. As you can see if you piece together all the parts I quoted, here's how STRS breaks down:

Employee: 8%
District: 8.25%
State: 2%

What STRS is proposing:

Employee: 8.5%
District: 13%
State: 3.25%

You can see that district costs would raise so much that teachers would never again get a pay raise.

Foobarista said...

Yup - it's a de facto, if not "de paycheck" 6% pay increase. And has the added bonus that the employee's "after tax" paycheck drops by 0.5%.

This sort of chicanery is why I think hidden payroll taxes and set-asides should be abolished, for the sake of full democratic disclosure. If teachers saw that 24.75% of their "actual" wage was going into this puppy, they'd doubtless make a stink about it.

Who knows? Maybe they may even look more kindly on 401Ks and having some of that $$$ as an employer match...

Anonymous said...

Tell me again why I entered this profession two years ago.

Anonymous said...

Ever look at the benefit package at Wal-Mart?

Darren said...

Anonymous: no, I haven't. I don't work there so it doesn't apply to me at all.

Miller's Time: I assume you entered this profession for the same reason all the rest of us did--you're too dumb to get a job in the real world, and you only wanted to work 6 hrs a day and get all that time off in the summer =)

Anonymous said...

Are you able to specify how your money is invested?

Anonymous said...

And you can't forget all the crap you said about inspiring kids...

Darren said...

The STRS Board makes all investment decisions. After all, Big Government knows best.

Anonymous said...

"The STRS Board makes all investment decisions. After all, Big Government knows best."

And there's the problem -- government. The Indiana state employees retirement fund, PERF, was run almost bankrupt by Bayh when he was governor. That's how he ran the state in the black: he raided the retirement fund.