California Teacher Pensions: Are We Really Breaking the State?

This guest post comes to us from Lynne Formigli, a middle school science teacher from the San Francisco Bay Area, and an occasional contributor to InterACT.  Lynne is also an active leader in the California Teachers Association.  Her post is a modified version of a letter she wrote to teachers, and in the brief time since she wrote it, the California State Teachers Retirement System (CalSTRS) received a noteworthy recognition: Institutional Investment Magazine named CalSTRS the Large Public Fund Manager of the Year.  The announcement at BusinessWire.com states that “The CalSTRS Investment Office has gained global recognition for its depth, innovation and quality.”

Since InterACT usually focuses more on education policies relating to teaching and learning, I asked Lynne to make the connection between pensions and teaching. (DC)

What do teacher pensions have to do with student learning?  They provide an incentive to retain good teachers in the classroom, which directly benefits our students.  We need teachers willing to make teaching their profession, not just something to build their resumes for a year or two before they go on to make real money elsewhere.  Too many teachers don’t last past 5-7 years.  We want teachers to consider a career in the classroom so they will continue to learn and grow.   A good retirement system we can count on helps with this.  I am not the same teacher I was 5-10 years ago.  Every year my experiences in the classroom change me and provide opportunities for growth.  Experienced teachers are able to serve as mentors for new teachers and to provide the particular perspective only time allows, an institutional knowledge which helps a staff keep from reinventing the wheel.  The stability which results is especially important in low income schools where uncertainty is too often the norm for our students.

Are California teacher pensions out of control? (photo: David B. Cohen)

The average monthly pension of a CalSTRS retiree is $3,300 a month.  That’s after having worked for an average of 27 years, and after age 65, and most don’t get any health care coverage through their district.  After all the media hype about extravagant public employee pensions, teachers may be disappointed to hear there is no six-figure pension in their future.  Less than 2% of CalSTRS retirees receive over $100,000 a year, and almost all are management (think superintendents).   Based on recent media hype and distortions, you may be surprised to hear extravagant teacher retirements caused neither the the recession nor the current state deficit.

If our pensions are not the real reason the state is in dire fiscal straits, why are they being attacked?  CalSTRS and CalPERS (the public employee retirement system) have a significant amount of money invested in the market.  The boards who manage this money for us use their leverage to reign in some of the most egregious excesses of Wall Street – not necessarily out of a sense of moral obligation, but because these types of excesses are bad for our investments.  Public employee pension systems are a force which reigns in the misdeeds of corporate abuse because pension systems are not interested in short term profits, but long term, sustainable dividends.  Those who are interested solely in short term profits are working to remove this balancing factor by attacking the very concept of a defined benefit as unsustainable.

The Little Hoover commission has recently released an extremely biased report which is creating wide-spread misconceptions about public employee pension systems.  Rather than a critical evaluation of what is and what is not working in the current systems, they started with the premise that defined benefit systems are unsustainable, and then lumped the very different systems of CalSTRS, CalPERS, the county retirement systems, and the University of California retirement all together.  Each of these systems has very different demographics of their members, and each has different strengths and weaknesses.  Many of the abuses which have been highlighted are not even possible for teachers in the CalSTRS system.  The California Teachers Association has released a letter in response detailing the report’s inaccuracies.  Unfortunately, many of our legislators have no experience in this area and are relying on the Little Hoover report for their information.  This leads to our elected representatives acting on incorrect information.

We will need pension reform, not because greedy teachers are gaming the system, getting cushy payouts (remember, $3,300/month average) or because defined benefits don’t work, but because the dot-com bust and more recent Wall Street economic crisis have devastated the value of all investments.  This is the real reason CalSTRS currently faces a $56 billion unfunded liability.  Even the skills of the CalSTRS investors can’t get a high enough return to solve this.  We will need to address increases in pension contributions to fix this, but we don’t need to panic.  Public employee pensions did not create the current state budget deficit.  In fact, they have contributed to over $3 billion in extra revenue over the last 10 years when the state lowered its contribution from 4.6% to 2%.  Teachers pay 8% of our salaries into the system, districts contribute 8.25%.  It’s our money, it’s a good system.  Don’t believe the lies designed to take it away from us.