Pension backlash towards teacher retirements the just reward of lies and financial abuse

THC came across this opinion piece by Donna Clark in the Times-Standard:

Pension backlash puts pinch on retirement, schools

Basically, Ms. Clark’s piece says that the retirement benefits for teachers in California are not enough, and she wants the public’s help in lobbying for better benefits. (We also happen to think that Ms. Clark is herself a teacher or at least involved with the education industry, based on Facebook, HSU and TransparentCalifornia searchers, but we cannot 100% guarantee that. Which is why we haven’t linked the relevant information.)

Ms. Clark also seems to be saying that the backlash against pensions and the insistence on reform is hurting schools – when, actually, pension reform is likely in the top three things that would be of most benefit to our schools.

We’ve got a lot to say on this subject, but we’ll refrain and instead rely heavily on the words of Andrew Briggs, who is an expert on retirement policy and public sector pay. He’s also, like, way eloquent and stuff, too.

Our favorite part is how Briggs highlights that the f***ers at CalSTRS (teacher’s union) are totally frickin’ lying about the reality of teachers pensions in order to pull at the public’s heart strings. But here are some telling quotes from Mr. Briggs:

Here’s a link to a piece by Briggs that we think does an excellent job refuting the idea that the retirement benefits of teachers are not generous enough (THC emphasis added):

“California Teacher Retirement Benefits Are Hardly Modest–But CalSTRS Doesn’t Want You To Know That

The average full-career California teacher receives a pension benefit equal to 105% of their final earnings. CalSTRS CEO says the plan isn’t generous enough.

The Chief Executive Officer of the California State Teacher Retirement System (CalSTRS) believes the state’s public school teacher pension plan is too stingy. As Ed Ring of the California Policy Center points out, in December 2014 CEO Jack Ehnes wrote: “The median CalSTRS pension replaced less than 60% of final salary for the members who retired last year. CalSTRS recommends income replacement of 80% to 90% to maintain a similar lifestyle in retirement.” But Ehnes’ statements are doubly misleading: he both overstates what counts as an adequate retirement income and undercounts the benefits CalSTRS provides.

For a start, an 80 to 90% recommended “replacement rate” of pre-retirement earnings is higher than most financial planners recommend. For instance, the Social Security Administration states that “Most financial advisors say you’ll need about 70% of your pre-retirement earnings to comfortably maintain your pre-retirement standard of living.” Retirees don’t have work-related costs such as commuting; they have often paid off their mortgages and stopped saving for retirement. Their children, who the federal government estimates cost nearly a quarter million dollars each to raise through high school graduation, have usually left home. For these reasons, academic research has found that a replacement rate of 60% of pre-retirement earnings is often perfectly adequate for a retiree to maintain their standard of living. CalSTRS is raising the bar on what counts as a decent retirement income to make the plan seem less generous.

Moreover, Ehnes’ figures that compare CalSTRS retirement benefits to pre-retirement earnings are misleading, for a very simple reason: Ehnes’ figures represent individuals who only worked a partial career under CalSTRS.

In 2013-2014, the average new CalSTRS beneficiary retired at age 62.7 after 23.8 years of service. In other words, the benefit figures Ehnes cites were referencing a person who, on average, didn’t start working under CalSTRS until age 39. Should we expect CalSTRS to pay a full benefit after what may be, for many Americans these days, barely more than half a full working career?

For a true full-career employee, CalSTRS benefits are plenty generous. According to CalSTRS data, employees who worked a full career – from age 23 to age 65 – received an average annual benefit of $110,364, equal to 105% of the employee’s final salary. Almost any financial planner would call this an excessively high replacement rate, meaning that a rational employee would prefer to receive more of their compensation as salary during their working years and less in the form of a retirement package.

If so, why does this happen? Economists Edward Glaeser of Harvard and Giacomo Ponzetto of the Center for International Economic Research in Barcelona call public employee defined benefit pension plans “shrouded,” meaning that “public-sector workers better understand their value than ordinary taxpayers.” Since higher public sector salaries would meet resistance from voters, public employee unions instead push for a compensation package that is heavy on hard-to-understand retirement benefits.

This is why reforms that shift public sector employees to 401(k)-style “defined contribution” retirement plans could be so helpful. As the Manhattan Institue’s Josh McGee shows, a properly designed DC pension can provide perfectly adequate retirement benefits at reasonable cost, while adding portability of benefits that most public sector DB pensions lack. But DC retirement plans are also far more transparent: the employer contribution to employee’s retirement accounts is easily understood and easily compared to the employer match that private sector workers receive in their 401(k) plans.

The full annual CalSTRS employer contribution – something, admittedly, that is rarely actually paid – would equal 31% of employee payroll, according to the plan’s most recent actuarial valuation. By contrast, the typical private sector employee receives an employer match to their 401(k) plans of just 3% of their wages. In other words, pension costs for CalSTRS-covered employees are roughly 10 times higher than the typical private sector 401(k).

Anyone who thinks such pension plans don’t need significant reforms is either unable to understand the issues or doesn’t want you to understand them.”


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2 Responses to Pension backlash towards teacher retirements the just reward of lies and financial abuse

  1. Lynn Mae says:

    I’m ot a member of the group but when I want straight talking/solid facts on pensions and other money-grabbing government authorized programs, I look to the Howard Jarvis people. This article is from last year…I hope the people who voted for the proposition read it and know how they hurt themselves and everyone else (almost everyone) also with the passage of the bill.

    Something teachers don’t talk about is that they can also substitute teach in the summer (when they’ve already been paid for the year) and if they’re a union member, the union will pay them for electioneering whether it’s supporting one local board member or fighting against another or an election where it’s for a higher public office. Sort of the way retired police and fire department personnel can take their pension and then go to work someplace else.

    And back in 2010, they were warning people even then…


  2. MarySmith says:

    California is one of 23 states that disallow access to widow/widowers benefits from Social Security as well individual Social Security benefits earned while not being a teacher.


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