Teaching > Pay and Tenure

CalSTRS estimates $22.7 billion savings from pension reform



The pension reforms that the Legislature passed before skipping town on Friday will save the California State Teachers’ Retirement System $22.7 billion over 30 years, according to a preliminary analysis that CalSTRS released on Wednesday. But CalSTRS administrators cautioned that most of the savings won’t be achieved for decades, because reduced pension benefits will affect only employees hired after Jan. 1, 2013. And the savings won’t reduce the Legislature’s need to deal with the current $65 billion deficit, caused when returns on investments tanked in 2008 and failed to fully recover.

“We have been working for some time to raise awareness of our funding shortfall, the cost of waiting to address it, and the ultimate risk failing to do so presents to the state General Fund,” said CalSTRS Chief Executive Officer Jack Ehnes in a press release.

The reforms passed in AB 340 will apply to most public employees and involve raising the retirement age, capping benefits, and ending questionable practices that increased the payout to various members. The biggest changes to CalSTRS members include:

  • Raising the retirement age from 60 to 62 to receive a full benefit equal to 2 percent of retirement pay multiplied by the number of years worked (50 percent of final pay for working 25 years, for example);
  • Setting the retirement pay based on the average of the three years instead of the single highest year;
  • Capping the income for determining pensions at $132,210. CalSTRS estimated that change would substantially affect 4,500 members who currently earn more than that amount.

AB 340 also requires that employees split the normal costs of their pension. Teachers and administrators currently pay 8 percent of their pay into CalSTRS; that represents only 44 percent of the 18.51 percent of payroll needed to operate the system, with school districts paying 8.01 percent and the state paying 2.5 percent out of the General Fund. In coming decades, as the benefits provided decrease because of the latest reforms, the normal operating costs of CalSTRS will decline to 15.9 percent, resulting in substantial savings to the state.

Here is a summary of the impacts of legislation on CalSTRS members.

 

 

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8 Responses to “CalSTRS estimates $22.7 billion savings from pension reform”

  1. Jenigma said

    on December 8, 2012 at 4:51 pm

    Anybody want to discuss the wisdom of privatizing teacher pension funds? Or the fact that institutional investors, the gamblers who invest pension funds, are financially incentivized to invest in risky short-term money-making investments and not safer long-term investments? Or the fact that this “catastrophe” was obvious and preventable since as far back as 1999, when the financial industry was deregulated, increasing conflict-of-interest financial practices by 90%? Anybody? No? Just want to union-bash and blame it on teachers and their “fat pensions?” Yeah, that’s what I thought :(

  2. eatingdogfood said

    on September 6, 2012 at 6:12 pm

    You really didn’t think that Gov. Moonbeam and his Double Dealing
    Democratic Cohorts would Stab their Union Bosses in the Back, Did Ya ???
    Only one way out of this !!! Declare Martial Law and Nationalize the
    National Guard and Arrest All the Democrats and Union Bosses on RICO
    Conspiracy Charges !!!

  3. jskdn said

    on September 6, 2012 at 4:43 pm

    You can’t compare the claimed future, nominal dollar savings and the current, existing shortfall in pension assets necessary to support the currently existing pension obligations at the discount rate used by CalStrs. If I’m understanding correctly, that current $65 billion shortfall will grow at the compounded discount rate as long as it’s not retired by additional contributions in excess of what is needed in order fund the growth of additional benefit promises and/or growth of the assets on hand is in excess of CalStrs discount rate. That 7.5% rate on a $65 billion existing shortfall, left alone, adds another $4.875 billion over the course of just one year. And when the growth of existing assets falls short of that rate, as occurred this year, that also adds to the funds deficit. When you start to look at trajectory of problem, it’s pretty difficult to not recognize that this law is far from the kind of reform that is needed. I’d be interested to see the putative savings from this law expressed in the net present dollars at a 7.5% discount rate.

  4. Keith Griffith said

    on September 6, 2012 at 3:56 pm

    So, this pension reform that the politicos are bragging about doesn’t actually affect any of the folks already in STRS, just future members hired after 2013? Considering it will be an additional 25+ years before those folks are even eligible to retire, and any potential hypothetical savings to begin to accrue, what will the state’s budget and pension fund shortfall be by then? While I am thankful for my as-yet unborn great grandchildren’s sake, it does nothing to address today’s problems.

    When is Governor Brown going to put his foot down and demand real and immediate pension reform? Past promises mean nothing as our state sinks further into the ooze….

  5. TheBeachBum said

    on September 6, 2012 at 12:48 pm

    It’s been smoke and mirrors all along. Always has been and always will, as long as the union controlled legislature is in Sacramento. Same at the local level, too.

  6. gery_katona said

    on September 6, 2012 at 8:20 am

    “We have been working for some time to raise awareness of our funding shortfall, the cost of waiting to address it, and the ultimate risk failing to do so presents to the state General Fund,” said CalSTRS Chief Executive Officer Jack Ehnes in a press release.

    As a taxpayer, the risk to the general fund will be zero because we are not prepared to work until 65 only to allow public employess to retire early on fat pensions.

  7. @capsaysun said

    on September 6, 2012 at 6:13 am

    With an unfunded liabilty in the neighborhood of $500 billion, this watered down pension reform will fix about five percent of the problem. This was an obvious political ploy by Jerry Brown and the leg. Democrats to make it look like they were doing something real about pensions to trick voters into supporting Prop 30. Don’t be fooled. Prop 30 is all about maintaining the failed status quo. Prop 32, on the other hand, is the ticket to real state government reform.

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