Source: CalSTRS

CalSTRS’ defined benefit plan for teachers and administrators, now two-thirds funded, would reach 70 percent of funding in 2024 and full funding in 2046, under Gov. Brown’s plan.

Gov. Jerry Brown’s plan to immediately start paying off the $74 billion shortfall in funding for teacher pensions was, for school districts that would bear the brunt, the big May budget surprise. On Thursday, two key lawmakers responded to districts’ calls for total relief next year by urging legislators to meet them halfway.

The defined benefit plan for teachers and administrators, now two-thirds funded, would reach 70 percent of funding in 2024 and full funding in 2046, under Gov. Brown's plan. Source: CalSTRS.

CalSTRS’ defined benefit plan for teachers and administrators, now two-thirds funded, would reach 70 percent of funding in 2024 and full funding in 2046, under Gov. Brown’s plan. Source: CalSTRS.

Assemblyman Rob Bonta, D-Oakland, and Sen. Norma Torres, D-Pomona, who chair committees looking into the pension issue, endorsed an alternative payment plan proposed by the California State Teachers Retirement System. Instead of paying $350 million to CalSTRS in 2014-15, which is the increased amount Brown proposed, school districts would pay half that. They would make up the difference with higher payments in future years. The alternative plan would leave intact the key elements of Brown’s plan to eliminate CalSTRS’ deficit, which he outlined in the revised state budget.

During a two-hour hearing in Sacramento, education groups generally praised Brown’s overall division of responsibility among school districts, teachers and the state for making the CalSTRS pension program for teachers and administrators whole at the end of 30 years. But they said that the plan to start phasing it in on July 1 caught them unaware just when they were completing the planning process under the state’s new Local Control Funding Formula. In January, Brown had suggested higher payments would begin in 2015-16; districts built their budgets around those assumptions, representatives said.

Brown’s plan would be a $35 million hit on the budget, Leilani Aguinaldo Yee, the deputy director of government relations at Los Angeles Unified, testified. As the new funding law requires, she said the district has drafted a “robust” planning document, the Local Control and Accountability Plan (LCAP), after meeting with parents and community groups.

“So now, as of 10 days ago, we have to go back to the same individuals and say a significant amount is off the table,” Yee said.

Brian Rivas, director of policy and government relations for The Education Trust-West, a nonprofit advocacy group, seconded the worry that diverting money so late in the process of writing the LCAP would “jeopardize trust between communities and districts.”

“Trust is very fragile,” he said.

Investment income to CalSTRS, in green, plummeted in 2008-09. Though rebounding since, lost income created a $74 billion shortfall in assets needed to meet retirement payments over the next 30 years.  Contributions from teachers and administrators, the state and school districts into the system meanwhile remained constant. Source: CalSTRS.

Investment income to CalSTRS, in green, plummeted in 2008-09. Though rebounding since, loss in assumed income created a $74 billion shortfall in assets needed to meet projected retirement payments over the next 30 years. Contributions from teachers and administrators, the state and school districts into the system, in red, meanwhile remained constant. Source: CalSTRS.

Brown has proposed increasing spending for districts by $4.5 billion; $350 million more in CalSTRS payments would consume 8 percent of the total. The ratio would rise as higher contribution rates are phased in, diverting more money that would have been available for the classroom under the Local Control Funding Formula.

Jeff Vaca, deputy executive director of governmental relations for the California Association of School Business Officials, was among those who called for either a one-year delay or a corresponding increase in district funding to meet the higher CalSTRS costs for districts.

There are other alternatives, several people testified. Since the Legislative Analyst’s Office is predicting the state would take in as much as $2.7 billion more in funding for K-12 schools and community colleges than Brown’s budget projects, they said that some of that money could be a down payment for meeting CalSTRS’ obligations.

CalSTRS’ defined benefit program for its 860,000 members is funded through contributions from the state, employers (school districts) and employees, with contributions determined as a percentage of employees’ pay.

CalSTRS lost about 40 percent of the value of its investments in 2008 in the stock market freefall. As a result, the pension program is only about two-thirds funded to meet projected pension payouts over the next 30 years. If nothing were done, it would run out of money in 2046, according to CalSTRS.

Under Brown’s plan, total annual contributions would increase by about $5 billion per year, to $10.5 billion, divided in the following ways:

  • Districts would shoulder about $3.7 billion of the increase, with their share more than doubling, from 8.25 percent of payroll to 19.1 percent. The increases would be fully phased in over seven years, and that wouldn’t change under CalSTRS’ alternative, but would just be shifted – less in the first three years, more in the last four years.
  • Teachers’ and administrators’ contributions would rise from 8 percent to 10.25 percent, phased in over three years. Court rulings have limited the Legislature’s ability to raise employees’ rates, and the 10.25 percent would be the maximum, short of challenging court rulings.
  • The state’s share, now 3 percent, would rise to 6.3 percent, also over three years. That would increase the state’s costs from $1.4 billion this year to $2.4 billion – money that would come from the General Fund, not the state’s share of funding for schools, Proposition 98.

“We’re appreciative of that,” said Estelle Lemieux, a lobbyist for the California Teachers Association, which endorsed Brown’s plan. “The state is willing to contribute more than we thought it would.”

Wiping out the $74 billion deficit, bringing CalSTRS to full funding in 30 years, would require $237 billion in total increased contributions. Districts would bear about two-thirds of the total, employees about one-tenth and the state about a quarter.

John Fensterwald covers education policy. Contact him at jfensterwald@edsource.org and follow him on Twitter @jfenster. Sign up here for a no-cost online subscription to EdSource Today for reports from the largest education reporting team in California.


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  1. el 2 years ago2 years ago

    I'm not familiar with the rules for how the pension payouts are computed, so forgive me for what may be a stupid question. With many districts raising salaries this year (after many years of cuts or flat pay), as well as an increase in position count, the absolute dollars per percentage arriving at CalSTRS will increase. How does that affect the solvency of the program? With teachers' share increasing 2.25%, there will be a lot of … Read More

    I’m not familiar with the rules for how the pension payouts are computed, so forgive me for what may be a stupid question. With many districts raising salaries this year (after many years of cuts or flat pay), as well as an increase in position count, the absolute dollars per percentage arriving at CalSTRS will increase. How does that affect the solvency of the program?

    With teachers’ share increasing 2.25%, there will be a lot of pressure on districts to raise salaries by that percent or more so that paychecks don’t decrease.

    Replies

    • FloydThursby 2 years ago2 years ago

      El, an increase of 2.25% is reasonable,maybe even 6% over 3 years, maybe 7, maybe 3, 2 and 2 and an agreement that in the 4th year there is no increase. But inflation will be less than that and interest is near zero. The union was asking for 21% in 3 years with no consideration of the pension issue. There is no brief reprieve, we're going to have to spend this money … Read More

      El, an increase of 2.25% is reasonable,maybe even 6% over 3 years, maybe 7, maybe 3, 2 and 2 and an agreement that in the 4th year there is no increase. But inflation will be less than that and interest is near zero. The union was asking for 21% in 3 years with no consideration of the pension issue. There is no brief reprieve, we’re going to have to spend this money one way or another. Maybe the economy will boom and maybe voters will repeal parts of Prop 13 or agree to a tax increase, but maybe not, let’s make sure before we commit to 21% and can’t reverse it.

      There are some ways to give a raise to the most deserving in a win win scenario. Instead of an across the board raise, a bonus for those with perfect attendance would give teachers a chance, but not a guarantee, to earn more, and it would pay for itself and cost nothing as the result would be lower substitute costs. That way if you are in bad shape, you can get the money you need to stay in SF, but you lose a few days off, the kids win, you win, you just work 5 days you wouldn’t have.

      It would have been reckless to give a 21% raise over 3 years and ignore this impending pension tsunami. In a year we’d be regretting it and no one would listen to the crazy person who suggests a salary cut, so now, we don’t have to cut, we just don’t increase it so much that we’ll regret it. It’s called growing up.

    • navigio 2 years ago2 years ago

      I dont think the absolute amount reaching the fund will impact local salary pressures directly, though indirectly it may change how resolutely the state sticks with their plan (which could impact local decisions indirectly). If there are any pressures locally, I think they will manifest in reduced staffing rather than salary cutbacks or holdbacks (those discussions will happen, I just dont see them being different based on what happens at the state level--that disconnect is … Read More

      I dont think the absolute amount reaching the fund will impact local salary pressures directly, though indirectly it may change how resolutely the state sticks with their plan (which could impact local decisions indirectly). If there are any pressures locally, I think they will manifest in reduced staffing rather than salary cutbacks or holdbacks (those discussions will happen, I just dont see them being different based on what happens at the state level–that disconnect is one of the fundamental problems with how we manage bargaining imho btw). The fact that the state wants to increase district liability significantly is already going to make districts more weary of hiring any new people.
      Also note that in some places health benefit increases have already been reducing paychecks.

    • John Fensterwald 2 years ago2 years ago

      Not a stupid question at all, el. My sense is that CalSTRS takes the long view of salary increases over time, and any one year — particularly following several years of salary cuts – won’t make a difference. A bigger issue to watch will be longevity. We all wish our favorite teachers a long and happy retirement, but it won’t come cheap.

      • navigio 2 years ago2 years ago

        Actually, some of us wish all people a long and happy retirement. Not only teachers, and not only our favorite ones..
        And I think one of the problems in our society is that we dont have enough things of value that come cheaply.. wonder what we could do about that..

        • Floyd Thursby 2 years ago2 years ago

          Why not trade pay for the other things, pay more but no more LIFO, no more 11 days off a year, instead give a bonus to those who don't take those days off, you can, but the raise is a bonus for those who don't. Maybe longer hours. What teachers have an abundance of is job security and time. Trade some of that for what they don't have an abundance of, money. … Read More

          Why not trade pay for the other things, pay more but no more LIFO, no more 11 days off a year, instead give a bonus to those who don’t take those days off, you can, but the raise is a bonus for those who don’t. Maybe longer hours. What teachers have an abundance of is job security and time. Trade some of that for what they don’t have an abundance of, money. Then you can afford more things of value. And our kids win too. It’s good for all. No one loses.

  2. Replies

    • Floyd Thursby 2 years ago2 years ago

      This makes a good point. I'm glad Brown stopped the cash grab before it was too late. 21% in 3 years would starve the districts and guarantee the achievement gap wouldn't be closed as it was unconditional and tied to the failed status quo, no concessions in return, just a cash grab. Put the money into tutoring or something else which would make a measurable difference. That 21% would have just … Read More

      This makes a good point. I’m glad Brown stopped the cash grab before it was too late. 21% in 3 years would starve the districts and guarantee the achievement gap wouldn’t be closed as it was unconditional and tied to the failed status quo, no concessions in return, just a cash grab. Put the money into tutoring or something else which would make a measurable difference. That 21% would have just continued the status quo and ignored this pension issue leading to huge cuts later. He should have announced this sooner.

  3. SD Parent 2 years ago2 years ago

    The children in school today had the misfortune to be born such they were in school during the years of the Great Recession. Not only have they reaped larger class sizes, shortened school years, and reduced services and programs under education funding that was reduced by 18%, but now the plan is for them to continue to suffer with reduced education funding to rebuild the CalSTRS pension fund. Six years of following our … Read More

    The children in school today had the misfortune to be born such they were in school during the years of the Great Recession. Not only have they reaped larger class sizes, shortened school years, and reduced services and programs under education funding that was reduced by 18%, but now the plan is for them to continue to suffer with reduced education funding to rebuild the CalSTRS pension fund.

    Six years of following our district budget has proven that the cuts to balance the budget come largely from the classrooms, in the form of larger class sizes, fewer instructional days, and more cuts to meager school site operating funds (think paper and other supplies, copier costs, library personnel, school nurse/health tech, etc.).

    Balancing the state budget and CalSTRS’ pension liabilities on the backs of kids is patently unfair. The school districts aren’t responsible for the crash of the stock market or the slow response of the legislature/Governor to the growing pension liability. Payments to CalSTRS should come from outside the Prop 98 guarantee, not from cutting into children’s education.

    Replies

    • Floyd Thursby 2 years ago2 years ago

      I agree funding should be higher, but I read in the article that SFUSD had planned a huge 21% salary increase for all teachers with no concessions in terms of LIFO so spare me the implication that all the money was going to help children. The union knew this pension problem is coming and hoped to ignore it and then ask for tax increases in the future, as they know huge raises will not … Read More

      I agree funding should be higher, but I read in the article that SFUSD had planned a huge 21% salary increase for all teachers with no concessions in terms of LIFO so spare me the implication that all the money was going to help children. The union knew this pension problem is coming and hoped to ignore it and then ask for tax increases in the future, as they know huge raises will not be retracted and would prevent other more intelligent spending. I say productivity must improve for raises, as we are in a near zero inflation time. Inflation is averaging 1%, getting 21% in 3 years with this pension problem was indefensible and shows we should not listen to the union’s advice on how to spend this extra money.

      We should put it into tutoring services for disadvantaged kids. They need one on one tutoring. Instead we were going to take a one time windfall, ignore an impending pension tsunami, and give a giant raise to all teachers even if they missed the maximum number of days available each of the past 5 years, as is true of more than half.

      This is not justifiable. It is short-sighted and hurts kids. I agree that it is hard to live in SF, but give the raise and ask for concessions in return, a small raise in return for no more LIFO and instead of an automatic raise, make it contingent on high attendence and give more to the teachers who call in sick the least.

      What a horrible idea! Be careful with extra money, always wait a year so you don’t blow it, nothing wrong with saving a little to prevent future cutbacks, don’t need to spend it immediately like a drunken sailor. Too much is at stake.

  4. West Walker 2 years ago2 years ago

    Don’t be fooled by how much the district is contributing versus the employees. As the employee continues to be hit with enormous costs for health premiums their net salaries continue to drastically diminish, districts will use STRS costs as an excuse to not offer any COLA or wage concessions. (Hey, how about an article comparing CTA district health premium costs and the increased taxation estimates based on the ObamaCare Cadillac Plan?!?)

  5. FloydThursby 2 years ago2 years ago

    Stocks will still go up way more than bonds or interest payments. Teachers deserve a decent pension. They give police way more. It isn’t right. What difference does it make when you’re retired? You’re no longer working, so what difference does it make if you were a cop, a fireman or a teacher? But cops get over double. I think they should get the same. It’s just wrong.

  6. Shelby 2 years ago2 years ago

    How about new teachers get Social Security and a 401K like the rest of us?

    Replies

    • navigio 2 years ago2 years ago

      Over 90% of ‘the rest of us’ are going to retire into poverty with that approach.

  7. navigio 2 years ago2 years ago

    CalSTRS lost about 40 percent of the value of its investments in 2008 in the stock market freefall.

    So nothing to try to avoid that problem?

    Replies

    • John Fensterwald 2 years ago2 years ago

      navigio: CEO Jack Ehnes testified at the hearing that CalSTRS foresees a more volatile investment climate, with a higher likelihood of a repeat of the 2009-09 plunge in the stock market. What was once seen as a 100 year flood will be more likely a 25-year flood was his analogy. He made that comment in a pitch to ramp up to the full contribution rate quickly and to shoot for 100 percent funding in 30 … Read More

      navigio: CEO Jack Ehnes testified at the hearing that CalSTRS foresees a more volatile investment climate, with a higher likelihood of a repeat of the 2009-09 plunge in the stock market. What was once seen as a 100 year flood will be more likely a 25-year flood was his analogy. He made that comment in a pitch to ramp up to the full contribution rate quickly and to shoot for 100 percent funding in 30 years, not 80 percent, as groups like the California Federation of Teachers have recommended. Volatility notwithstanding, he said he remained confident that CalSTRS would make the 7.5 percent annual return on investments needed to make pension payouts. He called that a conservative target compared with other public pension funds. He may be right, but critics have argued that a 7.5 percent required return is unrealistic. Ehnes’ acknowledgment of more volatility will feed that argument.

      Whatever deal the Legislature agrees to will include a stipulation that the Legislature do a regular update to see if the pension fund remains on track for full funding. (See Bonta’s letter.)

      • Floyd Thursby 2 years ago2 years ago

        Social Security already gets you above the poverty line if you don't take it at 62. Those under the poverty line often didn't have children and took it early, so short-term thinking comes back. IF you don't have kids, you should be able to save a lot. SSI plus a 401k with matching, as I'm sure the state would match if they're paying way over half now, would not put anyone in … Read More

        Social Security already gets you above the poverty line if you don’t take it at 62. Those under the poverty line often didn’t have children and took it early, so short-term thinking comes back. IF you don’t have kids, you should be able to save a lot. SSI plus a 401k with matching, as I’m sure the state would match if they’re paying way over half now, would not put anyone in poverty. Add in good investments, a home purchase before 40, and a side job like many teachers have as you work fewer hours, dedicated towards extra saving not extra spending, and you are looking at a pretty good retirement. I agree teachers should get more in retirement, but 401k would work.

        When you cite many being in poverty with a 401k, well you aren’t supposed to touch it until 59.5 at the earliest and ideally 70. Many do and it hurts, and those may end up in poverty.

        • Floyd Thursby 2 years ago2 years ago

          This quote from UESF sums up the major disagreement: "At the bargaining table on May 13th the SFUSD offered a 2% raise for next school year and a dime for paraprofessionals who have worked over 15 years for our students. Not only did they offer nothing to help offset rising healthcare costs for our spouses and family members, but they tried to split our membership by suggesting that some educators deserve a bigger raise then others!" … Read More

          This quote from UESF sums up the major disagreement:

          “At the bargaining table on May 13th the SFUSD offered a 2% raise for next school year and a dime for paraprofessionals who have worked over 15 years for our students. Not only did they offer nothing to help offset rising healthcare costs for our spouses and family members, but they tried to split our membership by suggesting that some educators deserve a bigger raise then others!”

          The audacity of suggesting some educators deserve a bigger raise than others. This is amazing. Anyone on the ground, any principal, any student, any parent, knows some educators deserve a bigger raise than others, some provide more value than others, and this is true of every professionthere is. The idea all pay should be in step is contrary to incentivization, capitalism and human nature.

      • navigio 2 years ago2 years ago

        Thanks John. Call me crazy, but the idea that we're planning on investing this much money in a system that is effectively guaranteed to produce an unavoidable 40% loss in assets every couple of decades is absurd. (Actually, I expect that delta to reduce anyway--no reason to assume instability will flatten, in fact probably just the opposite). I expect the only reason we feel good about doing this is the people holding the strings, and … Read More

        Thanks John. Call me crazy, but the idea that we’re planning on investing this much money in a system that is effectively guaranteed to produce an unavoidable 40% loss in assets every couple of decades is absurd. (Actually, I expect that delta to reduce anyway–no reason to assume instability will flatten, in fact probably just the opposite).
        I expect the only reason we feel good about doing this is the people holding the strings, and who are going to get very rich in the process are telling us it’s a good idea. It ironically reminds me of the reasons for pushing 401ks in the 80s: absolve corporations of some of the cost and responsibility of employing people, and more importantly, get all that private pension money into the stock market.
        Note that public pension funds were not always allowed to dabble in equities–it took a ballot measure to allow that (um whoops? Yes, you mirror). And then, with people (yes, supposedly all the smart ones) arguing that 15% ROI during the mutual fund generated bull run was the low end of potential (some were even arguing in the thirties!), it took an act of congress to increase benefits in a way that was actually reasonable in the view of all those starry eyes (um whoops again? Deja vue mirror?). So I guess you’ll have to excuse me when I hear the financial sector and their politicians telling us what to do with our money and that that is solely in our own best interest and we don’t even blink an eye.
        Btw, a ‘regular update’ on returns won’t be very meaningful when it doesn’t take into account the bi-decadely fire sale (if that even ends up being the eventual term period).

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