By Grant Boyken
A column on public pension reform in California earlier this month made bold assertions and painted all defined-benefit pensions with an extremely broad and critical brush. The California State Teachers Retirement System wants to set the record straight about important components that make up the big picture of CalSTRS’ public pension reality.
CalSTRS, the defined benefit pension for the state’s public school and community college educators, serves 914,000 members and beneficiaries and is funded by employer, state, and employee contributions. Contributions are a shared responsibility of the employers, state sponsor and employees to fund the defined-benefit pension.
We rely on member contributions from more than 438,000 working educators who contribute between 9.20 to 10.25 percent of their monthly pay. In the 2015-2016 fiscal year ending June 30, 2016, member contributions amounted to more than $2.8 billion. In addition to contributions from educators, school districts and the state, CalSTRS investment returns finance roughly 60 percent of the monthly benefits paid to more than 288,000 recipients.
CalSTRS benefits are relatively modest. In fiscal year 2015-16, CalSTRS members, on average, retired at age 63, after 25 years of service in the classroom, and with a pension that replaced only 55 percent of their pre-retirement income.
It’s also important to note that CalSTRS members do not earn or collect Social Security for their CalSTRS-covered employment, which means their defined benefit pension could be their only source of income in retirement.
For this reason, CalSTRS encourages members to invest in supplemental savings through a defined contribution retirement vehicle, such as a 403(b) or a 457(b) plan. Supplemental savings are integral to our members’ ability to achieve financial security in retirement, which is why we increased our focus on providing retirement readiness and financial literacy workshops for our members. Additionally, in mid-March, CalSTRS launched a dynamic redesign of the 403bCompare website to provide members with financial planning education and product comparison tools to help in their supplemental savings plan enrollment decisions.
Finally, it’s important to note that, until 2014, unlike the majority of public pension plans, the Teachers’ Retirement Board lacked the statutory authority to adjust member or employer contribution rates. In fact, contributions had not been adjusted in over 40 years for members and 30 years for employers.
This has hamstrung CalSTRS from more fully recovering from the two recessions that struck the state since 2001—one of which was the worst since the Great Depression.
In July 2014, Governor Brown and the State Legislature enacted a 32-year funding plan that put CalSTRS on a trajectory toward reaching full-funding by 2046. The plan included input from CalSTRS members, employers and the Department of Finance. It involves shared, gradual and predictable contribution increases in addition to granting limited rate-setting authority to the Teachers’ Retirement Board under state law.
As the state’s population ages, a reliable source of retirement income acts as a stabilizing force during economic hard times, rather than forcing retirees into reliance on public assistance, which is fully funded by taxpayers.
Remember, pension recipients also pay taxes on their benefits and continue to spend in their local communities, during good times and bad. In fact, according to a 2013 study by the University of the Pacific, CalSTRS benefit payments generate an $11 billion annual boost to the state’s economy and $1.2 billion in tax payments to state and local governments.
We firmly believe that, in addressing the larger issue of retirement security for all Californians, tearing apart defined benefit pensions is the wrong direction to take. As a society, we should instead focus on ways to ensure all Californians are able to save for a secure retirement.
Grant Boyken is the public affairs executive officer for the California State Teachers’ Retirement System.
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