Pension reform puts teacher take-home pay in cross hairs

Dec. 19, 2012

By Chris Reed

ctaThe conventional wisdom about the 400,000 members of the California Teachers Association and the 120,000 members of the California Federation of Teachers is difficult to dispute:  Their unions dominate Sacramento in a way no other special interest remotely rivals.

Aside from charter schools way back in 1992, the only fundamental school reform to get through the Legislature the past 20 years is the one that swelled the CTA’s and the CFT’s ranks: classroom-size reduction. No other special interest gets promised future multibillion-dollar payoffs to go along with tough budgets, as the teacher unions secured in 2009.

California Federation of Teachers

But in early 2013, we could see that conventional wisdom tested in a way without modern precedent. The issue is how to shore up the struggling California State Teachers’ Retirement System, which as of Oct. 31 had $154.8 billion in investments and an unfunded liability of $64.5 billion, meaning it is only 71 percent funded.

The state Legislature sets the contribution rates for teachers that each school district must pay. The status quo has long been that employers contribute 8.25 percent of pay, teachers 8 percent of pay and the state 2 percent of pay.

But Gov. Jerry Brown signed a pension reform plan in September, AB 340 by Assemblyman Warren Furutani, D-Gardena. Under the reform, government agencies in California must adopt contracts going forward that have employers and employees equally share the normal cost of pension liabilities by 2018.

Bank accounts would shrink

If that happens, it means a sharp cut in take-home pay for every CTA and CFT member. As Ed Mendel laid out in calpensions.com, actuaries say teachers hired going forward under the less generous terms of the new state pension will need to pay 15.9 percent of pay — nearly double the current 8 percent contribution. Meanwhile, veteran teachers would need to pay 18.3 percent of pay — 10.3 percentage points more than they now pay and more than the total that is now set aside by all three contributors combined (teachers, districts and the state treasury).

This 50-50 required split of pension costs is jaw-dropping given what the CalSTRS board recommended when the topic of shoring up the teachers’ pension fund came up in 2007. It wanted teachers to go from contributing 8 percent to 8.5 percent; for districts to gradually go from 8.25 percent to a maximum of 13 percent; and for the state to gradually go from 2 percent to a maximum of 3.25 percent.

Or, to put the plan in a context that more readily shows its outrageousness, CalSTRS wanted teachers to increase their contributions by 6.25 percent — and for taxpayers to increase their contributions by 59 percent, nearly 10 times as much! The result would have been a pension system in which taxpayers had roughly twice the obligation (66 percent) as teachers (34 percent).

With the state economy rapidly slowing and the Schwarzenegger administration strongly opposed, the Legislature never passed the CalSTRS proposal.  That the CalSTRS board put the plan forward as a serious policy alternative showed that the CTA and CFT were calling the shots — just as Senate Democrats wanted.

In a 2006 Senate committee vote, State Sens. Don Perata, Debra Bowen and Gil Cedillo rejected Gov. Arnold Schwarzenegger’s nomination of David Crane to the California State Teachers Retirement System board. A Democrat himself, Crane is a sharp San Francisco financier and government reformer. Crane’s disqualification? “The three Democrats on the five-member Senate (Rules Committee) agreed that Crane seemed too concerned about the burden of pension shortfalls on taxpayers,” The Los Angeles Times reported.

Teachers’ unions unaccustomed to treatment

The CTA and the CFT must daydream about the good old days. The unions can’t even be very confident that the Legislature will do rope-a-dope with Brown’s pension reform by just never changing the present contribution rules for CalSTRS. That’s because state lawmakers also passed a bill that directs CalSTRS to prepare three alternatives that address the pension underfunding and to formally present it to the Legislature by Feb. 15, 2013.

So, in a rational world, the teachers’ unions would appear to be trapped, likely to face a permanent cut in take-home pay of about 10 percent. They are sure to sue and claim that existing funding formulas amount to a vested pension benefit, as a CalSTRS legal opinion concludes. Yet that legal view seems shakier than ever given the readiness of so many collective bargaining units to accept increases in their contributions and to make concessions in recent years. There’s also no question that judges are influenced by the headlines of the era.

But that’s forecasting what would happen in a rational world, not Sacramento — and especially not in the Assembly, where union power is so intense that 21 Democrats actually voted against a bill to overturn school regulations that allowed only union nurses to give medical help to students suffering life-threatening epileptic seizures. The 21 included Speaker John Perez, D-Los Angeles.

So expect an epic, years-long battle over AB 340. It may be law, but laws can be changed, ignored or sabotaged — and the CTA and the CFT can’t live with the new status quo that the governor’s pension reform portends.

11 comments

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  1. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 19 December, 2012, 09:09

    Sadlt the workers simply have to pay more— but the pension on the other end is worth it! And, in time, they will make back the losses….

    Reply this comment
  2. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 December, 2012, 10:28

    And, in time, they will make back the losses….
    ==
    Yes, that is what Vallejo, Stockton and San Bernardino all said, in time they would get the money back…..NOT.

    Losses are growing exponentially.

    Reply this comment
  3. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 19 December, 2012, 14:01

    The sky is falling!

    Reply this comment
  4. LGMike
    LGMike 19 December, 2012, 15:20

    I don’t see anything about the unfunded health care. Employers are paying ( a union run non profit) to manage health care with no open bids to see if it is reasonable. Also written into union contracts that the employer must uses this (union dominated) group to provide health care insurance, and the employee’s (union member) doesn’t pay anything for this perk.

    Reply this comment
  5. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 December, 2012, 18:11

    The sky is falling!
    ====================
    San Bernardino, Calif., files for bankruptcy with over $1 billion in debts
    http://www.nbcnews.com/business/san-bernardino-calif-files-bankruptcy-over-1-billion-debts-919039
    Looks lie the sky fell, eh teddy 🙂

    Reply this comment
  6. Ted Steele DD
    Ted Steele DD 19 December, 2012, 19:34

    Yes Poodle it fell— it’s all over EVERYwhere! We’re DOOMED!!!!!!!!!!!!!

    Too bad
    you
    re-
    main
    wait
    fot
    it…
    0 for 24 ™!

    Reply this comment
  7. Bob Smith
    Bob Smith 19 December, 2012, 20:15

    “So, in a rational world, the teachers’ unions would appear to be trapped, likely to face a permanent cut in take-home pay of about 10 percent.”

    Only if you presume an offsetting pay raise in the next union contract can’t happen.

    Reply this comment
  8. Rex the Wonder Dog!
    Rex the Wonder Dog! 19 December, 2012, 23:00

    Teddy- you must have missed this;

    San Bernardino, Calif., files for bankruptcy with over $1 billion in debts
    http://www.nbcnews.com/business/san-bernardino-calif-files-bankruptcy-over-1-billion-debts-919039

    and this

    THE SKY FELL!!!!!!!!!!!!!!!!!!!!!!!!!!!

    Reply this comment
  9. The Modified Ted Steele Methodologies (tm)
    The Modified Ted Steele Methodologies (tm) 20 December, 2012, 10:49

    LOL— Oh Rex— YES I NEVER heard that!!!!!!!! Oh wow— the sky is faaaaaaaaaaaaaaaling!!!!!!

    0 for 14 ™! LOL
    Poodle=irrelevant! mmmmmmmmmm

    Reply this comment
  10. Rex the Wonder Dog!
    Rex the Wonder Dog! 20 December, 2012, 20:29

    Yes, the SKY FELL, and landed on you, that is why you have brain damage 😉

    Reply this comment
  11. Richard Rider
    Richard Rider 22 December, 2012, 08:23

    From my experience reviewing school districts’ finances, I find that districts are swamped with qualified teacher applicants for each opening (openings usually the result of teacher retirements). It ranges from 20 applicants per opening to literally HUNDREDS of applicants per slot — depending on the school district — with minimal advertising or recruitment. Whatever happened to the union myth about the coming “teacher shortage”?

    And let’s remember that 2 years after being hired, teachers have DE FACTO lifetime tenure except for some criminal acts.

    Given the supply/demand situation, teachers can be expected to pay their “fair share” for their pensions with no dropoff in teacher quality (the is zero correlation NOW of pay and quality). Don’t you just LOVE to use “fair share” when describing what teachers should pay towards their OWN retirement?

    Reply this comment

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