Re: Teacher Pensions Not Excessive, New Study Shows
Anyone arguing teacher compensation in any form is excessive should be labeled a fool. The underfunding argument is a matter not about "luxurious" benefits, but rather of rosy economic projections public sector pensions rely upon.
The rate of annual return needed to meet obligations, or the discount rate, for the average US public sector pension is 8%. Here is a good article on the subject http://www.economist.com/node/18501995?story_id=18501995 . This laughably high rate is a dodge our political class uses to kick the costly can down the road. Union leaders also bear responsibility for accepting these ridiculous numbers instead of demanding more security. Sometime, somewhere an actuary proclaimed this a good idea and started a prairie fire. Now those same consultants are insisting defined contribution plans are the only path to government fiscal health. Perhaps we should learn to doubt consultants?
Pension funds, through hedge funds, were a primary buyer of the crazy derivatives Wall Street cooked up, mostly to chase those 8% targets. One can only hope that they made some hay while the sun was shining, because, even with the recovery in stocks, it's hard to believe the funds are whole.
--- In email@example.com, Charles Rachlis <crachlis@...> wrote:
> Teacher Pensions Not Excessive, New Study Shows
> In California, Study Says, Teachersâ Pensions Fall Short of Other Public
> Kevork Djansezian/Getty Images
> A teacher in Los Angeles. California might reduce public pensions to trim its
> huge budget deficit.
> By MARY WILLIAMS WALSH
> Published: May 5, 2011
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> As states and cities debate whether benefits can or should be cut back for
> public workers, a new study suggests some of those workers have a lot more to
> fight for than others.Add to Portfolio
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> The study found that public school teachersâ retirement benefits â" at least the
> part taxpayers pay for â" are smaller than those of virtually any other type of
> public employee, despite frequent claims that teachersâ pensions are excessive
> and diverting precious dollars from education and other essential government
> It appears, in fact, that the teachers in the study would be better off if their
> current pension plan were scrapped entirely, and replaced by one cutting the
> defined benefit portion and adding a defined contribution feature. Public
> employees, and the unions that represent them, have generally resisted any such
> shift, arguing that a traditional defined-benefit pension provides the best
> security in retirement.
> The study, by the California Foundation for Fiscal Responsibility, analyzed
> employee benefits only in that state, one of the most fiscally troubled and the
> seat of a long-running debate about public pensions and whether they are
> crowding out other public spending. But the foundationâs president, Marcia
> Fritz, said her researchers had devised a straightforward way of comparing
> retirement benefits that could be used easily by analysts in other states.
> Ms. Fritz, an accountant who has long been calling for pension changes in
> California, said she was stunned by the difference between the teachersâ
> retirement benefits and what other state and local workers received.
> âMy initial reaction, when I saw the teachers, was, âItâs a game changer,â â she
> said. âI had no clue.â
> The study was released as debate becomes heated in California over how much
> public pensions are to blame for the stateâs fiscal woes and what to do about
> it. Gov. Jerry Brownhas said he would use some type of pension cuts to help
> bridge the stateâs $15 billion budget deficit, but he has also said current
> workersâ benefit formulas cannot be changed in mid-career. Fiscal hawks, and
> some lawyers, say that approach is too timid. Public employeesâ unions,
> meanwhile, say their members are being wrongly blamed for a small number of
> cases in which people gamed the system and retired on giant pensions.
> Ms. Fritz said she wanted to come up with a standardized way to compare
> retirement packages to guide the process. Her study compared the pensions and
> retiree health benefits of different types of state and local workers in
> California, as well as those earned by federal employees, and by workers at a
> sample of large companies, including Chevron,Cisco, McKesson, Northrop
> Grumman, Qualcomm and Safeway.
> It also examined how Californiaâs various state and local employees would fare
> under two proposals, one modeled after the federal employeesâ retirement plan,
> and the other a straight 401(k) plan.
> Aside from the teachers, many public employees in California would be worse off
> under the proposed changes, the study showed.
> Pension comparisons are fraught with difficulty, in part because the benefits
> are paid out one check at a time over many years. The foundation tried to make
> its comparisons more meaningful by calculating how much each type of retiree
> would have to pay up front, if the retiree wanted to buy a total lifelong
> pension benefit from a hypothetical insurance company. Showing the present value
> that way underscored the tremendous, hidden value of early-retirement benefits,
> something city workers in California often get, but teachers, federal workers
> and company employees generally do not.
> Police in particular benefit. A California highway patrolman who retires at 50
> gets a state-paid benefit five times what a federal law-enforcement agent would
> get at that age.
> Because the foundation is focused on balanced budgets, it excluded the
> employeesâ own contributions to each type of retirement plan. That allows
> comparisons of just the part of the benefits that taxpayers, or the corporate
> employers, cover. Teachers in California make large contributions to their
> pensions, and once those were deducted, their taxpayer-paid benefits were
> eclipsed by those of city workers, who can not only retire much earlier but also
> contribute less.
> The study also counted Social Security â" at least the employer-paid portion of
> it â" as part of each groupâs total benefit. Public school teachers in
> California, like roughly half the nationâs teachers, do not participate in
> Social Security, so their pensions must stretch further. Police also usually opt
> out of Social Security.
> [Non-text portions of this message have been removed]