Before it adjourned for good on Aug. 31, the 2011-12 California Legislature approved a resolution to encourage the California State Teachers’ Retirement System to develop and submit to state lawmakers three options to reduce the retirement system’s long-term funding needs. Those options are due before Feb. 15.
Retirement systems for state and local governments are underfunded, but the situation at CalSTRS is dire. Its unfunded liability stands at $65 billion. That’s how much more the fund needs to fulfill its pension promises to retirees over the next 30 years.
To make up for that shortfall, CalSTRS actuaries say the fund will need an additional $4.5 billion cash infusion annually for the next 40 years.
Any legislative fix would likely require a gradual increase in contributions from the state, working teachers, and school administrators and their school district employers. Currently, teachers contribute 8 percent of their salary toward retirement. School districts contribute another 8.25 percent and the state kicks in 2.5 percent, which is down from the 4.6 percent the state contributed in 1998.
Before authorizing increases from any sources, the Legislature should first ensure that CalSTRS is doing what it needs to do to prevent illegal spiking. A report from the state controller earlier this year found that the teachers retirement system consistently ignored evidence of fraudulent payments, most of which went to highly paid school administrators, even when its own computer alerted the system to problems.
Unlike the larger, more well known California Public Employees’ Retirement System, CalSTRS has no independent authority to extract more money from any of those sources. The Legislature must act to authorize increased contributions. Faced with record deficits and other more immediate obligations, legislators have largely ignored CalSTRS’ funding crisis. The longer the state fails to act, the larger the shortfall grows and the more expensive the eventual fix will be.
While there has been a lot of rhetoric about overly generous public employee pensions in general, especially the benefits that go to police and firefighters, studies consistently show that the state’s rank-and-file teachers receive less generous benefits than state or local government workers. Many do not receive employer-paid health benefits after retirement and none are eligible for Social Security. That needs to change.
As the Legislature moves to fix the unfunded liability of the teacher retirement system, it should also work more closely with Congress to pass legislation that would enroll all state and local public employees, but especially California’s teachers, into the Social Security system. That expansion was part of Gov. Jerry Brown’s original pension reform proposal, but was put aside.
As the Legislature struggles to deal with the CalSTRS unfunded liability, it – in cooperation with the state teachers unions – should take a serious look at ways to enroll teachers into the national retirement system. It would not only help strengthen the national system, it would give state teachers a bigger and more reliable retirement income.