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Calstrs Underfunded By $42.6 Billion

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The 2.4 factor does not kick in until age 61 1/2. At age 55, for example, the factor is 1.6.

Hi AP,

Unless something has changed in the past three years, the 2.4 kicks in at 61and 1/2 plus at least 30 years of service credit. Also at age 55 the factor starts at 1.4.

 

Best Wishes,

Joe

 

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The 2.4 factor does not kick in until age 61 1/2. At age 55, for example, the factor is 1.6.

Hi AP,

Unless something has changed in the past three years, the 2.4 kicks in at 61and 1/2 plus at least 30 years of service credit. Also at age 55 the factor starts at 1.4.

 

Best Wishes,

Joe

Thanks for the correction, Joe. Edy seems to be suggesting that everyone is getting 2.4. Not true.

 

 

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Hello. My apologies if I was not clear. I fully understand the formula and that not everyone gets the 2.4 factor. I have studied the manual and am actively planning my retirement by saving in Fidelity and TC. My 20 year old son began, with my advisement, his Roth IRA as a college freshman two years ago with TRPrice. As for the current STRS shortage, lowering the factor for future hirees will not solve the looming shortage. It will, however, deal with future problems, which is exactly what needs to be done. Similarly, we need to not just bandage SS but rather, we need to get people to save for themselves. As for now, the only solution is probably to increase the amount withheld from current educators.

 

We need people to save more for themselves and not expect the government to do it--period!!! Unfortunately, those of us currently working will probably see more of our pay taken to cover the current pensions.

 

Make IRAs available to everyone. Increase the limits on 403bs to $25,000. Educate new hirees as to saving for retirement while informing them that they will get a small amount at retirement from the STRS pension.

If we do not do this, we are heading for future STRS disaster in CA.

 

Edy

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The article to which I originally linked only told a part of the story. The $42.6 billion shortfall has been all over the media:

 

ABC News

 

Reuters

 

LA Dogtrainer (a.k.a. LA Times) Article #1

 

http://www.businessweek.com/news/2010-01-2...t-update1-.html

 

(Edit: I'm not sure why the message board software is having a problem with the above URL, but it is.)

 

LA Dogtrainer Article #2

 

Each story offers a piece of the puzzle or some little bon mot.

 

 

In California, the recommendations include raising the retirement age and eliminating automatic cost-of-living expenses. Without that, the state may have to boost taxes, which may be a bitter pill for taxpayers to swallow since many of them would not be receiving similar benefits when they retire.

 

 

The funding shortfall would reduce the Defined Benefit Program's funded ratio to about 77 percent, according to the report.

 

If all the losses from 2008-09 were recognized, the shortfall would increase further to about $78 billion and would reduce the funded ratio to 58 percent, the fund said in the report.

 

 

What’s worse, warns Chief Executive Jack Ehnes, the $134-billion fund could be broke in 35 years – the length of a typical teaching career – if the state Legislature doesn’t raise the employer contributions paid by school districts in the next few years.

 

In the meantime, income from CalSTRS investments isn’t likely to fill the funding gap, Ehnes said. The pension fund, which until recently said it needs an average annual return of 8% to keep up with retirees, instead would have to get returns of over 20% a year. Skeptics consider even the 8% figure overly optimistic.

 

I question the "77 percent funded" statistic. If they were 88 percent funded when their portfolio was worth $165 billion, back in 2007, doing the math would suggest that to be 100 percent funded, they would need about $188 billion. Now they have about $134 billion, which is just 71 percent of $188 billion, and from what I read in these articles, not all of their losses have been realized, so can they really say they have $134 billion?

 

 

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As I understand it annual contributions to STRS as a percentage of payroll consist of:

 

8% from employees

8.25% from the employer

and 2% from the state

 

Total 18.25%

 

The STRS actuary says contributions must rise by at least 14% (although it is not explained whether this is 14% of 18.25% or some other number- nothing like transparancy) plus an additional 3% increase for each .25% decrease in the assumed investment return on plan assets below 8.0%.

 

The CEO of STRS says that the legislature must increase contributions paid by school districts to prevent the STRS fund from going bankrupt in 35 years (when none of the current elected officials other than Jerry Brown will be in office- the good news is if Brown continues to be elected the state will save on paying him his pension) in a state where Prop 13 limits property taxes to 1% of assessed value and the increase in the assessed value of property cannot be more than 2% a year and the state is proposing to cut an additional $2.4B from education funding on top of a $13B cut last year.

 

And no one is talking about how the state and local governments are going to pay for the $40B unfunded liability for public employees retiree health care.

 

Just how much do you think the income tax/sales tax rate will have to rise in LA LA land to pay for all of these benefits? VAT tax anyone?

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Fast Facts of CalSTRS: http://www.calstrs.com/About%20CalSTRS/fastfacts.aspx

 

2008 Retiring Class:

 

Number retiring 12,568

Median age at retirement 61.3 years

Median service credit 29.0 years

Average monthly Member-Only Benefit $4,329

 

This is the data that is not usually reported by the main s tream media. People who want to get rid of public pensions are only presented the $100,000+ pension benefits. Read the comments from people on any of the media articles that AC posted.

This sentiment to get rid of public pensions is a result of a complicated set of reactions that are most likely a result of the private sector getting rid of pensions, the ongoing economic turmoil, the anti government sentiment, stagnant wages in the private sector over the last 30 years and the pension managers who took unnecessary risks.

Pension will be adjusted to reflect this new reality.

1.5 cents,

Steve

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Steve, I salute your energy on this site and in the cause in all your free time now. I agree with you on most everything regarding retirement saving.

 

However, I would like to know your feeling on the simple idea of people saving much more so the government reduces its payout. People then retire on mostly what they have saved. Little saved=meager retirement. My suggestion is that you, and I, and people down to about 30 years of age or so would have the system of today while those younger would have to save more and would receive less from STRS. What is wrong with that idea? As I stated before, the options to save need to be high quality and low cost. With that in place, people need to take on the responsibility. Why does a person living in LA on a CalPERS pension need to get $499,000 per year???

 

I read somewhere that the former CEO of GE, Jack something, was making $15,000,000 a year on his investments or some such amount. He also was receiving the maximum amount from SS. That makes no sense. SS does not need to payout so much when a person can save as he did. Most of us cannot save or invest at his rate, of course, but if done intelligently, SS does not need to payout to the extent that the govt. has further financial problems. I simply believe that the individual needs to take the responsibility.

 

Thanks,

Edy

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Hi,

If you want people to be responsible for their own retirement, then they need to have the means to do so. Right now, I consider the 401k and 403b plans to be garbage. The employer choses what you can invest in. Unless I am given the freedom to do my own investing, then people are going to be stuck with poor choices. I don't see anything happening there because the financial industry would lose its cash cow, and they aren't going to let that happen. Reform these plans and then we can talk about making people responsible for their own retirement.

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Why does a person living in LA on a CalPERS pension need to get $499,000 per year???

 

Edy

 

I asked before, but did not get an answer: please identify one teacher who is getting a pension of this size.

 

I direct you to Steve's earlier post:

 

"2008 Retiring Class:

 

Median age at retirement 61.3 years

Median service credit 29.0 years

Average monthly Member-Only Benefit $4,329 "

 

That would be an average pension of $51,948.

 

Why do you insist upon exaggerating the pensions that teachers are receiving?

 

I am not blind to the funding problem. I do, however, want to remind folks that markets go up and down. We have had a brutal decade -- two significant (to say the least) bear markets -- but markets also go up, too. STRS is in this for the long haul, and we should not overreact to short term market declines.

 

This does not mean that I am opposed to reforms, but I think that some long term perspective is needed here.

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And this is germane because... ?

 

Or are you suggesting that saving $130K per year in energy costs will be a good tradeoff for the additional $16 million/year in rent costs?

 

I'm at a loss to understand here. First, we get the socially responsible investing, where return on investment and profitability are subordinated to leftist values, then we double the funding shortfall, and as the article I linked stated, "As the state and many local governments were making painful spending cuts., CalSTRS adopted a $163 million budget for the current fiscal year, up about 18 percent from $138 million last year."

 

Connect the dots for me here, would you?

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socially responsible investing where return on investment and profitability are subordinated to leftist values

 

Hi,

Socially responsible investing is leftist values. That is funny. For the record, I don't own any of those funds.

 

Joe

 

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Hello. The top level for STRS-State Teacher Retirement System- in California is a factor of 2.4.

 

The $499,000 per year pension is for CALPers, which is not a teacher pension, but rather a goverment worker and school classified employee system pension. The top rate in CA for teachers would be 100% of pay at about 42 years of service. Please read my posts carefully.

 

I stated before, that all 403b plans need to have low fee, high quality options available. I recognize from reading at this, BYW excellent site, that not all plans have good options. I have also said that I believe the IRAs should be open to all employees. That includes teachers in CA with a pension. I feel the IRA contribution total needs to be raised significantly and open to all. I have read that a typical teacher draws about 24 months or so the total they actually put into the system. If 36 months or 48 months, okay. The next 25 years or so, for some, are paid by whom???

 

Yes, improvements and reforms need to continue. Hence my original post. Please join me in this effort! Write letters/emails to our representatives??? Run for office???

 

Teachers can retire with perhaps $600 a month from the pension and then draw down their $2M 403b/IRA total saved account. What is wrong with that? Do the calculation. 35 years, at 8% saving $1,000 and incresing it every year or even every other year. This scenario has the teacher investing rather than STRS taking so much. This could be automatic. I know the market goes up and down and TC, in my humble opinion, has the only worthwhile annuity if someone wants an annuity.

 

Again, the solution to SS is the same. This is long term thinking. The future payouts in SS should not exceed $500, for example. These retirees, born after 1985 or so would retire on $500 a month in SS and use THEIR saved 401k/IRA $2M+. The goverment can then not have that drain and more could be put into something else. What is wrong with this???

 

Thanks and this is a valuable and civil conversation. Our state, CA, and our country with SS needs these conversations.

 

Edy

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The $499,000 per year pension is for CALPers, which is not a teacher pension, but rather a goverment worker and school classified employee system pension. The top rate in CA for teachers would be 100% of pay at about 42 years of service.

 

 

OK, how many CalPERS retirees are earning a $499,000 per year pension? School classified employees are making this?! That is ridiculous.

 

I don't know a single teacher who has put in 42 years of service. None! Once again, I direct you to Steve's statistics:

 

"2008 Retiring Class:

 

Median age at retirement 61.3 years

Median service credit 29.0 years

Average monthly Member-Only Benefit $4,329 "

 

And once again, that would be an average pension of $51,948. You make it seem as if teacher retirees are just rolling in the dough.

 

You are putting a great deal of blame on public employee pensions for state fiscal woes. I would argue that there are other factors at work, not the least of which is the worst recession in 70 years. I asked before, but I'll ask again: do you understand that during a recession, state revenues decline? This decline has absolutely nothing to do with state pensions. Do you get this?

 

I do agree with you about the need for teachers to save more, and I certainly agree that there should be far better investment choices. But you weaken any credibility you might have when you are implying that all kinds of state employees (including school classified staff - secretaries, campus supervisors, health assistants, for Pete's sake!) are retiring on $499,000 a year, and you further weaken your credibility when you do not respond to the facts about teacher retirees that are shown above.

 

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