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Calstrs Underfunded By $42.6 Billion

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Hi AP,

The superintendent of LAUSD makes $250,000 a year. He is the highest paid employee in LAUSD. So when he retires, I guess his retirement doubles to $449,000 a year.

 

One little note: when I first went into teaching a long time ago, a friend of mine who worked in business thought I was crazy for working for such low wages while he was making, I guess, big bucks. Now that I am retired, and he is still working, he thinks I am ripping off the system. Well, I guess he should have been a teacher.

 

Best Wishes,

Joe

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Hi,

Back in 2005, I asked STRS a question about how long a teacher collect benefits. Here is my question and a response:

 

Hi, I would like to know what is the average length of time that an STRS members collects retirement before passing away? I have heard that is a relatively short period of time. Thank you. Joe MacDonald

Response:

Dear Mr. MacDonald, Thank you for submitting an online message to the California State Teachers’ Retirement System. We don't keep statistics but in a 2002 letter drafted by the Office of the Actuary, they found the following results: 75.7% have been retired five + years; 53% have been retired for 10+ years; 33.8% have been retired for 15+ years; 18.4% have been retired for 20+ years.

I thought these numbers were sobering. For myself personally, I am more concerned about my longevity than the funding for STRS. Only 18% were still collecting benefits at 20 years. Have a good retirement while you can.

 

Joe

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Hi,

Back in 2005, I asked STRS a question about how long a teacher collect benefits. Here is my question and a response:

 

Hi, I would like to know what is the average length of time that an STRS members collects retirement before passing away? I have heard that is a relatively short period of time. Thank you. Joe MacDonald

Response:

Dear Mr. MacDonald, Thank you for submitting an online message to the California State Teachers’ Retirement System. We don't keep statistics but in a 2002 letter drafted by the Office of the Actuary, they found the following results: 75.7% have been retired five + years; 53% have been retired for 10+ years; 33.8% have been retired for 15+ years; 18.4% have been retired for 20+ years.

I thought these numbers were sobering. For myself personally, I am more concerned about my longevity than the funding for STRS. Only 18% were still collecting benefits at 20 years. Have a good retirement while you can.

 

Joe

 

Thanks for that great info, Joe. So it looks like about half of teacher retirees don't even make it to a ten-year retirement. Using Steve's figures of an average pension of about $51K, that means that about half of STRS retirees won't even collect the infamous $499,000 in their entire retirement, let alone in one year of retirement.

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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?

 

 

Why? You are the one brought up the new building. I was just presenting some facts. Here is what I think about this thread so far.

When you bring up political divisive topics outside of your OP about the underfunding of CalSTRS, any reasonable discussion ends. CalSTRS moved to a new building, nothing new about progress. Sure, it was a bad economic time, does not have good PR and yea they screwed up with overly risky investments. Now What! The financial mess was brought on by other entities other than teachers and their perceived overly "generous" pension benefits. Times change, improved technology, more teachers retiring, bigger assets to handle, our society is getting more complicated and the fact that in the long run, a new building might save money.

As Joe said, people laughed when we went into teaching because of the low pay. Do you know what my starting salary was? $19,000 in 1984, but I still saved in my 403b and I had a pension in which 8% of my low salary went into this pension. 8%!!! In 1983, starting salary at LAUSD was $12,500!!!!!!!!!!!! Yes it was. But don't listen to me.

 

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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.

 

 

 

Edy,

We are with you Edy and have been for many years. With all due respect, the personal responsiblity for retirement planning has been preached around here for a long time and what you are posting is preaching to the choir.

 

Regarding CalSTRS. I agree that future benefits are going to have to be adjusted, but your data for supporting this is wrong. You are greatly misinformed about the exact benefits that teachers are getting. Your point is made but you don't have to exaggerate the data. Here are the facts:

•There are 3,090 retired educators collecting pensions in excess of $100,000 in California, most of them superintendents and other high-level administrators.

•The average retired teacher, in contrast, collects just $36,252 a year.

•Educators in the $100,000-Plus Pension Club are just a small fraction – 1.6 percent – of California’s 196,000 retired educators.

 

for entire article:

http://taxdollars.freedomblogging.com/2010...-schools/50547/

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Why? You are the one brought up the new building.

 

Rightfully so. This is a thread about a funding shortfall, and by implication, stewardship. Anything that contributes to the funding shortfall is germane to the discussion.

 

 

I was just presenting some facts. Here is what I think about this thread so far.

When you bring up political [sic] divisive topics outside of your OP about the underfunding of CalSTRS, any reasonable discussion ends.

 

Says who? You say that this is political or divisive, but on what grounds? If things go their usual way, I'm going to be surrendering 8% (or more) of my pay to these people for another 20-30 years, and my employer will be doing essentially the same. That gives me or any other member a right to raise these points, and there's no reason not to expect a civil, reasonable discussion of them.

 

If CalSTRS is fully funded, it is less reasonable to criticize their management, because they are being good stewards, and they're fulfilling their responsibilities. That doesn't give them carte blanche to do as they see fit, but it does give them more license to pursue investments with a lower (or higher) ROI for whatever reason(s), or to upgrade their location and infrastructure. But since they are not fully funded, their actions naturally require justification and invite increased scrutiny.

 

At the same time, it would be refreshing to see the CTA/CFT using their power and influence to do something helpful for their members, and this is one instance where they could probably be very helpful in a number of ways. At the very least, they could make a substantive effort to bring this to the attention of their members. But not a sound from them...

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Regarding CalSTRS. I agree that future benefits are going to have to be adjusted, but your data for supporting this is wrong. You are greatly misinformed about the exact benefits that teachers are getting. Your point is made but you don't have to exaggerate the data. Here are the facts:

•There are 3,090 retired educators collecting pensions in excess of $100,000 in California, most of them superintendents and other high-level administrators.

•The average retired teacher, in contrast, collects just $36,252 a year.

•Educators in the $100,000-Plus Pension Club are just a small fraction – 1.6 percent – of California’s 196,000 retired educators.

 

for entire article:

http://taxdollars.freedomblogging.com/2010...-schools/50547/

 

Steve,

 

It's interesting that when we present facts about teacher pensions, there is not much of a response from those who are convinced that we are fleecing the state. It's pretty difficult for the other side to argue that an average pension of $36,252 a year is excessive. So instead, they ignore the facts and throw out figures like $499,000, as if that were a typical state pension.

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Why? You are the one brought up the new building.

 

Rightfully so. This is a thread about a funding shortfall, and by implication, stewardship. Anything that contributes to the funding shortfall is germane to the discussion.

 

I was just presenting some facts. Here is what I think about this thread so far.

When you bring up political [sic] divisive topics outside of your OP about the underfunding of CalSTRS, any reasonable discussion ends.

 

Says who? You say that this is political or divisive, but on what grounds?

 

I agree that your OP is not political or divisive, but your comment about certain investments being "leftist" certainly is. Stick with the topic and the facts, not political remarks.

Teachers are not draining the CalSTRS treasurery, like you and Edy are claiming. The shortful exists because CalSTRS took on reckless risks, but they are no different than many other pensions and private endowments like Yales University's David Swenson, I mentioned this before, but you want to make a fruitless point over and over.

You are ingnoring the facts about the benefits of teachers.

Instead of tearing down the entire system, blaming teachers for excessive benefits, which is NOT true, CalSTRS could use index funds for their domestic and international equities for broad diversification and to cut expenses and to stop using risky investments. I agree with Edy about educating teachers on how to invest. CalSTRS needs to be a lot more agressive on letting teachers know that future benefits are going to be cut and they need to use the Pension2 403b.

 

Steve

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Steve, I would invite you to go back and re-read the thread.

 

Nothing I posted claims or suggests that teachers are "draining the CalSTRS treasurery [sic]" as you put it.

 

With regard to the SRI, it is entirely consistent with a leftist agenda. You don't typically find conservatives advocating SRI; you find libs like Phil Angelides and former Governor Jerry "Moonbeam" Brown. If you can furnish some examples of legitimate conservatives who have advocated similar investing "strategies," which subordinate investment returns to a political agenda, please feel free to cite away.

 

I have not posted anything which claims or suggests that "tearing down the entire system" is what we ought to do, nor anything "blaming teachers for excessive benefits."

 

My criticism of CalSTRS has been consistent over the last year: their execution of their fiduciary duties could have been better. You appear to agree with this in one paragraph and then to disagree in another. You can't have it both ways.

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Hello again. I have not been on because I am busy with other parts of life--spouse, children, teaching, house, etc. Yes, I am a teacher in a public school district in Southern California and have been in the profession for 30 years. I have not misrepresented anything. The top retiring teacher in my district retires with a top annual pay of about $93,000. With the age factor of perhaps 2.4..................Others don't make as much and some are not at the factor of 2.4. Understood.

 

The CALPers pension is with a former city manager or something. He makes $499,674 to be exact. Please do a google search on this if you wish. Many others are also highly compensated in the sytem. As I understand it, that system allows for double dipping. Work for years in a locale, get the pension then work in another locale in the same type work and get another pension. This needs reforming. Payout less and the employee saves more over a 35 or so work career rather than asking you and me to pay for it.

 

 

 

Social Security is constantly being touted as one of the big three that is breaking the US govt. This needs to be reformed. This is solved by lowering the payout for those born in 1980 and later. These folks must then save massively in their IRA/401K/457.

 

STRS will be more solvent by lowering the payout for those hired after 2000, for example. These folks then save massively in their 403b.

 

I have suggested that all these plans need reforming so as to be high quality and low fee--same as this site. I suggest that IRAs become available to teachers. I suggest that the limits for IRAs and 403bs be increased.

 

I have misrepresented nothing and am busy with life and for that cannot reply within 15 minutes of another's post.

 

WE need to continue working on ensuring that all employees have quality options for investing. I agree and am an obnoxious voice of this in my district. I have spent hours on the phone trying to get TRPrice and Vanguard back on the list. Currently, we have Fido and CALSTRS P2 and these are the two I use. In the 457, I use TC. Broadly diversified--large, small, growth, value, foreign, domestic, long/short/medium bonds, TIPS, REIT. I asked my district to just dump the rest and, naturally, they said that other folks are investing there (with their sharks) and cannot dump them. On this thread, I suggested letter writing to our representatives. I suggested that someone run for public office to have a frontline forum for these reforms.

 

I think we are basicallyon the same page, most of us anyway, except that I had the audacity to go one step further. With quality choices, ALL employees should save more and the govt. should back out of funding this.

 

Save big--live big.

 

Thank you again for the civil conversation on this extremely important topic.

 

Edy

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Yep, the guy does exist:

 

"Bruce Malkenhorst, a municipal government retiree from Vernon in Southern California, heads the list with an annual pension of $499,674.

 

Donald Gerth, the former president of California State University, Sacramento, ranks third in the list with a cool $278,054 annual pension."

 

However, my point remains: these are not exactly typical pensions. I refer you back to Steve's post where the average STRS retiree makes about $36,000. Simple question, Edy: do you believe this is excessive?

 

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Hi,

I googled Malkenhorst. Here is what I found:

Malkenhorst is charged in case No. BA312388 with 18 counts of misappropriation of public funds for allegedly taking $60,000 of city money for personal use. His salary from the city had been $600,000. Malkenhorst's pension is $499,674.84[11] according to information obtained from CalPERS under the Freedom of Information Act.
The smallest town in Southern California pays this guy $600,000 a year. Well, you have to wonder about that. Read about Vernon here: http://en.wikipedia.org/wiki/Vernon,_California

 

Joe

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Hello, AP.

 

My suggestion on this topic is simply a solution to the long term funding problem. The factor was increased to 2.4 back in 1997 or so by then Gov Davis. As we all recall, that was a time when the market was gaining seemingly by the minute.

 

The question now becomes whether we can always afford the 2.4 factor indefinitely. It appears not. That 2.4 was raised during a bubble. Was that wise? I celebrated at the time along with all other teachers as I looked at having a larger pension. Now, however, we look at a massive shortfall and what will the next 40 years look like? Or 50 years? Or 60 years? Does STRS need to increase their withholding to 20% or 25% or 28%? What will happen? Or does the govt. need to kick in more? I suggested a solution for the long run.

 

To answer your question, no, by itself, it is not excessive. But taken in the context of a massive shortfall and multiplied by tens of thousands of other retirees who, over a 35 year career, had the option to save, it seems problematic. I agree that stinko options are really no options at all.

 

Someone earlier posted that there is no discussion on this until the current 403b/401k plans are reformed. I agree and said that in an earlier post. WE MUST have some reform of those so ALL of us, any employee in the US, have good options from which to choose. I don't know why anyone would hammer me for saying that.

 

In an ideal situation, this $36,000 pensioner could receive perhaps $600 and then draw from his/her $2M account that he/she saved in Vanguard over 35 years.

 

My suggested solution to the shortfall is only for those recently entering the profession. The current folks and those close, of course, cannot have that change.

 

My concern is for the long term solvency of the system just as with SS. I mentioned the CALPers situation simply as another example of a system that also must be reformed if it is to maintain long term solvency.

Some angrily and immediately jumped to the erroneous conclusion that I said the folks you mention above were teachers. CALPers and CALSTRS are different systems and different employees. I say that both need reforming, along with SS.

 

In one post, Steve had asked what I am doing in the reform movement. I mentioned some things I am doing in my district. Hopefully others are doing the same in theirs. I have saluted Steve in his efforts in LAUSD, and I hope he and others continue his good fight for quality options.

 

This is the first time I have participated to such an extent on this site in a discussion because of the looming fiscal disaster that seems to be coming in our state over STRS and CALPers as well as SS at the national level. Hence, my posting.

 

Again, WE all need to assist to make sure all employees have quality options. One possible way to do that is to eliminate all 403b/457s/401ks and make only IRAs available to all employees in the US which then enable a person to invest in basically anything for their future retirement needs. The limits on this should be around $30,000.

 

Yes, reform these plans so all have quality options and yes back the govt. out while the future retirees save more.

 

Edy

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Hi Steve. Interesting article. To be sure, leaving employees to fend for themselves without knowledge of anything would be unwise. This article presents an interesting possibility. As mentioned here, my concern is simply with future sustainability with the system's burden.

 

With two major market drops in ten years, where will STRS be with the next one, two, etc? Will the issue be deeper than it currently is? I am afraid this might be the biggest financial crisis facing teachers going forward. If options stink for so many and the burden is too stiff with increasing retirees and life spans, what will be the outcome???? If we have market drops of this magnitude every ten years, what will STRS do, or SS, or CALPers? Hence, my comment that this is an important discussion point.

I suppose other states may be facing the same type situation for employee DB plans.

 

Keep up the good work in posting useful articles.

Edy

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