patrick.net

marcus says

Whatever the value, if I received that amount in cash (that is a salary that is 5K higher than mine is now, would you still complain ?

No. But that's not realistic. Just take 2 workers that started working at 25, and are retiring today.

Somebody on SS retiring this year at 67, that earned 50K in their last year, and the SS assumed average rate of increase in earnings, would have a benefit of $1530/mo. The total SS contribution (employee + employer) was about 10% of wages. Their life expectancy is 15.5 years, so that's $285K in total benefits.

A teacher retiring at 55 after 30 years that earned 50K in their last year would have a $2500/month benefit. With a life expectancy of 27.5 years, they'll be getting $825K in total benefits.

OK, so teachers contributions are more, right? It's been about a 20% contribution. However it's only over 30 years, not the 42 years that the SS covered worker worked. Ignoring the fact the SS covered worker has saved LONGER, and so compounding should be more significant, the teacher has contributions of about 42% more than the SS covered worker. That gets them to about $404K (42% more than $285K) total benefits under SS terms.

So there is still a $420K gap, about 1/2 of the teachers total benefits. Essentially you'd have to roughly double your contribution to 40% of salary to get the same deal a SS covered worker gets. So really, this extra benefit is more like 20% of salary.

(don't even get me started on public safety worker pensions, and admin staff raking in $100K pensions)

marcus says

Actually, I believe they have average near 8% for decades.

The only reason they can get away with making this claim is because of the returns smoothing they use. The 90's returns from the stock market we're hardly normal.

According to CTA:

For the ten years ending Dec. 31, 2009, CalSTRS squeaks out a meager 2.9 percent annualized return

http://www.google.com/url?sa=t&source=web&cd=5&ved=0CDUQFjAE&url=http%3A%2F%2Fwww.cta.org%2F~%2Fmedia%2FD35EDDF6A009458299EC8226CE96B478.ashx&rct=j&q=history%20of%20calstrs&ei=UmmaTZTeLJG6sAPCyaSKBA&usg=AFQjCNF7xF7ZqToOGRHHfZk4-GoHhJJnqQ&sig2=eZ1wFn_jizTyHbbZLFjQFw&cad=rja

They got a bump in 2010, but man is their portfolio risky. They need to go back to low-risk fixed income investments like they had 1913-1970, or even mostly pay as you go like SS, and stop making pie in the sky promises that can only be met by deceiving taxpayers about pension expenses.

CalSTRS operates on a pay-as-yougo
mode from 1913 till July 1, 1972.

The more I think about this, the more I think that the whole stock 1980-2000 market boom was due to pensions going into the stock market. In the private market it's explicit with the adoption of 401Ks, etc. In the public pensions, they pretend to be an old fashioned pension like grandpa had, but they invest in equities all the same.

MarkInSF says

So there is still a $420K gap, about 1/2 of the teachers total benefits. Essentially you’d have to roughly double your contribution to 40% of salary to get the same deal a SS covered worker gets.

No teacher retires at 55. The highest multiple doesn't kick in til 60. If you have a financial calculator, check to see the future value of 5K per year invested over 35 years if you get 6%.

Also, SS is not the same, it includes disability, death benefits to children, and also you will get the maximal benefit in far less than 35 years. I'm pretty sure you could not work until 45, and then work for twenty years on SS and get the max.

And again, I'm only comparing cost !!! 5K is a high estimate, I believe the difference is less. Cost, Cost, cost to the employer.

I know you can't hear me or understand what I'm saying, because I've said it before. That's okay, spread your disinformation.

MarkInSF says

The more I think about this, the more I think that the whole stock 1980-2000 market boom was due to pensions going into the stock market. In the private market it’s explicit with the adoption of 401Ks, etc. In the public pensions, they pretend to be an old fashioned pension like grandpa had, but they invest in equities all the same.

PRECISELY!

State run pensions in California were buying up LAND and getting into all kinds of development and property deals. They were on the "stodgy" end of things compared to the rest of the finance world, but still caught up in the same mania. I can't really fault managers for reasonably believing they could promise the good returns that they did. We had many decades of stability since Glass-Steagall, and after it was repealed we have EXPLOSIVE growth. "Oh you aren't into Mortgage-backed Securities? You poor thing, you are MISSING OUT!" The only people talking about risk and bubble, were dismissed as crackpots.

MarkInSF says

the more I think that the whole stock 1980-2000 market boom was due to pensions going into the stock market.

ayup. The leading edge of the baby boom was turning 30 in 1980, time to start investing.

The bumrush into the market was immense . . . ~80 million people aged 15 to 34 in 1980!

marcus says

if you get 6%.

6% real returns? Better add a few percent, because benefits are COLA adjusted. CalPers assumes 7.75% going forward and that still leave them deeply underfunded. Half my point here is that assuming 8% returns, which you're inviting me to do, is nonsense. What if the return is closer to 2.9% nominal like 2000-2010? Plug that into your calculator.

I know you know math, so you know know very well that the compounding effects of 6% over 35 years are radically different than the compounding effects of 8% over those same years. 8% gets you nearly double the results of 6%. So what happens if CalSTRS returns turn out to be a more realistic 6% over the long haul? Or a nice safe laddered mixed term bond yield of 4-5%?

I actually fully agree with the CTA that we need better retirement security for everybody. I just don't think it's possible through the Wall Street speculative/ponzi model on a mass scale.

And I find saying everybody should have a "safe and secure retirement" and criticizing 401Ks as "risky", while simultaneously seeking the best returns for their membership that Wall Street claims to offer, with taxpayers covering their back, to be incredibly hypocritical.

I know unions will be kicking and screaming over this, but hopefully Jerry Brown will get some his proposal through the legislature.

All of Gov. Jerry Brown's pension proposals would apply to both state and local government employees.

• Current and future state and local government employees could no longer buy so-called "airtime," or additional years of retirement credit.

• Public agency employers and employees couldn't skip pension contributions.

• Public agencies would be barred from making an employee's pension contributions.

• Retroactive pension benefit increases would be prohibited.

• Pension formulas would define final compensation for new employees as the highest average annual compensation during a 36-month period.

• Pension spiking would also be barred by defining compensation as regular pay.

• No pension benefits would be paid to anyone convicted of an employment-related felony.

Other proposals under development:
• Imposing a benefit cap

• Improving governance of the state's retirement board

• Limiting post-retirement public employment

• Developing a hybrid pension system using a defined benefit plan and a defined contribution plan similar to a 401(k)

• Addressing unfunded liability at CalSTRS

http://www.sacbee.com/2011/04/01/3519386/jerry-browns-pension-proposals.html

ChrisLA says

My property taxes went up $100 last year to pay these thieves.
CTA goes on NPR, talks up sob stories about how our kids are suffering with too little money in education and than voters cry and go vote a tax increase. God forbid teachers don’t get their full pension gains or yearly raises one year… they shield themselves behind the students. Pathetic and disgusting.

marcus says

No teacher retires at 55. The highest multiple doesn’t kick in til 60.

That's still 10 years too young.

marcus says

Only in chrisLA world are layoffs, and PAY CUTS (that’s right) equal to yearly raises. Class sizes have grown and my pay is lower than it was in 2009. Your attitude speaks volumes (about you) to anyone who know what’s going on.

Marcus, I am making roughly 30% less than I was in 2009. Only teachers out there are the once I see crying that they got a tiny 2% raise, (Encino has a lot of these too). Its like you people live on a different planet out there thinking money grows on trees to pay for your entitlements.

I'm paying more and more in taxes every year, (I'll point out again an extra $100 last year just for owning a property to pay for schools). Kids go to school for only a few years, yet I pay taxes to you people my entire life.

Every time there is talk about cutting school budget, you people start spending millions of dollars on tv advertising hiding behind the children. Perhaps if you spent less on political contributions and advertising, and instead spent it on classrooms, we'd have a whole heck of a better education, smaller class sizes, etc.... It's your personal greed and entitlements in the union that make it so unsustainable, preying on the uninformed naive public.

Average teacher makes 67k and superintendent 157k (not bad for a 9 month gig). (those are official numbers from the state) You telling me that is low? You people got 1 to 2% increases last year for doing the same work and not doing anything more or better. And sob stories won't help much when I can view the ca teacher salary schedule on the government website.

ChrisLA says

Only teachers out there are the once I see crying that they got a tiny 2% raise

ChrisLA says

You people got 1 to 2% increases last year for doing the same work and not doing anything more or better

Okay, if your opinions can't be based on truth, and are based on imaginary "facts" that you pull out of who knows where, could you keep them to yourself? I'll admit that if you went to a public school, it is a fine example of how we need to do much better.

In 2008 our union was still negotiating the contract that started in 2008 (it might have been retro to 2007). What I know for sure, and can easily prove is that our current salary schedule is the same as the 2008-2009 schedule. Except we have furlough days this year so I am making a few % less than what I was in 2008. I'm not complaining, just setting you straight on your BS.

I am at a big school and I'm around teachers all the time, and I follow what's going on with our union. And contrary to your made up BS, I NEVER, NEVER, NEVER, NEVER hear teachers saying we should get a raise (now). Everyone just hopes that our union can minimize what is taken away. They did that a couple years ago with health care.

Readers might find this interesting. The reason no teachers EVER says we should have a raise (since fall of 2008 - remember fall of 2008 ?), is because they are smart enough to know how that go over with the public. Teachers don't feel that we deserve a raise under current circumstances.

And yet, hey, it doesn't matter. This guy will just lie and make it up. He just sort of assumes that teachers are asking for more even now, so hey, he's safe saying they are, even though I swear to you this is total BS. No fricking way. And yes, I would know.

ChrisLA says

Every time there is talk about cutting school budget, you people start spending millions of dollars on tv advertising hiding behind the children. Perhaps if you spent less on political contributions and advertising, and instead spent it on classrooms, we’d have a whole heck of a better education, smaller class sizes, etc….

The campaign you refer to was fighting layoffs and class size increases. There are huge layoffs scheduled again. My average class size is already over 40. Teachers pay a relatively small amount on union dues ($59/month). Just think what I could do with that in my classroom ?

You are unbelievable Chris. The only reason I even respond is that I hate to think of others of similar intelligence who can't think beyond "feelings" that come from god knows where, who might be influenced by your BS.

ChrisLA says

hiding behind the children

FU too. It's not easy to inspire hate from me. I almost never have the kind of negative feelings that you have manged to evoke. Can you please grace us with more of your hatred and ignorance?

zzyzzx says

marcus says

No teacher retires at 55. The highest multiple doesn’t kick in til 60.

That’s still 10 years too young.

IF they paid 8% of their salary in to the pensions fund for 37 years, and the district matched that, and the state pitched in another couple % (sometimes), then the money is there for them to retire.

And if they do, the government wins because they replace them with someone at the bottom of the pay scale.

There are some valid arguments here, but most of the arguing is just fulfilling "divide and conquer" to the satisfaction of the elites.

American in Japan says

arguing is just fulfilling “divide and conquer” to the satisfaction of the elites

I agree and it's amazing. Public schools are as good as they've ever been. Not that they don't need to be WAY better, especially in high poverty areas such as inner city schools, and the boondocks (where they don't get enough resources).

But our overlords have managed to turn the ignorant haters among us (such as Shirk, and ChrisLA) against teachers (of all people). It's incredible if you think about it. How do they do it ? Are humans really that easy to manipulate?

Teachers end up being the "punching bags" for all sort of societies problems not the least of which is poor/non-existant parenting...

I would only say up the qualifications a bit for hiring teachers.

American in Japan says

I would only say up the qualifications a bit for hiring teachers

That makes a lot of sense. Given the economic outlook, we should be able to get more teacher for our money, but that doesn't have to mean lowering compensation.

(note: save it Shirk, we all know I'm a teacher and I have a crazy pro-teacher bias)

401K's and Employer based health care is the Bane of this country and will ultimately be the undoing.

These systems were invented for Big Business to get the Workforce to do Wallstreet's bidding, using the workers money.

It's like getting chickens to pull their own guillotine cord, on the way to slaughter.

Tenouncetrout says

401K’s and Employer based health care is the Bane of this country and will ultimately be the undoing.
These systems were invented for Big Business to get the Workforce to do Wallstreet’s bidding, using the workers money.
It’s like getting chickens to pull their own guillotine cord, on the way to slaughter.

Interesting way of looking at it.

Part of the point of this thread is that RESPONSIBLE pensions systems are mostly pay as you go. The younger generation makes payments to their elders for their retirement security.

That's what social security has done since it's inception. The only reason there is a "trust fund" is that there was a big boomer wave that needed to be accounted for.

CalSTRS, as I noted above (according to CTA literature), was pay-as-you go from its inception in 1913 until 1972, with any surplus in fixed income investments. In 1980 it was still 80% in bonds.

It was only after the ironically named "prudent investor standard" was passed in 1984 that it started putting most of their funds into stocks, and then eventually into highly speculative investments by the late 90's.

This must end, and yet all I see them doing is doubling down.

American in Japan says

There are some valid arguments here, but most of the arguing is just fulfilling “divide and conquer” to the satisfaction of the elites.

Sorry if you think this is "divide and conquer", but this is a very real issue that will need to be addressed in the the coming years. Public unions can no longer deflect attention away from their contribution to fiscal problems by pointing fingers at Wall Street (see first line of original post)

marcus says

Note the term “each individual.” I don’t see conspiracy, but I can see that 10s of thousands of 401K accounts would generate an entirely different kind of business than the deeply discounted fees for huge volume trades that STRS makes.

MarkInSF says

There is a huge gaping hole in this reasoning. Why? CalSTRS itself invests in the very same investment vehicles that those with private 401K invest in.

marcus says

marcus says

Note the term “each individual.” I don’t see conspiracy, but I can see that 10s of thousands of 401K accounts would generate an entirely different kind of business than the deeply discounted fees for huge volume trades that STRS makes.

MarkInSF says

There is a huge gaping hole in this reasoning. Why? CalSTRS itself invests in the very same investment vehicles that those with private 401K invest in.

marcus says

marcus says

Note the term “each individual.” I don’t see conspiracy, but I can see that 10s of thousands of 401K accounts would generate an entirely different kind of business than the deeply discounted fees for huge volume trades that STRS makes.

That's the only point they were making.

OK, point taken about the fees investment firms could skim.

It's actually not true that the fees are high unless you invest the wrong way or buy and sell a lot, but it does open up the possibility of the the unwary being taken advantage of.

Still:

1) The CTA derides 401Ks as "risky", while simultaneously investing in ways that are at least as risky as a typical 401K. And,

2) They (and you) refuse to recognize that the only reason their defined benefit pension fund is not "risky" is that they can just get more money from taxpayers, or from the increased contributions of new hires.

MarkInSF says

1) The CTA derides 401Ks as “risky”, while simultaneously investing in ways that are at least as risky as a typical 401K. And,

In a 401k, you the individual is in charge of the diversification or which mutual fund and timing. That is relatively risky compared to having a team of pension fund managers managing it, as they have quite well over the years.

MarkInSF says

2) They (and you) refuse to recognize that the only reason their defined benefit pension fund is not “risky” is that the can just get more money from taxpayers, or from the increased contributions of new hires.

As you know, I am quite certain that if the pension fund screws up in too big of a way, or if the markets crash in some kind of unprecedented way, that their hedging doesn't cover, my contribution would be raised, and yes it would cost the state something, But the public and the constant massive deficit situation of California would prevent them from covering more than a reasonable amount of it. California isn't that far from bankruptcy now, so they could wiggle out of too big a liability. You see tweaks happening now. Contributions will be raised. I see your point, but it's not as bad as you say. I would argue that they actually could even lower payout, if push really comes to shove.

marcus says

In a 401k, you the individual is in charge of the diversification or which mutual fund and timing. That is relatively risky compared to having a team of pension fund managers managing it, as they have quite well over the years.

CTA/CalSTRS got a 2.9% return from 2000-2010. I did better than that with my IRA that I barely looked at over that period.

In charge of diversification and timing? Most people just contribute to a fully diversified stock and/or bond fund every month, and let it ride. Diversification is brain dead simple. Timing is a mostly a fools game, and in any event it's zero sum. If CalSTRS made profits from timing, that means it came at the expense of someone else's bad timing.

Sure, you can claim 401Ks, IRAs, etc. have the potential to be more risky, if people for some reason base all their retirement future on tech stocks or something, but for almost everybody it's no more risky than what CalSTRS does. CalSTRS even does private equity investment, which quite frequently goes to 0.

marcus says

my contribution would be raised

For somebody retiring in the near future, or for the 100's of thousands already drawing their promised pensions, that is irrelevant. It mostly affect newer hires.

marcus says

I would argue that they actually could even lower payout, if push really comes to shove.

By CA constitutional law the payouts already accrued cannot be lowered. There may be some legal maneuver, or court decision, or proposition that allows it the future, but it's not easy.

Compare my IRA risk vs. your pension risk:

My risk: Market falls, and I get less retirement benefits.

Your risk: Market falls, and you *might* loose some benefits if radical changes happen to the law, that will be vigorously opposed by your union.

Those risks are hardly comparable.

MarkInSF says

Those risks are hardly comparable

Yes, and you too could be in a pubic service highly stressful job, getting these benefits that cost the State maybe 5K/yr more than if they used SS. Even if you want to somehow account for the risk (ie think insurance) of some future (financial crisis) cost to the state, that too can be quantified, discounted, and it is finite.

Get over it man.

MarkInSF says

CalSTRS got a 2.9% from 2000-2010

Can you tell me where you got those numbers, and also, do you know what the 20 year numbers look like ? You picked a time frame that had 2 very ugly down turns. And yes, they were affected by the Morgage Backed securities fiasco. But it would seem the fund survived, considering.

Over the past 20 years CalSTRS has averaged an annual investment return
of 8.2 percent

Contributions by the State of California to the Defined Benefit Program actually
declined from 4.607 percent in 1998 to the current level of 2.017 percent.

Can you tell me where you got those numbers, and also, do you know what the 20 year numbers look like ?

2.9%. From the CTA website.

http://www.cta.org/~/media/D35EDDF6A009458299EC8226CE96B478.ashx page 9

The 20 year returns were mostly from from the late 90's where they made very risky bets that paid off. Contributions were almost meaningless, since the returns were so high. You really think that's going to happen again in your lifetime? You really want to come tax me if they don't?

http://calpensions.com/2010/07/27/sb400-pension-boost-uncanny-forecast-unheeded/