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Current Issue: Summer 2016

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Retirement Security

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Retirement Security
By: Richard Hansen and Howard Stahl

The key to the golden years vision of retirement is security. This allows us a place to live, food on the table, access to health care, and enough left over to engage in those activities deferred during their career. Public employees make this trade-off through their working years: acceptance of a lower salary in exchange for deferred compensation in the form of a defined benefit retirement plan (available to full-time faculty and to many, but not all, part-timers).

Even before the Great Recession, public employers across the country, including the federal government, have sought cutbacks in public pensions. Some of these are modest, like anti-spiking provisions, while others have demanded conversion of defined benefits to 401(k)-style privatized defined contributions. Through all this, faculty must understand their retirement benefits and engage in the fight for pension security.

Created in 1913, the CalSTRS pension system was designed as a retention tool for career educators and to provide retirement security for its participants. Over the past century, it has met these objectives. Forty-nine percent of educators covered by CalSTRS retire with 30 or more years of service. Once vested in the pension system, few teachers leave before retirement age (75% of all active educators have worked at least 20 years). Both students and employers benefit from this stable, experienced workforce.

Unfortunately, CalSTRS benefits never quite equaled those of CalPERS. Prior to World War II, the workforce was nearly exclusively male; teaching was one of the few areas dominated by women. As such, the public policy prioritized husbands over wives whose salaries were seen as supplemental. In this context, CalPERS historically benefitted men; CalSTRS, women.

To this day, the various formulas in CalPERS are more favorable than CalSTRS, and CalPERS participants also benefit from continuing contributions to Social Security (it’s a lingering calamity that CalSTRS participants who had been previously vested in Social Security are punished via the Government Pension Offset and Windfall Elimination Provision of the Social Security Act). Nonetheless, CalSTRS benefits were dramatically increased in the late 1990s and early 2000s due largely to the collaborative advocacy efforts of FACCC and the Los Angeles College Faculty Guild.

Fifty years ago, the majority of workers in the private sector were also covered by defined benefit plans provided by the employer. Fast forward to today with most private-sector workers moved into defined contribution privatized accounts, typically 401(k) plans. When originally created, the 401(k) was intended to supplement a defined benefit pension. Now, 85% of all private-sector workers are covered by 401(k) plans whose balance and level of benefit fluctuate with the stock market. It’s no wonder that those who attack public pensions (typically funded by interests that benefit from privatized systems) continually foment “pension envy” as their modus operandi. The intended result of the privatizers is to rile the private sector employees against their government counterparts to ensure that public pensions are no greater than those available to the corporate world.

The Democrat-controlled Legislature and Governor Brown have attempted to forestall various efforts at a ballot initiative to eliminate the current defined benefit system for public employees. For the most part, the Legislature has kept the structure of defined benefit alive while reducing the actuarial shortfalls. This action, while requiring smaller pensions for newer employees, blunts the opposition message that taxpayers will be on the hook for massive obligations.

Privatization advocates have not disappeared with San Jose Democrat Chuck Reed and San Diego Republican Carl DeMaio leading the charge. They continue to threaten ballot initiatives while disparaging public pensions at every turn. Last year, they persuaded an appellate court to deny the existence of the so-called “California Rule,” which states that a public employer cannot reduce a benefit for an active employee without offering an exchange of equal or greater value. While the case has been appealed to the California Supreme Court, the ruling reflects a dangerous victory for privatizers.

Faculty need to begin making the case now to our friends, neighbors, and private sector colleagues on why our pensions are both appropriate and justified. We cannot wait for a ballot measure to start the process. By then, it will be too late.

It is incumbant upon us to explain that while we may have modest, but appropriate, defined benefit plans, they reflect years of deferred contributions in the form of lower salaries. Essentially, it’s a trade-off we made when we entered the workforce. This simple concept is easy to explain but is barely understood by those who may be asked to vote on our retirement.

We can make allies on this cause if we start now. Instead of making our defined benefit the source of contention, we should help our colleagues in the private sector question why they don’t have similar access. We cannot stop getting older, but we can work toward pension security for all.

Against this backdrop, three separate attempts have already been made to strip California’s public employees of their defined-benefit pensions and replace them with 401(k)-type savings plans. These attacks were fueled by reports about the compensation provided to state pensioners by CalPERS and CalSTRS. Nonetheless, the average annual CalPERS pension is $36,000, with CalSTRS at $52,500 (remembering that K-12 and community college retirees have typically little to no Social Security benefits). Neither pension figure is outrageously high for a lifetime of working and employee contributions.

Everyone deserves retirement security to enable them to enjoy their golden years. Helping all workers to participate in a defined benefit pension plan is the surest way to achieve this goal.

Richard Hansen is an emeritus math instructor at De Anza College and Howard Stahl teaches computer science at Santa Monica College.

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