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Polly Bacich
Thirty-five years ago, California's State Teachers' Retirement System was in dire straits. It provided a meager pension to the state's retiring public school educators and had on hand less than one-third of the money necessary to provide future benefits to its members.
Fast forward to today and we have a system that has grown to the second-largest public pension fund in the nation. With $140 billion in assets, the system is funded at 83 percent. It provided an average benefit equal to about two-thirds of a retiree's working income, hardly excessive when you consider that retired teachers don't receive Social Security. Teacher and school district contribution rates have remained stable for nearly 30 years. The state has actually pared its contribution rate to the system by nearly 50 percent during the past several years, saving taxpayers nearly $3 billion.
By most accounts, this would be a remarkable success story. Instead, opponents of traditional guaranteed pensions focus on the projected shortfall in the system and warn of runaway pension costs that threaten to bankrupt the state.
Opponents of traditional pensions like to lump public systems together and then selectively pick their facts to portray them all as ticking fiscal time bombs. But public plans at the state and local level are all very different. Each faces specific challenges and plan administrators are all working on solutions particular to their system.
The teachers retirement board, for example, is assessing a dozen different options to close the projected shortfall in its plan. But there is no crisis atmosphere. Even if they took no action, the system could continue to pay full benefits for another 60 years without any increase in current contribution levels.
The real crisis facing us is the looming economic and social impacts of the baby boomers retiring without guaranteed income beyond Social Security. Millions of workers have been stripped of their pensions in recent years. It started in ailing industries, such as steel and airlines, but has since spread to profitable companies, such as IBM and Verizon.
Most of these workers have to rely on 401(k) plans to fund their retirement. These plans are great tax-advantaged savings tools but they fall well short of a real reliable pension.
Studies have shown that workers earn less than half the rate of return that professionally managed investment funds do and pay higher fees. Returns of just 2 percent less a year can reduce retirement savings by 40 percent or more over a 30-year career. Half the time employees just cash out of their plan when changing jobs. A sudden market downturn, or unexpected health care costs, can just as easily wipe out these savings accounts.
These alarming facts certainly provide opponents of public pensions with ample opportunity to play the politics of resentment. Through an amazing bit of political sleight of hand, they have diverted public attention to pension plans that actually provide financial security in retirement.
American society will be a grim one indeed in the not-too-distant future if we don't reverse these trends. Rather than tear down public pensions, we should all be working to restore private ones. The federal government needs to address these developments, or it will be ultimately saddled with the burden of providing for a growing number of poverty-stricken retirees.
ooo
Polly Bacich is director, Area II, California Retired Teachers Association, Grass Valley.
Fast forward to today and we have a system that has grown to the second-largest public pension fund in the nation. With $140 billion in assets, the system is funded at 83 percent. It provided an average benefit equal to about two-thirds of a retiree's working income, hardly excessive when you consider that retired teachers don't receive Social Security. Teacher and school district contribution rates have remained stable for nearly 30 years. The state has actually pared its contribution rate to the system by nearly 50 percent during the past several years, saving taxpayers nearly $3 billion.
By most accounts, this would be a remarkable success story. Instead, opponents of traditional guaranteed pensions focus on the projected shortfall in the system and warn of runaway pension costs that threaten to bankrupt the state.
Opponents of traditional pensions like to lump public systems together and then selectively pick their facts to portray them all as ticking fiscal time bombs. But public plans at the state and local level are all very different. Each faces specific challenges and plan administrators are all working on solutions particular to their system.
The teachers retirement board, for example, is assessing a dozen different options to close the projected shortfall in its plan. But there is no crisis atmosphere. Even if they took no action, the system could continue to pay full benefits for another 60 years without any increase in current contribution levels.
The real crisis facing us is the looming economic and social impacts of the baby boomers retiring without guaranteed income beyond Social Security. Millions of workers have been stripped of their pensions in recent years. It started in ailing industries, such as steel and airlines, but has since spread to profitable companies, such as IBM and Verizon.
Most of these workers have to rely on 401(k) plans to fund their retirement. These plans are great tax-advantaged savings tools but they fall well short of a real reliable pension.
Studies have shown that workers earn less than half the rate of return that professionally managed investment funds do and pay higher fees. Returns of just 2 percent less a year can reduce retirement savings by 40 percent or more over a 30-year career. Half the time employees just cash out of their plan when changing jobs. A sudden market downturn, or unexpected health care costs, can just as easily wipe out these savings accounts.
These alarming facts certainly provide opponents of public pensions with ample opportunity to play the politics of resentment. Through an amazing bit of political sleight of hand, they have diverted public attention to pension plans that actually provide financial security in retirement.
American society will be a grim one indeed in the not-too-distant future if we don't reverse these trends. Rather than tear down public pensions, we should all be working to restore private ones. The federal government needs to address these developments, or it will be ultimately saddled with the burden of providing for a growing number of poverty-stricken retirees.
ooo
Polly Bacich is director, Area II, California Retired Teachers Association, Grass Valley.
