Rich Ulrey’s declaration that Defined Benefits are unsustainable and are the major cause for municipalities declaring bankruptcy leaves much unsaid.
For starters, here’s a statement which distinguishes between a DB (defined benefit) plan and a DC (defined contribution plan). The main difference between DB and DC plans is that DB plans are pooled retirement plans, and DC plans consist of individual accounts.
Stemming from this, DB and DC plans differ in contributions, investments, money in retirement, payout in retirement, and supplemental benefits.
In the public sector, PERS contributions are made on behalf of an employee by the employer and are “contributory,” meaning employees also contribute to the plan out of their paychecks.
The contributions amounts are negotiated so you often find the amount contributed by employer and employee from county to county will differ.
The State Teachers Retirement System is a defined benefit plan, but differs considerably from defined benefit plans in the public sector.
The contributions levels for teachers and districts are set by the state legislature. There is no negotiating or differences from one school district to another.
Contributions for all employees are pooled and invested by professional asset managers in a range of assets — stocks, bonds, real estate, etc and the monthly benefit is determined by a set calculation — usually based on years of service and pay at the end of one’s career.
The recession of 2008 created a major problem for STRS investments, as it did for all investors. The governor and the state legislature have recognized what must be done to sustain the STRS system and have increased the contribution levels across the board.
Again, all teacher contributions and district contributions are the same throughout the state. It will take time, but the system will work back to full funding.
Because of the long-term nature of pensions, funding caps can be filed gradually over time.
Finally, criticism of the defined benefits neglects to deal with the economic impact of public pensions. Pensions serve 4.5 million pubic sector retirees. They are a critical lifeline to America’s middle class seniors.
Pension expenditures also help boost local economies, making them good for local businesses nationwide.
A Economic Impact Study of CalSTRS Pensions in 2013 indicated the following: $11 billion total output, equivalent to California’s wine industry, payments totaled $9.2 billion with about $7.6 billion expended across California, creates 92,815 jobs;$4.4 billion labor income, $1.2 billion is associated tax payments to the state and local government, the state pays about $1.3 billion to CalSTRS; approximately $677 million is returned to the state in taxes,
States that have studied the issue have concluded that continuing to provide retirement benefits via DB pension plans meets the joint interests of fiscal responsibility for employer and taxpayers, and retirement security for employees.
Polly Bacich is the past president of the California Retired Teacher Association. She lives in Grass Valley.
(C)riticism of the defined benefits neglects to deal with the economic impact of public pensions. Pensions serve 4.5 million pubic sector retirees. They are a critical lifeline to America’s middle class seniors.