By Richard Bammer
Travis Unified leaders heard a sobering account Tuesday of how Gov. Jerry Brown’s latest state budget may affect the Fairfield school district, with a finance official pointing out several caution-worthy variables, including inflation, capital gains, and per-pupil funding.
But perhaps most significantly for the district’s bottom line in the coming years are employee pension costs, said Ken Forrest, chief business officer for the 5,100-student district.
Like other California districts, Travis faces increased employee and employer contributions to the state teachers (CalSTRS) and state employee (CalPERS) retirement systems.
via Employee pension obligations worry Travis school district officials.
The two recent pension accounting standards issued by the Governmental Accounting Standards Board (GASB) make fundamental changes to how state and local governments account for their costs and obligations relating to employee pensions. This letter augments the considerable body of information about the new standards that is available from other sources, and discusses certain implications for California local educational agencies (LEAs).
The guidance in this letter supersedes the guidance in the 1996 Management Advisory 96-03 from the California Department of Education (CDE) relating to accounting for on- behalf pension payments made by the state.
SYNOPSIS OF NEW REQUIREMENTS
GASB Statement 68 (GASB 68), Accounting and Financial Reporting for Pensions—an amendment of GASB Statement No. 27, introduces new requirements for accrual-basis recognition by state and local governments of employer costs and obligations for pensions. Although GASB 68 relates to accrual-basis financial statements, for California LEAs there are implications for governmental fund statements as well.
via New Financial Reporting Requirements for Pensions – Correspondence (CA Dept of Education).
By Chad Aldeman
In theory, defined benefit pension plans like those offered to 9 out of 10 teachers offer career public servants a steady stream of retirement income, adjusted for inflation as they age, that’s guaranteed to last their entire lifetime.
In practice, only half of teachers stick around long enough to qualify for any pension at all. Those that do must remain 20, 25, or 30 years in order to qualify for a pension worth more than their own contributions. And in a field with significant turnover, only a tiny percentage of teachers last a full career and qualify for the theoretical, idealized pension.
Unfortunately, too much of our debate about pensions focuses on theory rather than reality. The latest example comes from a report from William B. Fornia and Nari Rhee published by the National Institute on Retirement Security NIRS, in which the authors attempt to estimate whether pensions or 401k-style defined contribution plans are a “better bang for the buck.”
via Pension Theory Versus Pension Reality – Education Next : Education Next.
By Chad Aldeman
Andrew Biggs has an interesting new report for the American Enterprise Institute investigating the generosity of public-sector pension plans.* He finds that, for the average full-career state worker, traditional defined benefit plans are working quite well and many of these workers are de facto “pension millionaires” because of the amount of money they can expect to receive in retirement.
How does this square with reports from some states that the average pension is quite modest? As we’ve written about for teachers in Illinois and California, the “average” pension is skewed by many employees who qualify for only a very small pension. It’s not accurate to use the statistical average as any indicator of actual payments. To find the typical pension payment, it would be better to look at the statistical median (the midpoint) or even the mode (the most common) amount.
via How Generous Are Public Pensions? – Education Next : Education Next.
By Teague P. Paterson
Now that a pension-modification measure proposed by San Jose Mayor Chuck Reed will not appear on the November statewide ballot and a court ruling has blocked San Jose from slashing employees’ vested pension rights, opponents of public pensions are falling back on their old, false argument.
It’s a hackneyed line with little truth: Public employee labor unions are not willing to negotiate. That could not be further from the truth.
via What’s next for public employee pensions? – Viewpoints – The Sacramento Bee.
David Crane, a businessman who advised former Gov. Arnold Schwarzenegger on financial matters – particularly long-term public pension deficits – recently wrote an I-told-you-so piece for the Bloomberg news service about the State Teachers Retirement System.
He and others had postulated last year that if voters approved the sales and income tax hike being sought by Gov. Jerry Brown, they would see the money disappear into CalSTRS, rather than into classroom instruction, as Brown, et al., insisted.
via Dan Walters: California Legislature ignoring teacher pension gap.
When Gov. Jerry Brown talks about paying down the state’s “wall of debt,” he doesn’t mention the state teachers’ retirement system. And yet the towering $73 billion unfunded shortfall in the state pension fund for teachers and administrators, the California State Teachers’ Retirement System, makes Brown’s wall, at about $30 billion, look like a picket fence.
On Wednesday, at a joint legislative information hearing, speakers from CalSTRS, groups representing educators, and the Legislative Analyst’s Office urged the Legislature to act now to address the outstanding liability. If nothing is done, CalSTRS won’t have enough money to cover the retirement benefits it promised to the teachers and administrators who will one day be drawing it down. Fully restoring the financial health of the pension fund will be tremendously expensive – requiring $4.5 billion to $5 billion annually in additional contributions, primarily by school districts and the state.
via Solving teacher retirement system’s shortfall would cost billions – by John Fensterwald.
The California Public Employees’ Retirement System has reported – with no small elation – that it has recouped virtually all of the $95 billion in investment losses it sustained during the global financial crisis.
A steadfast investment strategy and a generally rising stock market are responsible for the recovery, CalPERS says.
via Dan Walters: California pension funds still face huge liabilities.
Mention “double-dipping” in a conversation about public pay and be prepared for the acrimony it’s sure to elicit. Penny-pinching taxpayers just don’t like the idea of public employees drawing a pension and a salary at the same time.
When double-dippers are top managers, such as those described in a recent San Jose Mercury News report, the resentment is palpable.
According to the newspaper, the former San Jose police chief is receiving more than $400,000 a year between his San Jose pension and his salary as San Diego’s police chief. Similarly, at least three other San Jose Police Department retirees are earning more than $340,000 a year, having also taken top jobs elsewhere.
By John Fensterwald
The pension reforms passed in June, paring back the benefits for new teachers and administrators, will knock off $189 million per year from the additional payments taxpayers must make to keep the California State Teachers’ Retirement System solvent over the next 30 years.
That’s the good news. The bad news is that this represents only about 6 percent of the extra $3.25 billion annually that CalSTRS actuaries are saying is needed to erase the system’s current $65 billion unfunded liability. That liability is the debt that taxpayers owe to future pensioners to compensate for shortfalls in CalSTRS’ income on investments following the Wall Street implosion in 2008. CalSTRS is still recovering from that with $152 billion in assets in July, still $20 billion below a high of $172 billion in 2007.
via Reform by the ounce, unfunded pension debt by the pound – by John Fensterwald.
Nearly 160 school employees retired from the Benicia Unified School district are collecting pensions, and unlike retirees in some districts in the state, none are receiving more than $100,000 a year.
The retirement compensation is part of a list posted by the San Jose Mercury News and other newspapers.
The CalPERS list was unveiled as the state Legislature last week approved a pension reform bill that is now on Gov. Jerry Brown’s desk.
via Benicia Pensions: What BUSD Retirees Are Receiving.
To guard against pension spiking, the California State Teachers’ Retirement System has a system that electronically identifies suspiciously high pay hikes.
When accused of ignoring pension spiking among top school administrators, CalSTRS officials repeatedly pointed to this computerized safeguard. “Automated programs flag excessive salary bumps from one year to the next,” CalSTRS CEO Jack Ehnes assured the public in The Bee last year. “CalSTRS conducts reviews to determine whether the increase was appropriate or not.”
via Editorial: CalSTRS still doesn’t realize it has a pension spiking problem.
By John Fensterwald
The pension reforms that the Legislature passed before skipping town on Friday will save the California State Teachers’ Retirement System $22.7 billion over 30 years, according to a preliminary analysis that CalSTRS released on Wednesday. But CalSTRS administrators cautioned that most of the savings won’t be achieved for decades, because reduced pension benefits will affect only employees hired after Jan. 1, 2013. And the savings won’t reduce the Legislature’s need to deal with the current $65 billion deficit, caused when returns on investments tanked in 2008 and failed to fully recover.
“We have been working for some time to raise awareness of our funding shortfall, the cost of waiting to address it, and the ultimate risk failing to do so presents to the state General Fund,” said CalSTRS Chief Executive Officer Jack Ehnes in a press release.
via CalSTRS estimates $22.7 billion savings from pension reform – by John Fensterwald.
SACRAMENTO — A new report released Wednesday by the state controller’s office found that the nation’s largest teacher pension fund has been so lax about detecting pension spiking at California school districts that it is on pace to audit each district once every 48 years.
The office found that the California State Teachers’ Retirement System failed to adequately audit school districts, missed opportunities to stop unjustified salary increases, and failed to use its own electronic system to detect possible abuses.
Besides the slow pace of auditing 1,900 districts and offices, the report found in a sampling of districts that they often lacked transparency or documentation to justify pay increases.
via Report: Teacher fund lax on anti-spiking efforts.
SACRAMENTO — For nearly a decade, California’s top-paid school administrators got to collect six-figure lump sum cash payments in addition to their pensions by taking advantage of a little-known legislative provision that was intended to help retain and recruit teachers during the dot-com boom.
The program, known as the “partial lump sum” payment option, was approved by the state Legislature in 2000 to boost the state’s teaching ranks at a time when California was projected to face a teacher shortage. The benefit, which is allowed in some form in about a dozen states, lets retiring educators tap into their pension accounts for a large cash payment in exchange for a reduced monthly pension check.
Yet many who took advantage of the benefit from the California State Teachers’ Retirement System turned out to be highly paid administrators who already stood to receive generous monthly pension checks, according to data obtained by The Associated Press under a California Public Records Act request.
via AP Exclusive: Top retirees benefited from cash out.
Given the political realities under California’s Capitol dome, the pension measure awaiting final action in the Legislature today is probably the best reform package that could have been achieved. Nevertheless, lawmakers need to vet this measure as carefully as they can before they approve it and the public should be under no illusions. The changes enacted do not end the pension crisis that afflicts the state, local governments and school districts.
A preliminary calculation by state pension official actuaries pegs the savings in the reform measure at $40 billion to $60 billion over the next three decades. That’s not nearly enough to erase the unfunded pension liabilities for the state and local governments, conservatively estimated at $164 billion.
via Editorial: Pension bill not perfect, but a start toward reform.
Ten months ago, Gov. Jerry Brown proclaimed California’s public employee pension system to be “unsustainable” and proposed a very mild, 12-point reform plan.
This week, he embraced a much-weaker version drafted in secrecy by the Legislature’s Democratic leaders, who insisted that it is “a strong proposal” (Senate President Pro Tem Darrell Steinberg) and “comprehensive” (Assembly Speaker John A. Pérez).
Brown was only slightly less effusive, calling it a “significant step forward” that will “help to ensure that our public retirement system is sustainable for the long term.”
via Dan Walters: Pension overhaul plan falls short.
After more than a year of secretive maneuvering with Democrats in the Legislature, Gov. Jerry Brown announced a pension reform package on Tuesday that offers very little immediate budget relief for state or local governments.
Brown said the changes would save $18 billion to $30 billion over the next 30 years. But if the reforms outlined in press releases accurately reflect what’s in the legislation, it would be a modest step forward.
Details were hard to come by on Tuesday because the pension bills were not in print before the governor made his announcement. That alone ought to give the public and legislators pause.
via Editorial: At first blush, pension deal is modest at best.
The retirement age for new teachers will be pushed back two years; they’ll have to fork over about another 1 percent of their pay into the retirement system. And their bosses – principals and administrators – will see a ceiling of $132,120 as the portion of their pay used to calculate retirement pay. Those in the highest-paid jobs, earning $200,000 plus, may see pensions reduced by tens of thousands of dollars.
These are the primary changes specifically to members of the California State Teachers’ Retirement System, or CalSTRS, from pension reforms negotiated between Gov. Jerry Brown and Democratic leaders. The package, which will affect every state and local public employee to various degrees, was unloaded on lawmakers Tuesday, four days before the end of the legislative session.
via Pension reform: top-paid administrators to take biggest hit – by John Fensterwald.
What happened within minutes Monday may just be coincidence, but if so, it’s a cosmically foreboding one.
In Sacramento, Gov. Jerry Brown released the first online ad of his campaign to persuade California voters to endorse his sales and income tax increase measure. One snippet declared that under Brown, “California’s bond rating is now positive.”
It was, to put it charitably, misleading. In fact, California has the lowest bond rating of any state now and, according to a recent survey by Pew’s Center on the States, the worst credit rating record over the past 11 years.
In Pennsylvania, state officials were told by Moody’s, a major bond rating agency, that the state is being downgraded because of “large and growing pension fund liabilities.”
via Dan Walters: Will California go the way of Pennsylvania?.