Teacher pension shift is sought

By Gilbert Chan, Sacramento Bee, January 11, 2005

Gov. Arnold Schwarzenegger wants California educators and school districts to help balance his budget by shouldering the state's $469 million annual con tribution for teacher pensions. Schwarzenegger said Monday he must look at getting the state's financial house in order.

"We cannot continue on ... promising workers certain pensions," Schwar-zenegger said. "We have to sit down and be fiscally responsible. It's a very tough decision."

Teachers union, school and Democratic political leaders quickly lambasted the proposal, saying the additional financial burden would exacerbate economic conditions at cash-strapped districts, harm employee relations and drive away new teachers.

"That's crazy. It's egregious. There is already a lot of stress on teachers. This is beyond the last straw," said Antigone Phalares, a science teacher for 14 years at Will. C. Wood Middle School in Sacramento.

Schwarzenegger administration officials acknowledge teachers could earn less take-home pay if they contribute more toward their pensions. To counter this, the Schwarzenegger plan would allow teachers to stop contributing to a mandatory annuity plan. But it provides supplemental benefits to teachers since they do not receive Social Security.

The unprecedented move, unveiled Monday in the proposed 2005-06 budget, could complicate efforts by the California State Teachers' Retirement System to close a projected $23.1 billion long-term pension fund gap.

Teachers fear they will wind up paying more for their retirement because school districts already are grappling with reduced state funding.

"We should be getting more - not getting more taken away," said Meritt McConiga, a science teacher at Sutter Middle School in Sacramento. "Even the students say teachers should get more money. Everybody seems to know that, except the politicians."

This is not the first time that the state has looked at using its state pension contribution to help erase giant budget deficits. Two years ago, the state skipped a $500 million CalSTRS payment earmarked for supplemental benefits for thousands of retired teachers.

Now, Schwarzenegger wants to shift the state's annual contribution to active teachers' retirement. The governor's proposal would cut the state's annual pension obligation to CalSTRS by $469 million, or 49.4 percent. It's the largest single percentage cut in the entire budget. School districts could negotiate with teachers to pick up the tab.

State Treasurer Phil Angelides, a likely Democratic candidate for governor in 2006, called the proposal "a pure cut to education ... It's going to come out of the classroom.

"The money is needed to provide the benefits that are owed to teachers," said Angelides, a CalSTRS trustee.

Currently, the state pays 2 percent on the dollar of payroll into the CalSTRS plan. Teachers contribute 8 percent and school districts pay 8.25 percent. The rest comes from investment income.

CalSTRS is the nation's third-largest public pension plan, with $123 billion in assets. It provides benefits for 755,000 active and retired teachers in the state.

The fund already faces a massive funding shortfall because of a string of losses and subpar returns during the most recent Wall Street downturn. Like other retirement plans nationwide, CalSTRS is dealing with an underfunded pension.

During the bull market in the 1990s, CalSTRS and other pension plans raised benefits. But subsequent bear market losses left shortfalls to cover pension obligations in the future.

CalSTRS leaders, who declined to comment on Schwarzenegger's proposal, say the fund needs to raise contributions or cut benefits for future retirees by $50 to $500 a month to wipe out the gap, which is expected to be $23.1 billion in 30 years.

This year, CalSTRS planned to take a serious look at legislation to boost pension contributions. The governor's proposal throws a curve at CalSTRS trustees. By law, the Legislature must approve any changes to the contribution rates.

"Many districts in this state are dangerously close to fiscal insolvency. We run the risk of insolvency," said Glen Thomas, executive director of the California County Superintendents Educational Services Association.

Assembly Speaker Fabian Núñez also questioned the shift.

"Teachers are underpaid. By kicking them in the teeth, you're not going to improve public education," Núñez said.

Schwarzenegger is girding for a political fight. "Whenever you take something away from somebody, they get angry about it," he said. "We have to really change the system."

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Last modified: January 11, 2005

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