CalSTRS CEO Jack Ehnes criticized the Little Hoover Commission’s recommendations to slash CalSTRS, the California teachers pension system, calling many of its suggestions naïve or impractical. He also pointed out that many of its premises are wrong. For example, the trouble with the pension has nothing to do with “overly generous” payouts. In fact, teachers are lucky if they get back 60% of what they earned in their highest-earning years of services.
Gov. Jerry Brown (friend of teachers??) has been maneuvering in the back room with several Republican state senators to cut a deal that slashes CalSTRS in exchange for their support in floating a regressive tax extension on the June ballot. The move is completely unnecessary (CalSTRS is NOT in any kind of serious trouble), faces serious legal hurdles, and involves other serious challenges that draw into question its chances of even succeeding.
Brown made a promise to voters (a promise he was in no position to make) that he would hold K-12 funding constant and shield it from further cuts in 2011-2012 IF they approved an extension of current taxes. The problems with this plan are that he needs Republican support to even get the measure on the ballot and then the voters would have to vote for it (which is not a guarantee in these tough economic times). Indeed, voters should NOT vote for it. The plan is regressive and will take a much higher percentage of income from lower income workers than from the wealthy.
For teachers, the plan not only punishes them by cutting into their income (so the rich can continue to enjoy a lower overall tax burden), it also punishes them in the future, by cutting into their retirement. While changes to CalSTRS are most likely to affect new employees more than current employees, there are those who are screaming for across the board cuts to teachers’ pensions.
Another seldom discussed problem with going after teachers’ pensions, especially the two-tiered approach of protecting current teachers while providing decreased benefits to new teachers, is that it weakens the unions. Newer teachers will see how they got screwed and how their unions were complicit in it. They will then be much less likely to support the unions and participate in their campaigns and actions. Two-tiered benefits drive a wedge between workers, creating two different classes, with different interests and allegiances.
John Fensterwald, from the Educated Guess, discusses Ehnes’ critique in the following excerpts from his blog post: “CalSTRS CEO: Avoid Drastic Change”
“In a letter last week to Daniel Hancock, Little Hoover’s chairman, CalSTRS CEO Jack Ehnes dismissed as “impractical” the watchdog commission’s call for reducing the future benefits of current CalSTRS members and requiring that all public employees join and coordinate their benefits with Social Security.
Both of these ideas have been bandied about in various reform proposals. The five Republican senators [with whom Gov. Brown has been backroom dealing] are reported to advocate requiring new public employees to switch to a hybrid retirement plan similar to one imposed on federal employees a quarter-century ago. It would include a much smaller pension than what current workers receive, accompanied by a 401(k) match of up to 5 percent of their pay and Social Security benefits. Brown is reported to support much milder measures: capping the maximum amount of pensions and banning some of the pension-boosting tricks that have contributed to higher government costs.
Taking a more radical approach, a citizens group, California Foundation for Fiscal Responsibility, is proposing a constitutional amendment permitting the cutting of future pension benefits of current public workers – another of Little Hoover’s recommendations.
Ehnes criticized making drastic changes to all pension systems in response to the problems of a few. The Little Hoover report’s “broad generalizations … do not hold up when applied to specific plans,” starting with the opening assertion that underfunding is due primarily to “overly generous benefit promises, wishful thinking and an unwillingness to plan prudently.” Contrary to being overly generous, Ehnes said, CalSTRS provides “a moderate benefit that replaces approximately 60 percent of pre-retirement income for educators.” (The exceptions, which Ehnes doesn’t mention, are the 2 percent of members – administrators and superintendents – who get pensions of more than $100,000. That’s who Brown is targeting.)
CalSTRS, which serves 852,000 current and retired teachers and school administrators, is rarely mentioned directly in the Little Hoover report. Its focus is on CalPERS, the nation’s largest pension plan, which serves most state employees, and independent county and city pension plans, some of which – Los Angeles, San Diego, and San Jose – may consume a third, half, or even more of municipal budgets in coming years. However, the report’s broad recommendations are intended to apply to all public employees, CalSTRS included.
Although most state public employee unions and some municipal unions over the past year have agreed to higher employee contribution rates and limits on pay for the purpose of determining pensions, governments face legal hurdles to unilaterally reducing the future benefits of current public employees. And in the case of CalSTRS, courts have raised the bar even higher. That’s because, unlike contracts for other state employee unions, only the Legislature can set contribution rates for CalSTRS. A number of court decisions – cited at length by Ehnes – have ruled that current employees have vested rights in guaranteed pensions. They can make changes only in exchange for benefits of equal value, like pay raises. The only exception, Ehnes noted, would be a temporary freeze on accruing pension benefits because of an economic emergency.
The Little Hoover report acknowledges legal obstacles, but says that they may be worth challenging, because changing only the benefits of future employees will not create enough immediate savings. That’s why the California Foundation for Fiscal Responsibility wants to put an initiative to voters. Ehnes calls ignoring clear court rulings on this issue “naïve at best.”