US - The board of the US$125bn California State Teachers' Retirement System (CalSTRS) has voiced its official opposition to two proposals that would replace guaranteed defined benefit (DB) pensions with 401(k)-style defined contribution (DC) plans for teachers and other public employees hired on or after July 1, 2007.
At its investments committee meeting, the board voted against legislative proposals Assembly Constitutional Amendment 5 and ACA 1X, introduced by Assemblyman Keith Richman, in addition to a 2005-06 state budget proposal that could affect the contributions paid to both the fund’s core and supplemental retirement income programmes.
Board chair Gary Lynes said: “Under the CalSTRS defined benefit programme, our members cannot outlive their benefit. Simply put, changing to a defined contribution plan would rob them of that security.”
CalSTRS chief executive officer Jack Ehnes (pictured) added: “We’ve witnessed attempts to eliminate defined benefit plans in other parts of the country. However, our defined benefit programme meets the retirement, disability and survivor benefit needs of our members and the public’s need for experienced, able teachers at a reasonable cost. We have a strong, sound system and California’s educators need it to stay that way.”
During discussion on the proposals, board members noted the change would: undermine the funding structure of current benefit programmes; leave California’s teachers worse off than other employee groups; possibly remove guaranteed disability and survivor benefits; remove the element of reward for career longevity.
On Governor Arnold Schwarzenegger’s budget proposal to remove the state’s obligation to the CalSTRS DB plan and shift the burden to the school districts, Lynes said: “This proposal has serious implications for the future stability of our retirement system and our members’ benefits. This state has supported its teachers’ retirement benefits since1913, now is not the time to stop.”
Under the plan, school districts would be forced to contribute 10.25%, up from the current 8.25%, with the option of handing the 2% obligation, through collective bargaining process, to the teachers, who currently pay 8%.
The board’s opposition was based on its belief that this shift in costs would potentially undermine the funding of the existing benefit programme, as well and pose “significant administrative and financial burdens” for CalSTRS.
A handful of industry heavyweights have begun trialling a so-called 'mid-life MOT', with positive initial results reported by all those involved.
The Pensions and Lifetime Savings Association (PLSA) has announced it will shrink its board by more than one-third as part of a governance overhaul to make it "agile and more appropriate".
Smaller FTSE 350 defined benefit (DB) schemes were nearly 15 percentage points less well-funded than larger schemes in 2017, according to a Goldman Sachs Asset Management (GSAM) analysis.