
Pension change to "rob" teachers of retirement security

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.
Latest stories
LDI indices launched to 'improve governance and transparency'
A suite of liability driven investment (LDI) indices has been launched by STOXX and RiskFirst to aid trustees and consultants select, monitor and challenge managers.
What is the purpose of a pension scheme?
British Airways and the trustees of one of its pension schemes are set to argue over the purpose of a pension scheme, leading to an impactful judgment for DB pensions. James Phillips explores the issue
BoE's Carney: May rate hike not a done deal
Bank of England governor Mark Carney has said there is still a lot of data to consider before the Monetary Policy Committee (MPC) can decide when to next hike interest rates.
We have used 25% lump sum wisely, say four in five freedoms users
Savers are not squandering their tax-free lump sums under Freedom and Choice but are taking a more cautious approach to retirement, according to Prudential research.