Tag Archives: What happens of teacher pensions run out of money

Guest Post by Neil Murphy

Recently, I reviewed the STRS Connections On-Line Newsletter and discerned some troubling trends.

Trend Number One (Contributions vs. Benefits Paid):

Contributions from STRS members (teachers), the State and school districts equaled $8,288.519 for 2016.  Benefits paid to retirees equaled $13,148.558 for 2016.  Contributions are not keeping up with benefits paid to retirees.

Trend Number Two (investment assumption):

STRS used to project a 7.5% rate of return on its investments; in the recent past it downgraded its rate of return to 7.25%; now it is 7.00%.  Because of the recent downgrade, the State just increased its contribution rate by 0.5%; this will not make taxpayers happy.  Also, new teachers, hired after January 1st, 2013, will see a 1% increase in their contribution rate probably beginning in the year 2018.

Trend Number Three (Global Equity):

The investment portfolio of STRS is diverse.  STRS invests in real estate, private equity, global equity, etc.  However, 54.8% of its investment portfolio is tied up in global equity.  This probably explains why STRS just downgraded its rate of investment to 7.0%.  Here are some issues that I have with Global Equity Stocks:

BRIC (Brazil, Russia, India and China) were hailed as the new super economic engines.  Newspaper article after article promoted the idea that these four countries would change the global economy so that it would move in an upward trend.  This was true for a while.  Unfortunately, Brazil’s economy has become anemic due to its vast political troubles (government scandal after scandal).  China’s growth has slowed dramatically.  Russia’s economy has been underperforming somewhat in part due to the economic sanctions placed on it; plus, its economy is too reliant on oil.

The European Union is still struggling.  Spain, Italy, Greece and other European countries are seeing debt choking the breath right out of their economies.  Germany is still performing extremely well, but France’s economy is sputtering.

Japan’s economy has not been strong since the early 1990s.  Moreover, Japan is going to have some serious economic issues in the near future.  Japan’s population is aging and Japan has negative population growth.  There won’t be enough workers to pay for the retirees.  Plus, the Japanese have the longest life span of any other group of people.  Overall, Japan’s economy is headed for disaster.

Based on the economies of other countries, it is my prediction that STRS won’t even reach its 7.0% forecast.  I wouldn’t be surprised if STRS reduces its rate of return from 7.0% to 6.75% within the next ten years.

Trend Number Four (U.S. Economy):

The $20 trillion debt and growing cannot be ignored. The U.S. cannot keep increasing the debt ceiling every year.  Once the U.S. stops increasing the debt ceiling, then the pain of the $20 trillion debt will settle in.  Taxes will increase and government services will be cut.  Trump promised he would increase the GDP like we have not seen for some time, but Trump’s rosy economic picture is full of thorns.  Unfortunately, he falsely raised the expectations of Americans; there is no way that he can deliver on4%, 5% or even 6% GDP growth.  His whole economic plan is based on unbelievable growth in the GDP.  This cannot occur because most foreign countries are not doing well if one digs below their economic facades (cannot buy enormous amounts of American goods).  Also, the $20 trillion debt is pounding on our door.  There are no more IOUs.

What does all of this mean? It means that STRS will have to reduce its pension obligations.  Sometime in the future, retirees won’t see any more automatic 2% COLA increases.  In fact, retirees might even seen their pensions reduced.  Teachers, who will be retiring within the next five to twenty years, will see their promised retirement reduced.  Teachers who just entered the profession, I feel sorry for them.

 Teachers must plan for a reduced pension.  They need to pad their own retirements!!!

Note from this blog’s host: I worked as a classroom teacher in one of California’s many public school districts from 1975 – 2005. During those 30-years, I contributed 8-percent of my gross pay into CalSTRS and the district where I worked contributed another 8.25 percent. I have been retired for 12 years. When I retired, I took a 40-percent pay cut and left with no medical coverage from that district or the state. If you want to know what that job was like, read my memoir “Crazy is Normal, a classroom expose” (link below).

The state of California made promises to its public school teachers.

• What happens to retired teachers like me if the state breaks that promise?
• How will those teachers pay their rent/mortgage, keep the water running, the electricity on, buy food?
• Do billionaires and corporations expect retired teachers to go back to work at 75, 80, 90, or even 100, if we live that long, so those greedy autocrats with more money than God can pay little or no tax?
• What happens to the hundreds of thousands of teachers still teaching if the state can’t pay for its promises to them?

I want to leave the readers of this Blog with one thought from Thomas Jefferson, who said, “The tree of liberty must be refreshed from time to time with the blood of patriots and tyrants.”

Most if not all corporate charter schools do not have retirement plans for their teachers, those teachers have no Constitutional due process rights, those teachers are paid less and must work longer hours, and they do not pay into the retirement plans for traditional public schools.

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Lloyd Lofthouse is a former U.S. Marine and disabled Vietnam Veteran, with a BA in journalism and an MFA in writing, who taught in the public schools for thirty years (1975 – 2005).

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