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Myths & Facts
Myth: “Reforming” the pension system will solve all of the state's fiscal problems.
Fact: Shrinking benefits for public workers is bad for the economy, will force more Californians to turn to other taxpayer-funded social services, and will result in untold short-term costs with no guarantee of saving taxpayers in the long run. The Legislative Analyst also has said similar pension-changing proposals could strap taxpayers with more costs. This is beginning to show to be tru in places that have passed so-called pension reform. According to the San Jose Mercury News: “Internal Affairs: Neighbors can't get San Jose police to respond to break-ins. The SJPD is woefully short-handed, its burglary unit fanned out to patrol while the city scrambles for new recruits as officers flee deficit-driven pay and benefit cuts.” And the U-T San Diego: Pension costs squeeze San Diego budget Annual payment up $44M from last year.”
California’s public retirement systems actually are better off than they were during Gov. Jerry Brown’s first term in office. CalPERS was about 55 percent funded In the early 1980s, the final years of Gov. Brown’s first term and following another severe recession. An investigative report by in March byMcClatchy Newspapers noted: “There's simply no evidence that state pensions are the current burden to public finances that their critics claim.”
Myth: Government workers don’t contribute to their pensions; taxpayers are on the hook to pay those costs.
Fact: Pensions largely are paid for by employee contributions and investment income. Public employees pay up to an average 12 percent into their own retirement. Teachers contribute 8 percent of their salaries to their pensions, do not receive Social Security and most teachers over the age of 65 do not receive retiree health care benefits either. They pay for their pensions with every paycheck.
Myth: Pensions caused Stockton and San Bernardino to go bankrupt
Fact: Stockton’s bankruptcy wasn’t caused by the city’s police officers and garbage truck drivers, but from a combination of circumstances and decisions including lavish borrowing to construct a waterfront ballpark and entertainment center. In San Bernardino, pension costs last fiscal year totaled just 4 percent of its budget shortfall. That means even if pensions were eliminated entirely, San Bernardino would still have had a $43 billion budget hole.
In a recent ruling criticizing Wall Street Creditors in the Stockton Bankruptcy case, U.S. Bankruptcy Judge Christopher Klein agreed that the bankruptcy was not driven by pensions, saying a host of decisions and circumstances led to the city's financial woes including developments and tax breaks that could not be sustained because of the housing crisis and recession.
Myth: Unions and public employees are blocking pension changes.
Fact: Public employees have been agreeing to pension changes at the bargaining table for several straight years. The reforms approved by the Legislature and signed by Gov. Jerry Brown amount to a reduction of somewhere between $60 billion and $100 billion in the benefits promised to public employees. Take for example, a public employee making an average salary of $40,000 and working a 30 year career. Prior to the reform this worker would retire with a pension of $24,000. Now that worker will receive $15,600, a reduction of $8,400, which is not a lot to live on in California. Whether it has been at the bargaining table in more than 300 jurisdictions or at the state level, public employees have been part of the solution to ensure public pension systems are financially sound.”
A new study by the Center for Retirement Research at Boston College says that pension “reforms” made at the state and local level will restore the state’s public pension funds to pre-financial crisis levels. The study, “State and Local Pension Costs: Pre-Crisis, Post-Crisis, and Post-Reform,” looked at changes in 32 plans in 15 states (including CalPERS and CalSTRS). It notes that recently-enacted cuts to public employees “will, over time, improve the financial outlook for plans and help ease their impact on other budget priorities.” Researchers also found “in most cases, reforms fully offset or more than offset the impact of the financial crisis.” http://crr.bc.edu/briefs/state-and-local-pension-costs-pre-crisis-post-crisis-and-post-reform/
Myth: CalPERS and CalSTRS are going bankrupt.
Fact: CalPERS had a 12.2 percent return on investments in 2012 or an 8 percent average return over the past 20 years despite the recession. Today, CalPERS is back to pre-recession strength. It has earned back the $97 billion it lost during the recession and then-some. Meanwhile, CalSTRS' portfolio returned 13.45 percent for calendar year 2012.
Myth: CalPERS pensioners can "goose" their retirement benefit upward by manipulating the income that gets included in their final year of compensation.
Fact: The Public Employees’ Pension Reform Act of 2013 (PEPRA) included severa measures to reduce abuses. It requires that final compensation be defined, as it is now for new state employees, as the highest average annual compensation over a three-year period. This change prevents employees from artificially increasing the compensation used to determine pension benefits.
PEPRA also removed the apportunity for employees to buy “airtime,” additional retirement service credit for time not actually worked.
Myth: The average CalPERS pensioner gets 80 percent of their pay and are retiring with gold-plated pensions.
Fact: The average CalPERS member receives 50 percent or less of their pay in retirement. The average public pension in California is $26,000 a year. California retired teachers, who do not collect Social Security, earn an average $3,300-a-month after an average 27 years in the classroom. Six-figure pensions amount to less than 2 percent of public pensions and public employee pensions equal just 3 percent of California’s budget.
Myth: Police and firefighters retire at age 50 with 90 percent of pay.
Fact: CalPERS records indicate that over the last seven years, safety workers who retired at age 50 with 30 years of service represented 1 percent of all those retired. The reason very few ever would receive this level pension is that they would have had to start working age 20 to earn 30 years. Most start their safety careers at age 27, 28, or 29. Uner PEPRA, the retirement age for misc. employees has been increased to 67 for maximum retirement and 57 for maximum safety retirement.
Myth: The State of California and taxpayers pay the total cost of public pensions.
Fact: All government workers contribute to their pensions with every paycheck. Meanwhile, CalPERS investments now pay 64 cents of every dollar in pensions paid. According to the latest analysis of data as of June 2012, CalPERS participating employers contribute 22 cents of every pension dollar paid. Public employees who retire with a CalPERS pension benefit contribute 8-11 percent of their take home pay to help fund their own pensions. CalSTRS investments now pay 58 cents of every dollar in pensions paid. According to the latest analysis of data as of June 2012, CalSTRS employers, including the state, contribute 25 cents of every pension dollar paid. CalSTRS members contribute 8 percent of their earnings to help fund their own pensions.
Myth: Pension Costs for the State of California have increased by 2000 percent in the last 10 years.
Fact: This statement compares a time when the State paid little or nothing during years of robust investment earnings and took a pension holiday to the recent market cycle extremes and current economic downturn.
Fact: In 1981-82, pension contributions for the largest category of employees cost the State 19.6 percent of payroll. For the current 2009-10 fiscal year the state is paying 16.9 percent.
Fact: The State of California pays less as a percentage of payroll today than it did in the early 1980s.
Myths & Facts about Teacher Pensions (courtesy of CTA)
Myth: The retirement fund is a taxpayer giveaway.
Fact: Over the life of their careers, teachers contribute 8% of their monthly pay to their retirement. Employers kick in another 8.25% of monthly pay, the state contributes just over 2% (which previously was 4.6% but was reduced a decade ago), and the returns garnered by CalSTRS investments do the rest.
Myth: Teachers engage in pension 'spiking'
Fact: CalSTRS is vigilant in preventing spiking. All extra compensation for teachers over and above their normal salary gets put into a separate account that cannot be used towards their final retirement salary.
Myth: Teachers retire too early and into a life of luxury.
Fact: The average benefit payment is $3,300 per month while the number of years a teacher works for those benefits averages 27.
Myth: The CalSTRS system is headed toward insolvency.
Fact: While it is true that CalSTRS has a $40 billion shortfall, this is not an amount that is paid overnight. Just like a mortgage, this is an amount that will need to be closed over 30 years, not in the first month’s payment. Even under current economic conditions, CalSTRS has sufficient assets and projected contributions to pay benefits until 2044.
Myth: CalSTRS suffers from a lack of accountability and oversight.
Fact: CalSTRS has received national recognition for its ethical standards. The system has a long history of accountability and transparency. In fact, the ethical standards of CalSTRS has become a national model for board accountability.
Myth: Our state would be better off financially without having to contribute to teachers’ retirement benefits.
Fact: The state benefits economically from teachers’ retirement benefits. In fact, $4.5 billion in value is added to the state’s economy each year from generated business activity from retirement benefits. Entire counties depend on that retirement income.
"Stop the Lies," produced by AFSCME, details the concerted effort by politicians and special interest groups to attack public employees.
In this video, you’ll learn about “CalPERS Responds,” a new website dedicated to debunking pension myths.