MA Teacher Retirement System (and WI a bit)
H35 provides for these amendments to the MA teachers retirement system by Gov. Duval Patrick:
An Act Providing for Additional Pension Reform and Benefits Modernization
This legislation filed by Governor Patrick proposes further pension reforms to achieve the following objectives:
- Update the system to reflect demographic changes, such as the fact that people are living and working longer;
- Eliminate abuses, through anti-spiking measures, extending the number of years used to calculate pension benefits, and increasing scrutiny of legislation benefiting individual employees; and,
- Address fairness issues, through updating purchase of creditable service and buyback provisions, eliminating early retirement incentives, pro-rating benefits based on employment history, eliminating the right to receive a pension while receiving compensation for service in an elected position, and allowing retirees who married a person of the same sex within the first year after it became legal to change their retirement option in order to provide a benefit to their spouse.
Most of the provisions in the bill would apply to new members of the retirement system.
H1 (section 37):Governor Patrick recommends a 3% cost of living adjustment (COLA) for retired members of the state and teachers’ retirement system as part of his FY2012 state budget. The COLA will be applied to the first $12,000 of the retirement benefit, for a maximum increase of $360 per year or $30 per month.
From the annual report of the Mass. Teachers Retirment System finacial report: MTRS statement demonstrates the heavy use of equity and other non-fixed income assets to generate returns, which make for volatility.
New teacher’s pay in approximately 10% of salary.
I believe in 2008 the MTRS reported a 29% drop in ‘value’ of its assets:
$ 25,318,713,892 2007
$ 17,177,957,406 2008
$ 19,311,587,953 2009
$21,262,462,000 2010
Via Andrew Leonard at Salon comes this quote from the CEPR and Dean Baker
On July 1, 2010, the S&P 500 was already more than 11 percent higher than its July 1, 2009 level (from 987 on July 1, 2009 to 1101 on July 1, 2010). Most funds use the stock market’s closing value at the end of the fiscal year as the basis for determining the valuation of their assets. Of course they also use an average, so the valuation would not simply reflect the market value at the end of the fiscal year. However, with the market having already risen substantially from its low (the S&P 500 had risen another 19 percent to 1293 by January 10, 2011), it is likely that pension valuations based on current and future market levels will show smaller shortfalls. In other words, a substantial portion of the shortfalls that were reported based on 2009 valuations have likely already been eliminated by the rise in the market.
MA Massachusetts Teachers 0.12% (unfunded liabilities as a per cent of expected revenues) 1/1/2010
WI Wisconsin Retirement 0.00% (unfunded liabilities as a percent of expected revenues) 12/31/2009
Of course projected revenues can be argued at another time.
“update the system to reflect changes in demographics…”
of course doesn’t say anything. do they need to provide for larger pensions because people are living long or do they plan to cut pensions so they don’t have to pay more over the longer retirement?
of course if they are paying a defined benefit and the economy is not growing that would be a problem for them. but if they are paying a defined contribution… why does it matter to them?
the teachers need to insist that their retirement is part of their wage and then bargain accordingly.
it is not clear from “unfunded liabilities” if the state has invested in the stock market in order to generate funds for a defined benefit.. presumably in order to save the taxpayers the cost of just paying the retirement out of taxes… if so, then it would seem that “justice” would suggest the state just make up the difference and count the “good years” to its benefit.
i suspect they won’t like the results of delayed retirement. the teachers i know are burnt out at fifty, and dead on their feet at sixty.
the kids won’t get much out of them by the time they are eighty five.
Coberly, I am quite sure that Wisconsin is all defined benefit and I think real reform would be to make it defined contribution with immediate vesting and allow public employees to add to it and direct the investment among a series of legitimate choices. This would more closely approximate the private sector, would eliminate the concepts of “early” retirement and double dipping and would not be pushing the can down the road while hoping that a stockmarket boom will bail you out. In Wisconsin just during the last 15 years we had a huge pension scandal when the Milwaukee County Executive and a number of supervisors cut themselves a sweetheart deal of defined benefits retirement funds. As it turned out, the benefits they legislated themselves broke the reirement system, lead to a host of recalls and gave Walker his start as anything other than a back bencher in the Legislature. More recently, 5 or 6 school districts borrowed money to reinvest in mortgage backed securities in hopes of improving their pension funds. You can guess how that turned out. My Village is going to vote for an average $200 per houshold property tax increase for the next 30 years to float a bond issue to take funding pension benefits out of current operating expenses. None of this is good. We should be voting on whether to raise our taxes this year and maybe the next 3 or 4 to pay the teachers what we think we need to pay them to get the quality we think we want/need, not making decisions that will be impacting the community after we are dead.
Yes, it is an occupation that is systematicly undervalued and longevity is a problem for maintaining enthusism for curriculum locked in place, much less challenging the mind.
Teachers are discouraged from presenting material in non-standard ways except around the margins. Even if there are good reasons to do this it is stifling after awhile, even AP courses (as in economics?) are very limiting.
The most exciting parts of teaching for me are in child development, learning theory in the broad sense of the word, and adaptation of curriculum.
There are several arguments for a more fixed asset approach to funding the pensions, and several counter arguments. Theory had it that a big pool of money could smooth out the variabilities of markets that an individual could not. Seems to me that the stuff being sold earlier this decade on private accounts being the way to go didn’t pan out either for most.
But my cautions to teachers on the plan got only yawns and polite glazed eyes. Still do. Rising stock market valuations saved a bunch of skins, and as a macro concept seems to be working.
Sweetheart corruption is noted in the legislation, and happens here. Clawbacks are not contemplated if it was done legally. Shame on us for letting it happen. But I don’t see it as a public/private divide, rather that predators are inherent in any system.
But there are also no penalties for inappropriate risk taking with pension money either.
But in MA the rating companies labeled some of the mortgage paper as AAA, so even that limit was sidestepped even when mandated by regulation…the clawbacks have happened but appear to be minor in terms of money…not for the particular towns involved, but for the companies who misrepresented themselves.
Dan said: “Seems to me that the stuff being sold earlier this decade on private accounts being the way to go didn’t pan out either for most.” Where did this come from? As one who participates in the proposed example for the SS DC Plan, Thrift Saving Plan, I can truly say that if one takes an active role in managing your own investments, losses can be minimized or even elimated.
Note, it takes being responsible for yourself instead letting some bureaucrat do your job.
Isn’t one of the problems with trying to address the differences between public and private sector pay and benefits here have to do with the relative market forces that are or aren’t at work? There will ALWAYS be people willing to become cops, firemen, teachers, and street department employees. In the consumer marketplace, companies compete for labor based on cost and value added by the employee. If the employee sucks and the company doesn’t either provide better incentives or pay for better employees, the company will likely fail. In public sector jobs, performance and/or need is much harder to gauge (do we really want success determined by the number of times my fire truck had to respond to a fire or shooting, and then find later that people died because we had too few responders?). You can find anyone to be a firefighter or EMT or cop, but do you really want ANYONE?
Yes, there are scandals and broken plans for teachers. But, having grown up in a household of two Midwestern public school teachers, I can assure you, we lived not the life of luxury so proclaimed by those who disparage these public unions. And, despite being retired, both of my parents still work part-time to cover the insurance premiums (they still live in the house they bought 31 years ago). For every pension scandal or marginal example of freeloading underperformers, there are equally as many examples of collective bargaining protecting against abuses. If the argument is that teachers aren’t held accountable and should thusly be paid less, isn’t the converse true in terms of incentives? I.e. not one single good teacher will want to work in an inner city school for risk of being fired due to factors outside their control. If we don’t have good enough people entering public education, what the hell would cutting the stability and relative security of a middle class income and pension do for bringing in BETTER talent. Many of my classmates in college could easily have gone on to successful business careers, but chose instead to become teachers because of compassionate reasons. Giving them some stability is hardly socialism, especially in light of recent bailouts and abuses in board rooms.
As a victim of “you get what you pay for” when it comes to teachers, I agree with your points concerning all public employees. Do we really want our cops to be the folks who could not get a higher paying private job? The flip side is also true. Do the folks who have middle class mid level white collar jobs really want to compete with top notch teachers who are forced out of the public sector into the private sector?
Government pension funds underestimating shortfall by $1.5 trillion or more
The pension funds for state and local workers in the United States are understating the amount they will owe workers by $1.5 trillion or more, according to some economists who have studied the issue, meaning that the benefits are much costlier than many governments and taxpayers previously believed.
http://www.washingtonpost.com/wp-dyn/content/article/2011/03/03/AR2011030302918.html?hpid=topnews&sid=ST2011030303017
Sammy,
Assuming that the underestimation is correct, are you suggesting that this is the fault of the employees? Or are you suggesting that the emloyees covered by those pension funds have been hood winked into believing that their agreed commpenstation packages were being properly funded? If the information is correct who are the losers? A large group of modestly paid professionals work for thirty years and then find that their pensions are under funded. What’s your argument?
Terry
the issue is complex enough that i would have to wait for the details before arguing one way or the other.
i could see a defined benefit plan that was paid out of taxes. you’d just have to count the benefit as part of the pay package and budget for it. The states have been counting on the stock market to pay the retirement part of the pay package, and then squealing when they take a loss.
i don’t think a defined contribution plan that throws retirements on the mercy of the stock market is a very sensible way to provide for a secure retirement.
Oregon PERS provided a combination…”your choice with limits.” at some point i knew i couldn’t afford to retire on the “safe” choice so I gambled on the risky choice and won. but it’s not what i would recommend to everyone… as the people who retired or wished they could retire since i left would tell you.
CoRev
I had the opposite experience. The bureaucrats who managed my portfolio did a great job, far better than i would have done. Maybe you would have done better. But lots of people won’t, can’t.
Or as TIAA-CREF says… the investment plan for people who have better things to do with their time.
Terry
the people behind breaking the public employees won’t be happy until public employees have to take bribes to make a living.
Sammy
could be true. I would’t know. But lots of those “experts” who study such things are paid liars.
Jack,
Just want all you in favor of generous public sector employee pensions to understand what you are in for.
Here is a description Oregons’s famously (in Oregon anyway) generous PERS (Public Employee Retirement System):
Tier 1 enables long-term state workers to retire at more than 100% of salary income when Social Security benefits are added to PERS benefits. Tier 1 applies to State workers hired before January 1, 1996, and for more than a decade has provided an average 30 year career worker with a retirement annuity that pays more than 80% of the member’s highest salary. When Social Security benefits are added to the PERS annuity, a retirement income of approximately 116% of the worker’s salary before retirement can result. (To see the math, Click here.) Most Tier 1 workers retire in their fifties. Due to a Tier 1 retirement option called “Money Match,” at retirement the state doubles the balance in the member’s account. After the account balance has been doubled under the Money Match option, a 30 year PERS Tier 1 member often has $500,000 in the member’s account at retirement. The retirement account balances for Tier 1 members are depicted on the linked graph, (Click here.)
A comparable lifetime annuity that pays 80% of a 60 year old worker’s average final average salary ($53,000), if purchased from a private annuity provider, would cost nearly $900,000. (Click here.) Such private annuities generally do not include the expensive 2% annual “cost of living allowance” (COLA) provided in the PERS annuity. A 2% annual COLA would increase the private annuity’s cost by 20%, thus boosting the cost for a private annuity comparable to the PERS annuity to more than a million dollars, if purchased in the private annuity market.
http://oregoncatalyst.com/3154-Oregons-Emergency-and-solution-Part-1-PERS-budget-crisis.html#
You might think that this is “fair” retirement package for the “modestly paid professionals” who earned a public paycheck for 30 years, however I consider it a tax payer ripoff and/or unfair use of public funds when there are so many other, poorer, potential beneficiaries who desperately need public funding. Queue up any random sob story, and I’d rather spend the money on them.
I understand. The sociopaths who are behind reducing 98% of the population to serfdom are a lost cause. Unfortunately in Wisconsin they have managed to enlist a sizeable chunk of middle class people who should know better including my wife who despite having made a very nice income with her two college degrees believes that teachers are overpaid. It is to folks like her that I point out you get what you pay for and that she may not have wanted to compete with really good teachers for some of the jobs she has held. This whole thing is about capital beating down the private wage earner to the point where they can tap into the jealousy of “how good public employees have it”
Sammy
like i said, highly paid liars. those professionals paid for their Social Security. and they paid for their PERS pensions. Social SEcurity at 12.4% of their paycheck. PERS at 6% of “their” money plus a 6% “match” from the boss. But anyone who thinks the “bosses” match is not part of the “employee compensation” hasn’t been reading “most economists.”
so it looks to me like the professioinals are contributing about 25% of their pay to their retirement.
even without interest or “return on investment” that 25% for 40 years would pay 50% of wages over a 20 year retirement. and if i remember correctly… with a very modest interest, over about 30 years the contribution should about double… getting you to 100% of your “average pay.”
which is nice, and something to aim for if you can get it. nothing immoral about bargaining for a good deal is there Sammy? especially if you are willing to give up 25% of your pay to get it.
I didn’t work 40 years, but I did put “my 6%” into the stock market and did very very well because of the nineties… but it was a risk i wouldn’t take again…and i get less than 25% of my previous pay.
so what you are saying is that some liar can take these figures and stampede you into thinking… must be over generous retirement package. because i am too dumb to have negotiated the same deal for myself. or too stupid to have paid for it all those years, taking less “now” so i could have more “later.”
the only questionable part of the PERS package was the “employer match” of the stock market gains. the state must have had some reason to think that was going to work out for them.. after all by encouraging the employee to put his “retirement” into the stock market, the state could “pay” less to the employee and the employee would accept it, expecting the stock market gains… in any case the state negotiaters were grown ups, and a guaran-damn-tee they weren’t being made an offer they couldn’t refuse.
meanwhile the employer match was removed from the retirement package in about 2001… following newspaper reports of former employees retiring to the South of France and thumbing their noses at poor suffering minimum wage no benefit tax payers.
those former employees turned out to be a couple of management types who had big salaries to start with, invested all their retirement money in the stock market and lucked out. but there was only the two of them. good enough for the Oregonian. they wrote it up as if all public employees were getting the same deal.
like i said, paid liars.
but they are good at it, so there is no reason to feel ashamed that you fell for it.
oh, yes… go back and look at the cheat: the public pension PLUS social security. you see the workers paid for both. SS would ordinarily be about 40% of average monthly salary. so if you are reaching “100%” — i never knew anyone who did… those people who retired in their 50’s were not the same as the 100% of salary people… they were worn out folks who worked in hard, dangerous jobs… take the SS contribution out, and the state pension would be 60% of previous salary… at most… after 40 years and 12% contributions and a very very good stock market.
you need to pay attention to that liars trick… “when added to Social Security, the public employees get…” they add the SS in order to give you a figure that you will gasp at… knowing you are too stupid to go back and look at where it came from. Envy will do that to people.
you apparently can’t see that you are doing exactly what you accuse the “left” of doing: being envious of your wealth without appreciating that you worked for it, and earned it.
coberly,
You don’t read links do you?
If you did you would learn that:
1) The state makes both the employer and the employee contribution.
2) Participants are guaranteed an 8% compounded return. Returns over tha last 10 years have been 3-5%, the taxpayers make up the difference. This is why state taxpayers had to contribute $2.1B last year, and face an unfunded liability of $13B.
3) If you were to buy an annuity equivalent to the PERS retirement package it would cost $1M.
So in what sense did they “earn it”?
If the argument is that 8%yr average is not possible to fund the pensions fully due to the depressed economy over the next decades, how is it possible for the aggregate of individual accounts will do better when the reseach demonstrates that even over the last twenty years private accounts (mutual funds for instance) would do better. This did not happen even in the glory years,,,,I remember watching 80% of mutual funds still staying even or losing money in the glory years after fees deducted,,,,good grief, spare me the greed is good meme as a policy statement. Predators will skim as they can.
Not everyone is as skilled in money as you corev.
Ah well sammy…can’t speak for Oregon, but can for MA and WI. Can you check other states….maybe Oregan made a mistake or not, but your explanation is confusing…
Sammy said:”1) The state makes both the employer and the employee contribution.” But the facts say otherwise:
2.70.010 Oregon PERS employee contribution.The required Oregon PERS employee contribution of six percent of salary is deemed to be “picked up” for purposes of Internal Revenue Code Section 414(h)(2) as the city will make the actual payment to PERS out of the employee’s pay; the employee not having the option of receiving his or her full salary and then making the PERS contribution themselves directly. In addition, the employees shall have their reported salary on the W-2 form be reduced by the amount of the employee contributions. [Ord. 94-O-508 § 1.]
Then Sammy said:
2) Participants are guaranteed an 8% compounded return. Returns over tha last 10 years have been 3-5%, the taxpayers make up the difference. This is why state taxpayers had to contribute $2.1B last year, and face an unfunded liability of $13B.
But the facts are:
“Contributions
Effective January 1, 2004, 6 percent of your salary has been placed in your IAP account. The IAP can have earnings or losses and administrative fees are deducted from the fund’s earnings as part of the annual crediting process. You are automatically vested in your IAP account when your account is established.”
Sammy,
OR Oregon PERS 80.2 43,520,600 54,259,500 10,738,900 0.23% (unfunded/expected revenue) 12/31/2008
If you check the link I provided you will find Oregon least representative of major state pension funds. I understand why you might for personal reasons, but to pick it for generalization to US destroys your reasoning.
Terry
sounds about right to me. one of the better teachers i ever had had to quit and go to work for “industry” so he could make enough money to send his kids to school.
on the other hand, i had a few teachers who would have been overpaid working in a prison workshop.
the middle class has gotten stupid. they wouldn’t even exist without the new deal, but now that they are used to having money they think they did it all themselves and resent paying taxes.
sound an awful lot like the “upper class” of the past.
sammy
no, i don’t read the links. no time for lying bastards. but i worked for the state of oregon for fifteen years and i learned something about the retirement system. the 8% guarantee was the “safe” choice. if you wanted to play the market you could make more… or less.
they earned it because they worked for the wages they were promised… including the retirement package. but go over my arithmetic again and see if you can understand it.
i don’t know if your 1M is correct, but if it is, it would have taken about half a million in contributions over a career, with a 3.25% intererst rate. That’s 12,500 a year. or about 25% of a 50k salary. about what i said above. but there is so much hand waving and double talking going on it would be hard to tell what the actual, honest figures are.
and you are forgetting that the average state worker made about 75% (in “current” pay) as the average private sector worker doing a similar job… but usually with less responsibility.
what you want is for the servants to be unheard and invisible, and work for nothing.
As for “the state paying” vs “the employee paying” you need to go read those “most economists” who were telling us just a few years ago that “the bosses share” was “really the employees money” and if the boss didn’t have to pay the “share” they would be able to give it to the employees as salary.
what you do sammy is read exactly the half of the facts that you want to believe.