Faculty/Staff Fear Pension Privatization

NANCY AGBENU
El Vaquero Staff Writer

“How many of you expect to live at least 25 years after you retire?” asked the California State Teachers’ Retirement System (CalSTRS) Board President Carolyn Widener of a crowd of GCC teachers and classified employees; about 50 hands were raised along with some laughter.
Concerned about their retirement benefits, employees gathered at the meeting 25, eager to obtain information about their financial future.
The employees’ apprehension was caused by Gov. Arnold Schwarzenegger’s January proposal to call for the privatization of pension plans for all new public employees.

So far the classified employee’s (support staff’s) pensions have been administered by a plan called California Public Employees Pension System (CalPERS) and the faculty’s retirement plan is the California State Teachers Retirement System (CalSTRS). Both are defined benefit plans that guarantee guarantee pensions for life.

Starting in 2007, the governor propose gradually converting these rather secure defined benefit (DB) plans into defined contribution (DC) plans and introducing the 403(b) system, a system that, like the 401(k) system private employees, leaves public employees dependent on the amount of their investments in private accounts.

With the new plan, retiring teachers would get the money they put in, minus the fees they pay “and when it’s gone, it’s gone,” said CalSTRS representative Widener.

While defined benefit plans’ allotments are guaranteed for life regardless of employer contribution, benefits in defined contribution plans depend on both employer and employee investment choices and earnings. Also, defined contribution plans would no longer offer free resources on behalf of plan participants in investment decision making.
“All the risk is on the individual in these defined contribution programs,” said Widener. “The responsibility is not on the state any more.”

CalSTRS, the third largest public pension fund in the country, currently holds a $125 billion market value. The system that has a total membership of approximately 754,000 holds assets of $116.2 billion as of June 2004, said CalSTRS. CalSTRS’s primary responsibility is to provide retirement, survivor and disability-related benefits and services to teachers in public schools from kindergarten through community college. Its mission is securing “the financial future and sustaining the trust of California’s educators.”

“They are fabulous, fabulous systems,” said Ken Marizon who represented the California Public Employee Retirement System (PERS) and at the GCC retirement meeting.

He objected Schwarzenegger’s proposal to entirely close defined benefit plans to all new public employees including teachers employed in California after July 2007.

“The proposal that is offered to us is not designed of us,” said history teacher Peggy Renner who has been employed at GCC for 16 years and attended the meeting.

What is so “radical and dangerous” about Schwarzenegger’s proposed plans, said Widener, is that it leaves teachers with no choice. The governor’s changes would place California among only two states and the District of Columbia that require new employees to use individual investment accounts.

West Virginia requires them for teachers and Michigan for all new employees. Numerous other states, including Florida, Nebraska, Colorado and South Carolina, offer the option voluntarily, according to the National Conference on State Legislatures.

The example of Nebraska though has shown that in cases where different teachers put the same amount of their money into the different plans, “the people in the defined contribution plans retired with less money,” than those who invested in defined benefit plans, said Widener.
Defined contribution plans also cause “trouble” for teacher’s who retire when the stock market is down, said Widener. While defined contribution-plan participants receive a fixed amount every month, the purchasing power of that amount decreases each year in proportion to the rate of inflation.

The governor also announced possible “reforms” that include changing the age at which teachers could collect retirement benefits. “Today, if you are in CalSTRS you can retire as early as age 50,” said Marzion. “With the new system, [teachers] can’t retire ’till 65.”
In the beginning of April, the Schwarzenegger temporarily backed off his plan because public unions and members of his own board of CalSTRS pressured him. His vision has provoked widespread opposition among public employee groups and the major pension funds. When four, and therefore the majority of the STRS board members, opposed his proposal, the governor fired the two Democrats and two Republicans, yet the plan was stopped.

“We have come so far to stop it,” said newly elected CalSTRS Board chair Widener. “And we’ve been successful thanks to the usual heroes,” she said referring to the firefighters and police.

Part of Schwarzenegger’s plan had been to cut disability and death plans, which are vital to national security personnel, said Marzion. “All public employees [including teachers] need disability and death plans,” said Widener.

Marzion said that “the governor is not done.” He said, “it’s just slowed down right now [and] a lot of discussions have taken place since the first proposal.”

Come next year, the state will have the pension reforms and “will bring stability to the pensions,” said Schwarzenegger, who is now abandoning pursuit of the new pension plans until at least June 2006.

Opponents though argue that privatizing pensions will not fix any budget problems, but actually cost tax payers billions in transition fees. Widener said shifting away from the current system would affect the state’s healthcare, the social security system, and finally entire economic.

“People are trying to kill the goose that might lay the golden egg,” she said refering to CalSTRS. “[Currently] we buy 26 percent of the stockmarket,” she said. Between 1995 and 2004, $116.1 billion more than two thirds of the CalSTRS’s income came from investments in the stockmarket, according to CalSTRS.

Frank Quintero, member of the Glendale City Council and PERS said at the meeting at GCC, “Keep in mind the incredible amounts of money investment companies will make if you transfer to these programs.” “It’s a stone loser. It started years ago. Look at where employees went who did that years ago.”

“Those of you who are 40 years and older should have personal counsel,” suggested political science instructor Mona Field suggested at the end of the meeting.

Widener urged the employees at GCC to have a campus committee and inform employees through e-mail lists. “You have to tell your co-workers, friends and neighbors and discuss what kind of society we want,” she said.

“I believe by joining forced committees and working together we’ll do pretty well,” said Quintero. “Combined effort on the local level always makes sense. Be prepared; it’s gonna come back in November, December in different forms.”

“It’s very exciting to me, seeing this many people and working together,” said Renner. “I’m old enough to retire but I couldn’t imagine that,” said Renner who is also president of GCC’s Academic Senate. This semester she teaches American Social Values.