We Won’t Get Fooled Again

July 20, 2011

TO:          Interested Parties         
FR:          Californians for Retirement Security
RE:          We Won’t Get Fooled Again
In May 2011, the so-called “California Foundation for Fiscal Responsibility”(CFFR) released a fundamentally flawed report on California pensions.  You may recall that at the time of its release, we noted that the report is nothing more than a political document relying on outdated, skewed data providing an inaccurate view of retirement benefits for public employees. Further, you’ll remember that the sham “Foundation” is headed by Marcia Fritz, an accountant with zero public policy experience who hired Mike Genest, the architect of Governor Schwarzenegger’s failed budgets, to author its “reform” proposals.
That is why it came as no surprise when a CalPERS review of CFFR’s proposals raised “serious concerns” about the methodologies of the report, among other fundamental flaws.
As if the issues raised by CalPERS weren’t enough to raise major questions about the CFFR proposals, an in-depth analysis released by the experts at CalSTRS this week finds that the proposed CFFR “reforms” and recommendations simply don’t add up.

In conducting its thorough analysis of CFFR’s report, CalSTRS relied upon its actuary, Milliman, to review the report and its recommendations. According to the actuary’s review, “the CFFR proposal would reduce benefits paid at retirement to more typical CalSTRS members, either at a greater cost to fund the retirement plan or a greater risk to the member’s retirement security.”
Read more from CalSTRS below:

CFFR “Reform” Doesn’t Add Up for CalSTRS
In May 2011, California Foundation for Fiscal Responsibility (CFFR) released a proposal for a one-size-fits-all overhaul for all of the state’s public pension systems that will reduce teachers’ retirement security and potentially increase the cost of their pension.  The recommendations were based on the results of a study CFFR commissioned to compare the retirement and health benefits provided by public pension systems against those of private sector workers at a sample of large companies.
Neither CalSTRS nor its actuary, Milliman, was asked to provide any information for the study or to review the study before its release. To validate the findings, CalSTRS asked Milliman to conduct a thorough analysis of that study and CCFR’s resulting recommendations. In summary, Milliman’s review has determined that for CalSTRS members, the CFFR proposal would reduce benefits paid at retirement to more typical CalSTRS members, either at a greater cost to fund the retirement plan or a greater risk to the member’s retirement security. Specifically the proposal and its analysis:
·         Used assumptions that incorrectly undervalued the CalSTRS benefit.  When corrected, the CalSTRS benefit is more valuable to members who retire from active service than under either alternative proposed by CFFR.·         Transfers risk from the employer to employees, even in situations in which the employer was subject to minimal risk under the current plan.·         Creates more losers than winners for future CalSTRS retirees.o   Losers: Primarily CalSTRS members who worked a full career in public education could expect reduced benefits.o   Winners:  Those who quit teaching after a few years could receive greater payments.

Either requires an increase in the total contributions needed to fund the teachers’ retirement system, or makes the member’s retirement less secure.·         Ignores longstanding legal precedents and constitutional protections for existing CalSTRS members’ benefits.
CFFR made its broad recommendations despite the fact that the study’s author and Marcia Fritz, CFFR’s president, recognize that CalSTRS pays modest retirement benefits and is uniquely and responsibly designed, as evidenced in the following news story excerpts.
In the Ventura County Star on May 6, 2011: “My reaction was, as we try to attack problems in the pension system, I don’t think it’s going to be helpful to attack CalSTRS…by reducing the benefits package,” said former state Finance Director Mike Genest, one of the authors of the study.  “When compared to other public pension systems, it is far less generous.” In the New York Times on May 5, 2011: Ms. Fritz, an accountant who has long been calling for pension changes in California, said she was stunned by the differences between the teachers’ retirement benefits and what other state and local workers received. “My initial reaction, when I saw the teachers, was, ‘It’s a game changer,’” she said.  “I had no clue.”
The California State Teachers’ Retirement System, with a portfolio valued at $154.2 billion, is the largest teacher pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of a traditional defined benefit, cash balance and defined contribution plans, as well as disability and survivor benefits. CalSTRS serves California's 852,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.
Californians for Retirement Security is a coalition of more than 1.5 million public employees and retirees. The group’s executive committee includes: California Faculty Association; California Federation of Teachers; California Professional Firefighters; California School Employees Association; California Teachers Association; Orange County Employees Association; Peace Officers Research Association of California; Retired Public Employees Association of California; SEIU California, and SEIU Local 1000.