Bonta: CalSTRS Says Pension Ballot Measure Would Negatively Impact Teacher Retirement Security, Stability of Pension Fund, Increase State Costs

July 30, 2015

SACRAMENTO - The retirement security of California's retired, current, and future teachers and the stability of the state's pension fund for educators would be put at risk if a ballot measure addressing those issues is approved by California voters next November, according to an internal analysis by CalSTRS, requested by and released by Assemblymember Rob Bonta (D-Oakland), Chairman of the Assembly's Committee on Public Employees, Retirement, and Social Security.

"The Legislative Analyst said this measure would cause 'significant uncertainty.' But what is certain is that it would undermine the retirement security of our state's current and future teachers, particularly women," said Assemblymember Bonta. "At a time when there already is a crisis in attracting and retaining teachers, this measure would be a major disincentive to attract our best and brightest to educate our children, and would cause irreparable harm to a system on which retirees and current teachers depend."

According to CalSTRS "this measure would allow voters in a school district to change all of the terms and conditions of member's benefits earned for future work, to increase their required contributions or to impose additional risks on the plan's ability to achieve full funding." This elimination of vested rights of current teachers will undermine retirement security and break promises made to teachers when they were hired.

The state currently has a single, unified statewide retirement plan for teachers that is administered by CalSTRS. The Legislature designed the plan to have uniform eligibility requirements, vesting rules, benefit formulas, contribution rates, retirement ages, and beneficiary and survivorship allows.

But the ballot measure, proposed by former San Diego city council member Carl DeMaio and former San Jose Mayor Chuck Reed, could result in the creation of up to 1,700 different retirement plans for teachers in the state, says CalSTRS. That would eliminate retirement security for teachers, who do not collect Social Security.

It also might cause teachers to lose any retirement benefits they've earned if they transfer from one school district to another, notes Bonta, because the "portability" of benefits could be erased if different districts have different plans. It also would put the funding of CalSTRS at risk. Last year, Governor Brown signed Assembly Bill 1469 (Bonta), which put the state teachers pension fund on a sound, actuarially funded course with projected full funding in 2046.

CalSTRS says it might also affect the tax-exempt status of the pension fund. CalSTRS also notes that the Reed/DeMaio measure would hinder any new teachers from enrolling in CalSTRS. That would force state taxpayers to pay more to keep the systems solvent.

"An additional consequence is that CalSTRS' cash flow would become increasingly negative, impacting CalSTRS' investment decisions," notes the analysis. The fund would have to change its investment strategy and cause taxpayer contributions to increase to cover lower expected returns.

CalSTRS also notes that the "impact of the measure would fall most heavily on women. Nearly 70 percent of CalSTRS' members are women, many of whom interrupt their careers to raise families. Those who wish to do so likely would be deprived of their portable membership rights, since they will be treated as 'new employees' who will not be allowed to continue to participate in CalSTRS unless voters in the jurisdiction of their school district affirmatively act to permit their participation."

The full report requested by Assemblymember Bonta, "Proposed 'Voter Empowerment Act of 2016'" Frequently Asked Questions can be found here.