But NOT cutting those checks isn't an option either. I just checked my paycheck stub, and I see that $288 was deducted last month from my paycheck. That's $288 that I earned. Yes, some people want to say, "Taxpayer's money, taxpayer's money", and obviously the money comes from taxes, but I went into school a whole bunch of days and earned it -- it wasn't a gift. $288 that I had no option but to deposit into the state pension plan.
Math time:
Let's round that off to $250 since I'm a little over halfway through my career. Let's say that I deposited $250/month for 30 years (which is what it takes to get a teacher pension). Over the years I'll deposit $75,000, which will be returned to me in the form of my pension.
A quick check with an online calculator tells me that if I'd had control of that money myself, I'd have a 401K worth $569,831.98 at the end of that same 30 years. After all, the power of compound interest over 30 years is significant. (Of course, this assumes that I am disciplined enough to save the money.)
The state can't decide now -- now that I'm 19 years into a 30-year teaching career that they're just going to keep my money. They owe it to me, and actually they're doing pretty well because a whole lot of teachers deposit into the fund but don't work enough years to ever receive a check -- the state keeps their money. Also, I see that I'd have to live about 29 years in retirement to break even -- but if I live only five years or so, the state'll keep the balance of my money.
Yes, I see two flaws in my math, but for the purposes of this discussion I can't see a way to do any better:
1. I have pretended that interest rates will always increase the investment; it is possible that the state could LOSE part of my investment. Still, I'm guaranteed to have that pension whether they win or lose on the stock market. When they required me to pay into the pension fund, they took on that responsibility.
2. I've ignored that the money will continue to gain interest after I've retired, so it'll actually end up being worth more than $569,831.98 in the long run.
I hear what you're saying when you say that we can't afford to cut the checks, and I don't pretend to have the answer . . . but we also can't go back on what was promised to people like me.
I completely and totally agree with you. Based on your responses here, I can only imagine that you're a fabulous teachers....one of the really good ones.
In my state (NJ), we had two governors....one from each side of the aisle (so this is not political) and they both made changes to the state pension plans. Those changes, that were set into practice 20 years ago....doomed us. Really, we're screwed. Here's a brief history of how we got here. Pulled from a Money Magazine article on underfunded state pension programs:
Here ya go.......
"To figure out how such a wealthy state (with a median household income of $65,933, New Jersey ranks No. 1) dug itself into this hole, set the clock back almost 20 years.
In 1990 the country was hit by a recession, and the new Democratic governor, James Florio, responded with a wildly unpopular $2.8 billion income and sales tax increase to balance the budget. Two years later, facing another budget shortfall, he turned to the state pension system for help. With almost unanimous support in the legislature, he pushed through the Pension Revaluation Act of 1992.
We'll spare you the minutiae of pension accounting and just say that the law permitted the state to recognize investment gains in the fund more quickly than under previous rules. It also lifted the projected rate of return on the fund's investments to 8.75% from 7% (since lowered to 8.25%). These "adjustments" had a big impact: According to an official Benefits Review Task Force report published in 2005, they allowed the state to cut its pension contributions by more than $1.5 billion in 1992 and 1993.
Republican Christine Todd Whitman, running on a tax-cutting platform, defeated Florio in the 1993 governor's race. To help pay for her promised tax cuts, Whitman, like her predecessor, turned to the pension fund. In 1994, at her urging, the legislature adopted another pension "reform" act that allowed her to reduce state and local contributions to the plan by nearly $1.5 billion in 1994 and 1995, according to the task force report. Florio's and Whitman's accounting changes were "the one-two punch from which the retirement system has never recovered," says Douglas Forrester, who was the assistant state treasurer under Kean.
"Seeking to make up lost ground without putting up more money, the state's leaders looked to the magic of the stock market. In 1997 New Jersey sold $2.75 billion of bonds paying 7.6% interest, putting the proceeds into the pension fund to be invested for higher returns.
At that time Whitman said the ironically named Pension Security Plan would save taxpayers about $45 billion. It hasn't worked out that way. The fund has earned less than 6% annually since the bonds were issued.
"This is classically referred to as arbitrage," says U.S. Rep. Leonard Lance, a Republican who served in the New Jersey legislature from 1991 through 2008. "It's a questionable strategy in the private sector, and it's certainly not acceptable as a matter of public policy."
That wasn't the state's last venture into high finance. The system, along with almost every other investor, suffered sharp losses after the dotcom bust of 2001. Democrat James McGreevey, who became governor in 2002, hoped that professional money managers would improve the plan's returns. At the time New Jersey was the only state other than Texas to run its pension fund without outside help.
McGreevey appointed Orin Kramer, a money manager who had been finance chair of his unsuccessful 1997 gubernatorial campaign, as head of the State Investment Council, which sets policy for the pension plan. Kramer pushed the council to turn over some of the fund's assets to Wall Street professionals and to diversify into alternative investments such as hedge funds and private equity. But it took time for Kramer to devise a strategy and put it into action, so money didn't flow to alternative investments until 2006, on the eve of the bear market that would crush nearly all asset categories.
"Our asset-allocation model was based on the idea that there was no correlation between our alternatives and bonds and equities," says James Marketti, retired president of Communications Workers of America Local 1032, who has been a member of the state's investment council since September 2008. "It turns out they were perfectly correlated."
For all the miscues, New Jersey's pension woes can't be blamed on particularly poor investment results. An examination of state reports shows that the fund's returns have more or less tracked the broad stock market's. The real problem has been the underfunding.
Meanwhile, the obligations keep mounting: Even while they were neglecting pension contributions, New Jersey politicians were sweetening the pot. In 2001 benefits for the state's two largest groups of workers, government employees and teachers, were increased by 9%, creating an additional $4.2 billion in liabilities. In 1999 the state approved a "20 and out" measure that allowed firefighters and local police to collect pensions equal to 50% of their pay after 20 years of service - a perk previously available only to the state police. Benefits added since 1999 have increased liabilities by more than $6.8 billion, according to official estimates.
Today New Jersey seems locked in a downward spiral. "New Jersey and many other systems have negative cash flows, meaning that contributions are less than the benefits we pay out," says William Clark, director of the New Jersey Division of Investment, which manages the pension fund. "You can't make your money back when it's flowing out of the system."
This is me again.....
Keep in mind, this was written *two* years ago, and things have gotten much worse. Markedly worse. Going forward, new state workers and teachers are going to end up with Defined contribution plans like the rest of us. And they're going to end up paying much more of their health care costs.....during their working years and in retirement.
Here's the real troubling part for people with pensions in my state, and trust me, we have a lot of friends and some family in this boat......our Governor Chris Christie is not only looking to change pension plans for new hires, but also to change those with existing contracts and those already retired.
Our pension plan is slated to go bankrupt by 2020. Even after the two governors mentioned in the blurb....who raided the pension to pay for budget shortfalls and tax cuts, and increased the projected returns to decrease the states pension liabilities.......the next two governors have not paid into the pension plan at all. So, all that money they are taking from the employees for their pension....they are using elsewhere to balance their budget. It should be criminal, but in many states, it's not.
Like I said, it's not fair at all....and it's going to further impact our deteriorating education system, but there you have it.
Welcome to the "New Normal".
