Teachers in California breathed a sigh of relief when the California Supreme Court ruled that vested retirements benefits cannot be abridged (“ ‘California Rule’ Upheld Without Modification,” Contact, April 2019). But there are still three upcoming cases that address the issue of public employees. As a result, it’s premature to break out the champagne.
Whether other state high courts will take the same position as California’s is unclear. So much depends on whether they hold that promises made are sacrosanct. The California Rule treats a public employee’s pension as a form of deferred compensation, with the value set the day the employee is hired. Although terms can be altered over time, the overall value cannot be reduced.
I’ve never understood why the issue has arisen in the first place. Teachers have kept their end of the bargain by paying into the system. I’m not talking now about what is known as “air time,” whereby employees pad their pensions by buying additional retirement service credit even though they haven’t done the actual additional work. The California Supreme Court correctly rejected that ploy.
Truth to tell, very few teachers receive the benefits of the present pension system because it is heavily back-end loaded. As a result, the system is essentially a Ponzi scheme, whereby new teachers pay for the benefits of their older colleagues. With the economy improving, it’s a propitious time to allow teachers to decide if they would rather accept higher pay at the start of their career in exchange for a lower pension. That route would likely appeal to teachers who intend to spend only a few years in the classroom before moving on to a different career.
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Teachers, like virtually all employees, would be better served by a 401k-type deferred compensation plan rather than the traditional defined benefit plan. The 401k plan would address the problems of teachers moving to other school systems or leaving teaching prior to vesting + would address the looming problem retired teachers being left w/o a pension due to govt underfunding of defined-benefit plans.
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Labor Lawyer: I think a better way is to offer teachers a choice: a traditional defined-benefit plan or a defined-contribution plan. Career teachers would no doubt opt for the former, while other teachers would choose the latter. The current system is much too back-end loaded, which is why it penalizes teachers who don’t stay in the classroom.
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