Ok, here’s my rant…
Not all unions are the same. Not all union workers are overpaid. Not all benefits are overly generous. You have to look at each circumstance. UAW benefits were very generous (but the vast majority of UAW workers I know are very hard workers), but that doesn’t mean they still are or that it means squat to police unions or teacher unions.
Here in Ohio, teacher unions are under massive attack from the GOP and much of the public. They rant about the “cadillac benefits and high salaries”. But the rhetoric doesn’t match the facts. A few points:
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Teachers in Ohio make, on average, just over $51,000 per year. 20 years ago, the average teacher salary in Ohio was just over $51,000 per year, when you adjust for inflation.
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To get that salary, you must have a masters degree, as that is a requirement for your license renewal (you can start with just a bachelors, but you have 5 years to fix that). 20 years ago, this was not the case - in other words, more education required, but no better salaries.
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Residents are upset about school districts asking for tax levies every few years. The only method for most districts to raise money directly is through property taxes. In Ohio, each levy is for a set $ amount to be collected across the district. This $ amount does not change with changes in property values (unlike most states), nor does it change if the population grows and schools need to be built or expanded. Even if state funding was constant, this would mean that just to keep up with inflation, schools would have to ask for levies periodically just to cover those costs (minor raises, increased gas and electric costs, etc).
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This method of funding the schools was ruled unconstitutional by the State Supreme Court about 15 years ago, as it relied too heavily on property taxes. This is only worse today
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The current shortfall for most schools is primarily because business taxes which funded schools were eliminated, the GOP backtracked on their promise to make up for the lost funds, and other state aid has declined because income taxes were slashed across the board.
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And finally, about those benefits… hang on with me here… it’s a wild ride.
The teacher’s pension fund is seriously underfunded. That is a fact. But let’s examine why… under the old system, teachers contributed 10% of their salaries and the state and district were supposed to match with 12%. That was better than the corporate average, but not wildly better. On average, corporations pay a 9.2% contribution (6.2% to social security and 3% in 401k matches). For reference, a worker at Walmart contributing 6% of their salary would get a total company contribution of 12.2% (6% 401k match and 6.2% to social security).
In exchange for this, the teachers could get up to 97% of their final 3 year average salary, adjusted for inflation (compounded), after 35 years of service. Benefits were not actuarially reduced if you retired early. Given the funding levels above, an average rate of return of about 7% would have fully funded the pensions. A good rate of return, but not earth shattering - so why should this not have been doable? We’ll get to that later…
Under their new system (not negotiated, but imposed), teachers will now have to pay 13% and the district/state continue at 12%. Benefits are reduced to 77% of final 5 year average salary. COLA adjustments are capped at 2% or the CPI, whichever is lower, and are non-compounded (ie, your pension is effectively dramatically reduced in value if you live a long time). Early retirement comes with actuarial adjustment of payments (I’m in favor of this change, but not all the rest).
The rate of return necessary to fully fund pensions over the course of a career with average life expectancy is no longer ~7% - it is now 4.1%. That’s lower than 30 year Treasury yields. So the state can now take ALL the pension funds, put them in what is considered the safest investment in the world, fund the pensions, AND skim off the top. That’s a HORRID deal for teachers. And they have NO social security OR survivors benefits to rely on, either.
So back to the underfunding - why did it exist when 7% wasn’t an unrealistic return over the past 20-30 years? Simple - the state raided the funds to pay for their pet projects, then to try to catch up, invested in risky and ludicrous schemes with the politicians cronies. Two classics were collectible coins and a bunch given to Lehman Brothers (at the urging of their director, who is now our Governor). That dug the hole even deeper.
Now, they complicate the problem even more with massive tax cuts, and rather than having the government and taxpayers fix the pension funding problem, they turn to the teachers and restructure the fund such that the teachers themselves pay for all of the shenanigans that went on in the past in the state gov’t.
And yet we still hear how overly generous these benefits are. How would you like it if the government took money from your paycheck and told you that you might get a pension in the future (if they don’t cut it again) that is based on a ludicrously low rate of return? You say you get that with social security? Actually, its historical rates of return for most workers are higher… and Social security only costs you and your employer 12.2% total, not 25%. Teachers would be MUCH better off with a 401(k) and social security, which they could easily cobble together to get a better than 4.1% rate or return. But no, the pension is too generous, according to our GOP and tea party.