The California State Teachers’ Retirement System, one of the nation’s largest public pension funds, has awarded more than one million dollars in management bonuses, despite having a multi-billion dollar funding gap.
The bonuses were announced today at a CalSTRS board meeting at a time when taxpayers, teachers and school districts may have to pay out more money into the fund.
One of those blasting the bonuses today was Dennis Smith, who teaches governmental accounting at Sacramento City College. Smith told CBS 13 the idea of awarding bonuses to managers of an underfunded plan doesn’t add up.
“It is particularly jarring for bonuses to be even contemplated at the same time the pension fund itself is under some duress.” Smith said.
Topping the bonus list is CalSTRS Chief Executive Officer Jack Ehnes, who received $146,000, or nearly half his $300,000 salary (see page 3 here).
Chief Investment Officer Christopher Ailman took home an extra $116,604 – or roughly one-third of his yearly salary of $360,000. In all, more than 50 managers collected an extra $1,620,573 in bonuses, while CalSTRS has a $156 billion funding gap – according to a recent Stanford University analysis.
“These people are paid very well on straight salary,” said Marcia Fritz of the California Foundation for Fiscal Responsibility. The Citrus Heights based organization tracks pension pay outs statewide.
“They are in six figures for doing a job. If they don’t do their job, they shouldn’t get an incentive bonus,” Fritz told CBS 13.
So how does CalSTRS justify the bonuses? We took our questions to Wednesday’s board meeting.
“We think it’s a very good return on investment,” said Patrick Hill, CalSTRS media relations manager. “The $1.6 million in incentives represents $240 million dollars that was earned by the decisions by our investment managers.”
Some teachers we talked to seemed to agree.
“We need to pay them a fair and respectable incentive and I think that’s what this board is doing,” said Maggie Ellis, a 5th grade teacher from Elk Grove and member of the California Teachers Association.
Californians will likely to be asked to pay more in the future – to help the CalSTRS fund recover from big investment losses. CalSTRS says the funding gap is much lower than the Stanford study. Currently, the giant fund gets about $6 billion each year from taxpayers, teachers and school districts.
On Friday, the CalSTRS board will meet again to vote on a staff proposal to lower the forecast for future investment returns from 8% down to 7.5%. The lower number could mean an additional $4.6 billion would be needed to make up for previous losses, according to CalSTRS. The decision is highly political because unlike CalPERS, the state teacher system must get the green light from the Legislature and Governor in order to increase contributions.
Lawmakers in California – and nationwide – have heard plenty of angry voters say that pension costs should be reduced, not increased. California’s most recent state budget, signed last month, does in fact reduce benefits for new state workers.