The board of the California State Teachers' Retirement System (CalSTRS)
today adopted the actuarial valuation of the Defined Benefit Program as
of June 30, 2013. The gap between current assets and the obligations
facing the system-known as the unfunded actuarial obligation, or funding
gap-has grown to $73.7 billion.
The latest valuation shows a $2.7 billion funding gap increase from the
previous valuation as of June 30, 2012. It is $2.2 billion less than the
gap projected for June 30, 2013 in the 2012 valuation. The growth of the
funding gap means that the system is now 66.9 percent funded,
essentially the same level identified in the prior valuation. In other
words, CalSTRS has slightly less than 67 cents on hand for every dollar
it owes its members.
Unlike most public pension systems, CalSTRS does not have the authority
to raise its own contribution rates and instead, requires action by the
Legislature and the Governor. In fiscal year 2012-2013, the fund posted
a 13.9 percent return on its investments, well above the actuarially
assumed 7.5 percent. Nonetheless, the unfunded actuarial obligation
continues to grow at $15 million per day without contribution rate
"Since at least 2006, we've said that CalSTRS cannot rely solely on
healthy investment returns to make up the ground lost to the economic
downturns and market volatility of the past 14 years," said CalSTRS
Chief Executive Officer Jack Ehnes. "This valuation reflects a reality,
affirmed by the Legislature, the Administration and stakeholders, that
stabilizing CalSTRS funding will require contribution increases. These
can be gradual, predictable and fair to all parties, while meeting the
long-term needs of the system."
If unaddressed, CalSTRS' underfunding will deplete the Teachers'
Retirement Fund by 2046, three years later than predicted in the 202
CalSTRS is currently working with the Legislature to develop a plan that
can be written into legislation to address CalSTRS' funding gap over the
long term. The latest valuation is just one data source used in
developing such a plan.
Another data source was the February 2013 CalSTRS report, "Sustaining
Retirement Security for Future Generations: Funding the California State
Teachers' Retirement System," prepared in response to Senate
Concurrent Resolution 105. The report, developed with input from
affected stakeholders, provides the Legislature with a range of
sustainable funding strategies necessary to secure the long-term needs
of the Defined Benefit Program.
On March 19, CalSTRS presented its latest report, "History
of CalSTRS Funding and Presentation of Additional Scenarios," to a
joint informational hearing of the Assembly Committee on Public
Employees, Retirement and Social Security and the Senate Committee on
Public Employment and Retirement. The report gives legislators key
information required to structure a plan that spans a range from 20 to
60 years to fully fund CalSTRS.
The need to adequately fund CalSTRS has been affirmed by the Legislative
Analyst's Office. In 2011, the California
State Auditor's Office placed CalSTRS on its list of agencies posing
a high risk to the state due to its unfunded liability.
State Teachers' Retirement System, with a portfolio valued at $180.8
billion as of February 28, 2014, is the largest educator-only pension
fund in the world. CalSTRS administers a hybrid retirement system,
consisting of traditional defined benefit, cash balance and voluntary
defined contribution plans. CalSTRS also provides disability and
survivor benefits. CalSTRS serves California's 868,000 public school
educators and their families from the state's 1,600 school districts,
county offices of education and community college districts.
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