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CalSTRS in Trouble, Thereby: Teacher Pensions in Trouble in CA

February 4, 2012

If you are a teacher in California, you NEED to read and understand what is happening with CalSTRS.  The official investment forecast that CalSTRS has been using to state its reserves was 7.75%, they are lowering this estimate down to 7.5%.

Now, anyone who follows anything even remotely related to the financial markets will immediately realize that even 7.5% is a farce in today’s market environment where we are earning less than one percent on our savings accounts.  You can make the case that the investment geniuses at CalSTRS are incredibly good stock pickers, but that has not proven to be true in the past.

My advice as someone who has bought and sold stocks for a long time for myself and previously for my clients is simple: DO NOT rely on a CalSTRS pension exclusively!  Be saving your own money on the side, pay yourself first, then have fun with what is left, don’t have fun and then hope to pay yourself.

Read the below article to understand:

By lowering its investment forecast by another quarter point, CalSTRS made a bow toward economic reality – but also may have complicated efforts to shore up its finances.

The teachers’ retirement board agreed Thursday to reduce CalSTRS’ official investment forecast to 7.5 percent, down from 7.75 percent. It was the second cut in 14 months, after the $144 billion fund left the forecast untouched for 15 years.

In a volatile investment climate, following a year in which CalSTRS’ portfolio earned just 2.3 percent, board members took their consultants’ advice and went with the lower number.

“I think it’s best that we be conservative,” said Terry McGuire, representing board member and state Controller John Chiang.

The board of the California State Teachers’ Retirement System voted 9-1 to reduce the forecast. The lone dissent came from Pedro Reyes of the Department of Finance. The higher forecast “is not unreasonable,” he argued. “Let’s stay where we are right now, (and) visit this in another year.”

By cutting investment projections, the board instantly ballooned CalSTRS’ funding gap – the estimated shortfall of assets available to meet the pension fund’s long-term needs. The gap will grow by nearly $6 billion, or roughly 10 percent.

That could create problems in the Legislature, which must OK changes in how CalSTRS is funded.

CalSTRS gets around $5.6 billion a year from the state, school districts and teachers. The pension fund had already calculated that it needed another $4 billion a year to eventually get healthy. With the lower investment forecast, those needs grow by another $500 million a year.

While CalSTRS is pushing for more money, many Republicans want to erase funding shortfalls for public pensions by reducing benefits. Democratic Gov. Jerry Brown wants to give newly hired employees a combination traditional pension and a 401(k)-style program.


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