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CalSTRS Board Adopts 2011 Actuarial Valuation

April 13, 2012

CalSTRS Board Adopts 2011 Actuarial Valuation

If you are a teacher in the State of California, you need to be concerned about this (below).  Especially if you are a younger teacher who is early into their career.

We have a crisis with regard to how CalSTRS has been run, as of now they are down, or in the hole to the tune of $64.5 Billion dollars…yes, that is with a “B” as in BILLION!  My monetary intuition and background tells me that the situation is even worse. I say this because CasSTRS is assuming a growth rate of: 7.5% – you tell me, do you know anyone earning 7.5% in today’s market?  I didn’t think so.

What this will mean to California teachers is that pension contributions will have to go up.  We currently contribute approximately 8%, which is matched by our school districts.  The news release below says that in order to be solvent the contribution will have to be increased by 13% above current levels.  If that is the case: 8% X .13 = 1.04% more than what we are contributing now.  This would put contributions over 9%.  If it needs to be done, it should be done.

Our retirement is very important, remember, as teachers, you do not get Social Security, unless you worked in other jobs prior to becoming a teacher as many of us did.  In our case, we will get our teacher pension (in some form) and a reduced Social Security payment.  This is important, I will keep you all updated as I learn of new decisions with regard to CalSTRS’s future.

In 2000, the defined benefit program was overfunded. As of last June, it was 69 percent funded. Source: CalSTRS actuarial valuation, June 30, 2011.

April 12, 2012

CalSTRS Board Adopts 2011 Actuarial Valuation
Pension funding shortfall grows, but additional contributions
required for full funding decline.

WEST SACRAMENTO, CA – The Teachers’ Retirement Board, the governing body of CalSTRS, today adopted the actuarial valuation of the Defined Benefit Program as of June 30, 2011. The valuation reflects a two-percent decrease in the funding status from the previous year, as the final impact of the extraordinary losses in 2008-09 is recognized.

The latest valuation shows a funding status sufficient to cover 69 percent of projected liabilities, leaving the fund with a $64.5 billion funding shortfall. The funding status means that for every dollar in pension obligations the fund has 69 cents worth of assets available. The previous valuation showed the funding shortfall at $56 billion.

The growth in the funding shortfall, however, is $4.3 billion less than was previously predicted, due primarily to the initial recognition of a 23.1 percent investment return for the 2010-11 fiscal year. The current valuation also reflects the final year in which the losses from the 2008-09 financial crisis are recognized. CalSTRS uses a three-year process to “smooth” or even out gains and losses to the system.

“Although healthy returns in 2010-11 reduced the magnitude of required future contributions, we cannot count purely on investment earnings to bring this crucially important fund back to financial health,” said CalSTRS Chief Executive Officer Jack Ehnes. “What’s needed now in the pension reform discussion is a long-term funding plan that only the Legislature and Governor have the authority to implement. CalSTRS is committed to working with all of our stakeholders to develop a plan that is both gradual and predictable for our members, their employers and the State of California.”

The valuation continues to reflect the inability to bridge CalSTRS’ funding shortfall without increases to contribution rates. Bringing CalSTRS to full funding would require an additional payroll contribution of 13 percent above current levels. This decreased from the previously required 14 percent of payroll. Absent any changes in contribution rates or liabilities, current projections show the fund will deplete its assets in about 35 years, which extends the anticipated lifespan of assets from the 30 years outlined in the prior valuation.

The actuarial valuation is a snapshot of the fund’s financial health, comparing its assets to its long-term projected liabilities. The valuation projects the extent to which the current and future assets of the Defined Benefit Program are sufficient to pay the benefits promised to CalSTRS members for their service. If the actuarial value of the assets is less than the value of obligations, then an unfunded obligation, or funding shortfall, exists.

Among the factors slowing the growth of the funding shortfall are:

  • Extraordinary 23.1 percent returns as of June 30, 2011, which closed fiscal year 2010-11 and, like losses, are also recognized over three years. This year’s recognized gains shrank the shortfall by about $7.5 billion.
  • The lower-than-expected projected payroll earnings for 2010-11 reduced the growth of the funding shortfall by $4.5 billion.

Several factors contributed to the growth of the funding shortfall, including:

  • Recognizing investment losses from 2008-09, which raised the funding shortfall by $12.7 billion.
  • Reducing the assumed rate of investment returns from 7.75 percent to 7.5 percent, which increased the funding shortfall by $3.5 billion.

The California State Teachers’ Retirement System, with a portfolio valued at $152 billion as of February 29, 2012, is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and defined contribution plans, as well as disability and survivor benefits. CalSTRS serves California’s 856,000 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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