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CalSTRS Pension Shortfalls

July 15, 2012

I have written about shortfalls in the CalSTRS pension fund before, they are real, and they are serious.  If you are a teacher in California reading my posting today you should be aware of possible future actions that may need to be taken with regard to CalSTRS surviving in the way it was intended.

My prediction: Unless the stock market turns around and CalSTRS starts making better than average returns, teachers will have to contribute more to the STRS system in order to keep it solvent.  There are literally thousands of baby-boomer teachers right now nearing retirement, this will put a further drain on the system.

Here is the Sacramento Bee article that got me thinking about this today:

CalSTRS earns just 1.8 percent in latest fiscal year

 By Dale Kasler
Published: Saturday, Jul. 14, 2012 – 12:00 am | Page 6B

CalSTRS earned a mere 1.8 percent profit on its investments in the just-ended fiscal year, prompting the pension fund to renew its request for financial help from the Legislature.

The return was well below CalSTRS’ official forecast. It also was a fraction of the 23 percent CalSTRS earned the year before.

The 1.8 percent gain translated into a profit of $2.7 billion. The California State Teachers’ Retirement System, the nation’s second-largest public pension fund, ended the fiscal year June 30 with $150.6 billion in assets.

The weak results spotlight the problems facing public pension funds as lawmakers debate the cost of employee retirements in an era of tight budgets.

Gov. Jerry Brown has called for a 12-point plan to rein in pension costs, although he’s been unable to craft a deal with his fellow Democrats who control the Legislature. Earlier this week, Brown scrapped plans to put his pension proposal on the November ballot.

While Brown and Republican lawmakers want to reduce costs, CalSTRS has been saying for several years it needs more money from the state and school districts to fix its funding problems. It has approached the Legislature about raising contribution rates, but so far no action has been taken.

“Investment returns alone cannot place CalSTRS on a solid financial footing,” said the pension fund’s chief executive, Jack Ehnes, in a statement. “It’s clear that the Legislature and governor must implement a long-term funding plan that includes gradual, predictable and fair contribution increases for all parties involved.”

CalSTRS’ official forecast calls for annual investment gains of 7.5 percent.

“This fiscal year has presented a very difficult market for long-term investors like CalSTRS, with wild fluctuations amid ongoing instability in Europe, slowing growth in China and India, a U.S. credit rating downgrade and a sluggish economy,” said the fund’s chief investment officer, Christopher Ailman, in a news release.

“The coming year presents us with many of the past year’s challenges,” he added.

Despite the weak year, CalSTRS said it has earned an average 12 percent over the past three years. Ehnes said the latest results aren’t a long-term “gauge for how well the fund is doing.”


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