WEST SACRAMENTO, Calif.--(BUSINESS WIRE)--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 increases.
“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 2012 valuation.
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.
The California 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.