WEST SACRAMENTO, Calif.--(BUSINESS WIRE)--The Teachers’ Retirement Board today reviewed the results of the actuarial valuation for the CalSTRS Defined Benefit Program as of June 30, 2017, reflecting impacts from investment assumption changes while also noting continued progress toward the system’s long-term funding goals.
The actuarial valuation provides a snapshot-in-time of the system’s financial health, in addition to monitoring the system’s funding status and its ability to meet long-term commitments.
CalSTRS’ actuarial consultant, Milliman, reports that the unfunded actuarial obligation, known as the funding gap, will adjust from $96.7 billion at the June 30, 2016, valuation to $107.3 billion as of the June 30, 2017, report.
The increase in the unfunded actuarial obligation over the last year was anticipated and occurred primarily due to the lowering of the long-term investment return assumption from 7.25 percent to 7.0 percent. This reduction was adopted by the Teachers’ Retirement Board on February 1, 2017, as part of the multiyear CalSTRS Experience Analysis, referred to as the experience study. This change also contributed to the slight reduction in the system’s funding ratio—the ratio of the smoothed actuarial value of assets to pension obligations—from 63.7 percent to 62.6 percent.
“The results of the June 30, 2017, valuation were directly in line with our expectations following the adoption of new assumptions by the Teachers’ Retirement Board in 2017. The funding plan is operating exactly as it was designed, with predictable and gradual rate increases that are shared among members, employers and the state,” said CalSTRS Chief Executive Officer Jack Ehnes. “This report validates that we are on a responsible and gradual trajectory toward the long-term financial health of the fund to reach approximately 100 percent funding by the year 2046.”
Overview of Contribution Rate Changes From the June 30, 2017, Actuarial Valuation:
State of California contributions:
Based on the results of the actuarial valuation, the Teachers’ Retirement Board adopted an increase of 0.5 percent of payroll in the state’s contribution rate, adjusting from the current rate of 9.328 percent of payroll to 9.828 percent of payroll, effective July 1, 2018. This includes the additional 2.5 percent of payroll the state contributes to the Supplemental Benefit Maintenance Account, an inflation-protection program for retirees.
Under the funding plan, the Teachers’ Retirement Board has limited authority to adjust the state’s contribution rate upward by 0.5 percent from one year to the next, based on the funding status of the plan. The increase was anticipated over a year ago and was included in Governor Brown’s 2018-19 fiscal year proposed budget (page 115) presented in January 2018. The proposed budget includes $3.1 billion in General Fund contributions to CalSTRS, reflecting the anticipated higher contribution rate adopted by the Teachers’ Retirement Board.
This valuation has no additional impact on employer contribution rates in 2018-19. The employer rates are currently adjusting upward, as per the predictable schedule set by statute in the passage of the 2014 funding plan, and will reach 19.1 percent of payroll in July 2020.
CalSTRS 2% at 62 members:
(Those first hired on or after January 1, 2013)
As anticipated in last year’s valuation report, the CalSTRS 2% at 62 members will see a rate increase of 1.0 percent of payroll, adjusting from 9.205 percent to 10.205 percent on July 1, 2018. These members were first hired on or after January 1, 2013, under the Public Employees’ Pension Reform Act (PEPRA) and, as such, are required by law to pay at least one-half of the normal cost of their defined benefit pension. Normal cost is the annual cost that is necessary to adequately fund the benefit over time when applied to each year of service. Normal cost does not include any costs associated with amortizing or paying down unfunded liabilities.
Actuarial staff project that, by July 2018, slightly over 20 percent of CalSTRS active members (roughly 100,000 out of more than 445,000 educators) will be in the 2% at 62 pension formula. This number has increased by approximately 20,000 members each year.
CalSTRS 2% at 60 members:
(First hired before January 1, 2013)
CalSTRS 2% at 60 members will see no additional changes to their contribution rates, regardless of the assumption changes in the actuarial valuation.
- CalSTRS 2% at 62 members:
The California State Teachers’ Retirement System, with a portfolio valued at $222.5 billion as of March 31, 2018, is the largest educator-only pension fund in the world. CalSTRS serves California’s more than 933,000 public school educators and their families, from the state’s 1,700 school districts, county offices of education and community college districts. A hybrid retirement system, CalSTRS administers a combined traditional defined benefit, cash balance and voluntary defined contribution plan. CalSTRS also provides disability and survivor benefits. CalSTRS members retire on average after more than 25 years of service, with a median retirement age of 62.9, and a monthly pension of approximately $4,475, which is not eligible for Social Security participation. For more data, download the CalSTRS Fast Facts 2017 brochure.
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