After long months of deep study, thoughtful debate and significant input from members the
CalSTRS Teachers’ Retirement Board decided on a comprehensive strategy to address the
long-term funding gap of $19.6 billion.
Current Benefits Will Not Be Cut
At the foundation of the strategy is the board’s commitment not to decrease benefits to California’s
educators and their families. The board knows what all teachers know: no one is getting rich as a
retired teacher. The average CalSTRS teacher retires at 61 with about 26 years of service and
receives about 60-65 percent of pay. Moreover, members do not earn Social Security for
CalSTRS-covered employment. Because nearly 800,000 of California’s educators rely on CalSTRS for
their only guaranteed source of retirement security, the board is moving forward now with strategies
to ensure a healthy and secure fund for our members, including changes to the investment portfolio.
Even Exceptional Investment Returns Cannot Do It All
The board has moved to a more aggressive asset mix to achieve positive long-term returns and as of
December 31, 2006, the portfolio was valued at $157.8 billion. Since investment returns make up the
bulk of the Retirement Trust Fund, fluctuations in the stock market impact our funding status.
The market downturn a few years ago resulted in three years of lower than anticipated investment returns.
Although the portfolio has recovered the financial losses incurred during the three-year market downturn,
the portfolio will never regain the time lost in accruing interest on those funds
Lower than expected investment returns got us here, but positive investment returns alone can’t get us out.
Despite the extraordinary returns, CalSTRS’ independent actuary estimates that the odds are against investing
our way out of this situation. In fact, the actuary estimates the unfunded obligation could double to more
than $40 billion in 10 years even if a targeted investment return of 8 percent is met.
Because market fluctuations are inevitable this situation will continue, making it a long-term problem that
requires a comprehensive, long-term solution. The longer we wait, the higher the cost to address it.
For that reason, the board is seeking authority to set predictable contributions rates within limits for
an incremental and phased approach to addressing the funding situation.
We Cannot Do It Alone
The board is sensitive to areas of concern related to school funding among other budget constraints and will
work with stakeholders to build understanding in order to reach solutions that best meet the needs of all.
|
