The importance of a plan that fully funds the Defined Benefit Program cannot be overstated. It took years of overcoming budgetary constraints, educating numerous policymakers and stakeholders, and an overall perseverance to see a funding plan come to fruition.
Recently, CalSTRS sat down with a few individuals who were a part of this tremendous effort and they shared some of the challenges and highlights. This video captures the key moments that led to a funding plan.
When we talk about CalSTRS we’re talking about a financial institution that dates back to 1913. Through the years, the fund has endured many difficult times and changes. This last decade has been particularly turbulent for CalSTRS, but we have never lost sight of our mission to provide a secure retirement to California’s educators.
Since the release of the Governor’s revised budget proposal, considerable discussion on a potential funding plan for CalSTRS fills social media and news networks. The possibility of a funding plan comes as welcome news.
Several developments suggest a funding plan for CalSTRS is a top priority for the Governor and Legislature this year. In addition to Governor Brown’s call for development of a funding plan in his budget proposal, the Legislature has begun the process of crafting a permanent funding solution for the Defined Benefit Program. As this process takes shape many significant issues will be examined. The importance of staying focused on funding issues relevant to CalSTRS is paramount.
2013 was an especially significant year to CalSTRS as we celebrated 100 years of service to California’s educators. Last year kicked off with a newly designed website and a video that highlighted accomplishments of the past century.
As CalSTRS begins to emerge from the worst economic downturn since the Great Depression, renewed focus on the sustainability of the defined benefit pension has surfaced, with some calling for the elimination of a plan that has provided a secure retirement to California’s educators for the last 100 years.
Every now and again, an article filters through the pop culture clutter of the online and print community and examines an unpopular and often contentious topic. It gets attention because it asks difficult questions that may lead to unpleasant answers.
A movement to divest from fossil fuel companies stirs the emotions of many. The urgency behind such requests reflects increasing concern about global warming. While there is no doubt about the underlying devastating risks of climate change driving this advocacy, the question of divestment versus engagement as an effective strategy warrants exploration.
In the last three years, CalSTRS has experienced significant market volatility. In fiscal year 2011, CalSTRS catapulted to a 23.1 percent investment return high. The following fiscal year investment returns plummeted to 1.8 percent and then rebounded up to this year’s 13.8 percent. The good news that we’ve significantly exceeded our 7.5 percent investment assumption for three years still does not change current projections of depleting our assets in roughly 30 years.
If anyone knew the answer to that precisely, they may well be both clairvoyant and very wealthy. In reality, financial experts do seek to understand how the macroeconomic forces underlying our economy will change and how that change affects future market returns.
Every April the Teachers’ Retirement Board adopts the latest actuarial valuation. The actuarial valuation is a snapshot of the CalSTRS fund’s assets and liabilities as of June 30, 2012.
The new valuation shows an increase in the unfunded actuarial obligation or unfunded liability from $64 billion to $70 billion. This increase holds consistent with projections reported in all actuarial valuations since 2003.
Each new year brings the promise of a fresh start. For CalSTRS, 2013 marks an especially significant year for the fund when we celebrate 100 years of service to California’s educators and their families. CalSTRS began in 1913 with 16,020 active and retired members, and has grown to presently include 862,000 members with a portfolio value of more than $157 billion. One hundred years of service is an accomplishment to be proud of, and wonderful, time-honoring events are in store to commemorate this special occasion.
To the families affected by the horrific and disturbing events that took place December 14, 2012, at Sandy Hook Elementary School, we offer our deepest sympathy. Our thoughts and prayers are with you through this very difficult and troubling time. We understand there is nothing we can say or offer to make up for the tremendous losses you suffered.
Americans suffered considerable loss of assets through the devaluation of their homes during this past recession. The mortgage crisis has hurt the finances of the young and the old. Relative to seniors, however, there has been emerging data that gives some important insights.
As fiduciaries of retirement benefits for California’s 856,000 educators, CalSTRS takes its responsibility very seriously. As a public entity, transparency is critical. A significant part of this duty is the ability to appropriately address and improve business processes. A recent review by the State Controller was rightfully critical of CalSTRS history of addressing pension spiking, or the inappropriate enhancement of a member’s income to increase pension benefits.
A recent article in the Los Angeles Times says anxious investors nearing retirement are day trading with their life savings. While one can sympathize with the anxiety and desperation felt by those individuals, it doesn’t take an expert to realize this type of investment strategy comes with considerable risks.
With the recent allegations of corporate misconduct, fraud and bribery, corporate accountability has become a high-profile issue. Media reports of questionable leadership underscore the role boards of directors play in the long-term growth of publicly held companies. Concerned investors like CalSTRS, want assurance that governance safeguards and effective internal controls are put in place to mitigate any future risk.
April is an active month for CalSTRS and educators alike. Every year at this time the CalSTRS board adopts the latest actuarial valuation which captures the long-term needs of the fund. This year’s valuation of the Defined Benefit Program was adopted on April 12.
This year’s National Institute on Retirement Security conference held in early March, “Pensionomics 2012: Measuring the Economic Impact of DB Pension Expenditures,” featured a new report that demonstrates how defined benefit pensions support economic activity and how this activity keeps California’s local economies stable. There are a couple of key points made during the conference I would like to highlight.
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