Cost of Waiting

The longer it takes to adopt a responsible funding strategy, the more the costs rise and risk to the state General Fund increases.

If CalSTRS does run out of money, the state, as the plan sponsor, will be obligated to pay the difference between the benefits paid and the contributions received.

Absent any changes in contribution rates or liabilities, current projections show the fund will deplete its assets by as early as 2043. Acting to increase contributions by as early as 2014 would translate to an additional 15.1 percent of payroll or a projected $4.5 billion annually over the next 30 years to fully fund the plan. However, the cost will rise the later the contribution increase begins.

The Legislature and the Governor Must Address the CalSTRS Funding Strategy – the CalSTRS Board Cannot

The contributions paid by CalSTRS members and their employers are sufficient to cover the normal costs of the benefit program, but the impact of two major financial downturns in less than 10 years resulted in significant investment losses.

The current shortfall of $70 billion is based on an actuarial valuation, a snapshot of the CalSTRS fund’s assets and liabilities as of June 30, 2012. That valuation shows the plan is 67 percent funded when the previous year it was 69 percent funded.

Through Senate Concurrent Resolution 105 a Long-Term Funding Plan for CalSTRS is Possible

The resolution encourages CalSTRS to collaborate with affected stakeholders to develop at least three funding strategy options and submit them to the Legislature by early 2013. Work on those strategies is now underway and includes the Department of Finance, school employers and member organizations.

CalSTRS is hopeful legislation will be enacted in the 2013-14 legislative session as intended in the resolution.