CalSTRS Funding Gap Narrows
There’s good news about the CalSTRS funding gap. It’s narrowing thanks, in part, to unprecedented investment returns in 2006. We are currently funded at 87 percent as of June 30, 2006.
The gap, or unfunded actuarial obligation, is the dollar amount CalSTRS will need in the future to pay benefits due to current members for service already performed. The shortfall numbers are derived from an actuarial valuation, which is a snapshot of the fund’s assets and liabilities as of June 30, 2006.
| Defined Benefit Program | ||
|---|---|---|
| June 30, 2006 | June 30, 2005 | |
| Projected Shortfall | $19.6 billion | $20.3 billion |
| Funding Level | 87 percent | 86 percent |
| Percent of Annual Teacher Payroll to Reduce Obligation to Zero in 30 Years | 4.168 percent | 4.491 percent |
Must CalSTRS be funded at 100 percent? It’s our goal. A valuation is something like a home mortgage — there isn’t a need to have all the money today, but we should have a plan in place to handle the debt.
There are two major reasons for the improved financial status of the Defined Benefit Program: the fund had an excellent investment return in the last fiscal year, earning $2.1 billion more than expected, and overall, statewide teacher salaries did not increase as much as expected.
Despite these improvements, the DB Program’s unfunded actuarial obligation won’t be paid off with the current contributions to the program, and it is unlikely to be eliminated by investment returns. The Teachers’ Retirement Board has adopted a strategy to address the unfunded actuarial obligation and is in the process of educating the legislature and stakeholders regarding that strategy.
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