CalSTRS Funding Gap Narrows

There's good news about the CalSTRS funding gap. It's narrowing, thanks in part to unprecedented investment returns in 2006-07. We are currently funded at 87 percent as of June 30, 2006.

The gap, or unfunded actuarial obligation, is the amount we 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, a snapshot of the fund's assets and liabilities as of June 30, 2006.

Regardless of the funding gap, current members' benefits are guaranteed.

Must CalSTRS be funded at 100 percent? It's certainly our goal. But a valuation is somewhat 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 anticipated.

Despite these improvements, the DB Program's funding gap can't be paid off with the current contributions to the program, and it's 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.

We'll keep you posted on progress toward closing the funding gap in future newsletters, on CalSTRS.com — and for those of you who have chosen to receive them, with periodic e-news updates. If you'd like to sign on to receive CalSTRS e-news, see the preference settings on your myCalSTRS account. You may unsubscribe at any time.

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