February 3, 2005

Sacramento –The Teachers’ Retirement Board today voted to oppose two proposals that would replace guaranteed defined benefit pensions with 401(k)-style defined contribution plans for teachers and other public employees hired on or after July 1, 2007.

At its regularly scheduled meeting, board members voiced disapproval of Assembly Constitutional Amendment 5 and ACA 1X, two legislative proposals introduced by Assembly Member Keith Richman (R-Northridge).The board members discussed and confirmed specific pitfalls of the proposals, noting that, if the change is enacted:

• The change will undermine the funding structure of current benefit programs. CalSTRS will likely have to start using invested assets sooner to pay benefits, reducing the long-term investment return and resulting in an increase in the cost of the benefit plans. Further, these proposals would severely limit the board’s options to address the long-term solvency of the system.



• California’s teachers stand to lose more than other employee groups. Unlike most other public employees affected by this proposed change, California’s teachers do not belong to Social Security and therefore have no other source of retirement income as a “safety net.”



• The new plan will have program limitations. Defined contribution plans usually do not include guaranteed disability and survivor benefits.



• The current program rewards career longevity. California needs to attract new teachers and keep quality teachers in the classroom longer. The current Defined Benefit Program rewards those who work a full career with enhanced benefits.

“As trustees for California’s teachers, we are concerned about the long-term impact this would have on the fiscal strength of the system. We are also greatly concerned about the impact this change would have on the future of our teachers,” said Board Chair Gary Lynes. “Under the CalSTRS Defined Benefit Program, our members cannot outlive their benefit. Simply put, changing to a defined contribution plan would rob them of that security.”

“We’ve witnessed attempts to eliminate defined benefit plans in other parts of the country,” said CalSTRS Chief Executive Officer Jack Ehnes. “However, our Defined Benefit Program meets the retirement, disability and survivor benefit needs of our members and the public’s need for experienced, able teachers at a reasonable cost. We have a strong, sound system and California’s educators need it to stay that way.”

CalSTRS is the third-largest public pension fund in the United States, with a current market value of $125 billion. It provides retirement, disability and survivor benefits to California’s public school teachers from kindergarten through community college, serving more than 750,000 members and their families. For more information, visit the CalSTRS Web site at www.calstrs.com.