The 2006 actuarial valuations for the CalSTRS Defined Benefit (DB), Defined Benefit Supplement (DBS), and Cash Balance Benefit (CBB) Programs were approved by the Teachers' Retirement Board on June 7, 2007. These valuations give the financial condition of the three programs for the fiscal year ending June 30, 2006.

The results were good news for all three programs. All three programs improved financially, and the DBS and CBB Programs granted Additional Earnings and Additional Annuity Credits.

Defined Benefit Program — 2006 Actuarial Valuation Results

The 2006 actuarial valuation showed that the financial condition of the DB Program has improved. The funded ratio of the DB Program improved to 87 percent from 86 percent in the previous year. The "Unfunded Actuarial Obligation" decreased to $19.6 billion from $20.3 billion a year ago. The amount needed to reduce the unfunded actuarial obligation to zero decreased to 4.168 percent of annual teacher payroll from 4.491 percent.

There are two major reasons for the improved financial status of the DB Program:

• The fund had an excellent investment return, earning $2.1 billion more than expected.
• Overall statewide teacher salaries did not increase as much as expected. As a result, the DB Program's liability was $690 million lower than anticipated.

The unfunded actuarial obligation was expected to increase to $22.1 billion, but as a result of these and other factors, it decreased instead, dropping to more than $2.5 billion less than the projected total.

Despite these improvements, the DB Program's unfunded actuarial obligation cannot be paid off with the current contributions to the program. The DB Program requires 20.988 percent of annual teacher salaries to reduce the unfunded obligation to zero. The program currently receives 17.656 percent of annual teacher salaries, a shortfall of 3.332 percent.

The Board has adopted a strategy to address the unfunded actuarial obligation and is in the process of implementing that strategy.

Defined Benefit Supplement Program — 2006 Actuarial Valuation Results

The results of the 2006 actuarial valuation showed improvement in the financial condition of the DBS Program as of June 30, 2006. The funded ratio of the program improved to 112 percent, up from 109.7 percent in the previous year. The Actuarial Surplus increased to $423.3 million from $267.0 million a year ago, an increase of $156.3 million.

There are three major reasons for the improved financial status of the DBS Program:

• $21.4 million in investment earnings on the June 30, 2005, surplus.
• Actual investment earnings on member account balances exceeded expectations by $71.6 million
• The earnings credited to account balances were $63.4 million less than assumed.

As a result of the improved financial status of the DBS Program, the Board granted Additional Earnings Credits and Additional Annuity Credits to the DBS Program for the first time ever. Both credits will be granted to those who were members on both June 30, 2006, and June 7, 2007. The amount of both credits is 2.49 percent of the eligible members' June 30, 2006, account balance or annuity value.

Cash Balance Benefit Program — 2006 Actuarial Valuation Results

The results of the 2006 actuarial valuation showed improvement in the financial condition of the Cash Benefit Balance Program as of June 30, 2006. The funded ratio of the CBB Program improved to 110.7 percent from 104.1 percent in the previous year. The Actuarial Surplus increased to $6.6 million from $2.1 million a year ago, an increase of $4.5 million.

There are three major reasons for the improved financial status of the CBB Program:

• $171,000 in investment earnings on the June 30, 2005, surplus.
• Actual investment earnings on member account balances exceeded the expected investment earnings by $1.4 million
• The earnings credited to account balances were $2.9 million less than assumed.

As a result of the improved financial status of the CBB Program, the Board granted Additional Earnings Credits and Additional Annuity Credits to the CBB Program for the first time since the late 1990s. Both credits will be granted to those who were members on both June 30, 2006, and June 7, 2007. The amount of both credits is 1.18 percent of the eligible members' June 30, 2006, account balance or original annuity value.