Ask Jack: What actions have been taken to correct the $73 billion CalSTRS funding gap?

Ask Jack Jack Ehnes

In June of 2014, legislation was enacted to address a projected shortfall in the CalSTRS Defined Benefit Program.  The CalSTRS 2014 Funding Plan enacted in Assembly Bill 1469 sets the Defined Benefit Program on a sustainable course to eliminate the unfunded liability in roughly 30 years. This historic legislation calls for gradual, shared contribution increases from members, employers and the State of California over the next several years beginning July 1, 2014.

All along, CalSTRS has said that the funding shortfall can be managed but it will require increased contributions, which can be gradual, predictable and fair to all parties involved. Prior to the CalSTRS 2014 Funding Plan, contribution rates had not been increased in 25 years for employers and in about 40 years for members.

Due to the new funding structure enacted in AB 1469, CalSTRS no longer projects an asset depletion date. The latest snapshot of the program’s assets and liabilities as reported in the June 30, 2014 actuarial valuation reflects a $72.7 billion unfunded liability that is currently being paid down.

In addition, AB 1469 grants the Teachers’ Retirement Board limited rate setting authority for state and employer contribution rates. This provision acts as a safeguard to keep the fund on track to be fully funded by 2046. Member rates, however, remain fixed in statute.

The CalSTRS 2014 Funding Plan successfully concludes a nearly 10-year effort to educate the Legislature, the Governor, key policymakers, the media, and our members on the need to develop a plan to address the Defined Benefit Program’s funding gap.  Further, the Legislature and Governor’s actions demonstrate California’s commitment to a sound retirement system for its valued educators.

With appropriate funding, a defined benefit plan such as the CalSTRS Defined Benefit Program is a responsible, efficient way to provide secure retirement income. In fact, generations of California’s educators have come to rely upon this modest retirement income for more than 100 years as testament to the plan’s sound design. Enactment of the CalSTRS 2014 Funding Plan ensures that future generations of educators can also rely upon their hard-earned retirement benefits when they need them.