Has a determination been made on what the contribution rates increase will be in response to CalSTRS’ $74 billion funding gap? If so when will that information be made available?

Ask Jack Jack Ehnes

Although a plan to address CalSTRS’ approximately $74 billion funding shortfall has yet to be enacted, recent activity suggests one may be forthcoming within the year. For some time CalSTRS has said closing the funding gap can occur through a gradual and predictable increase in contribution rates, fair to all parties involved. However, because the Teachers’ Retirement Board lacks the authority to adjust contribution rates, the Legislature and Governor must act to adopt a plan.

Acting to increase contributions beginning on July 1, 2015 to a level that would fully fund the program within 30 years would translate to an additional 14.3 percent of payroll, or a projected $4.1 billion in the first year. Keep in mind this is an aggregate number and does not suggest how the increase is allocated – that is a decision the Legislature and Governor must make. What we are saying is that in addition to the contributions currently paid by members, employers and the state, an additional 14.3 percent is needed.

Governor Brown included in his 2014-15 budget proposal specific language that states he will begin to work with the Legislature, school districts, teachers and the pension system to enact a plan in 2015-16 that will fully fund the system in the next 30 years.

Following the Governor’s budget proposal, Assembly Speaker John A. Pérez (D-Los Angeles) and Assembly member Rob Bonta (D-Oakland) announced action to develop a long-term funding solution for CalSTRS that would be enacted this year. The Legislature has stated their goal is to have CalSTRS 100 percent funded over the next several decades and that the funding solution should be a shared responsibility among school districts, the state and teachers.

Since then, a series of hearings, built upon the report CalSTRS submitted to the Legislature last year, were held to begin work on a final funding formula for legislative consideration. Assembly Bill 611, introduced by Assembly member Bonta last year, is currently in the Senate and is anticipated to be amended in hopes of enacting a funding plan for the Defined Benefit Program. However, until a plan is enacted, specific information on contribution rate increases will not be available.