Blog entry Jack Ehnes

An Article of Interest

Every now and again, an article filters through the pop culture clutter of the online and print community and examines an unpopular and often contentious topic. It gets attention because it asks difficult questions that may lead to unpleasant answers. 

I would like to point readers to a recent Rolling Stone article by Matt Taibbi, “Looting the Pension Funds.” There is a bit of a disclosure with this link – the dialogue in places is crude and may be off-putting to some. But this article dissects the complexity of pensions, politics and the financial sector. It’s a thought-provoking look at what took place just prior to and after the financial collapse experienced in 2008 and examines issues not covered by mainstream journalism.

CalSTRS has received questions about the exposure of the fund to the questionable maneuvering depicted in this article. It’s no secret that fallout from the global economic turmoil experienced in 2008 has played out in California and this fund. CalSTRS’ most pressing concern, a plan of action to shore up the $70 billion funding shortfall in our Defined Benefit Program, was caused in part by the market collapse.

FitchRatings’ recent report, California School Districts Still Financially Vulnerable, depicts CalSTRS’ situation as this, “Statutory benefit enhancements, a reduction in state contributions and weak investment results has caused the funded rate to drop significantly since the late 1990s, when the system was fully funded.” (The FitchRatings report was not available online at the time this blog was published).

This message is echoed in the California State Auditor’s report which lists CalSTRS’ unfunded liability as a high-risk issue. As pointed out in these reports, the Teachers’ Retirement Board lacks the authority to increase contribution rates – this authority rests with the Legislature and the Governor. The state must act to adopt a responsible funding strategy that protects the state’s General Fund and upholds the state’s promise to educators.

The intent of legislative action offered in Senate Concurrent Resolution 105 establishes a framework for a funding strategy. CalSTRS remains confident that the long-term viability of this plan can be restored. The solution is a gradual and predictable increase in contribution rates. 

In the meantime, CalSTRS’ 100-year longevity is evidence of the fund’s adaptability and strength. We are confident the funding shortfall can be managed with thoughtful legislative action.

Comments

Matt Tiabbi article

No worries about the "crude" language, Jack. A lot of us came up in the 60s. Besides much of the scatology the author uses is more than warranted by the circumstances he is describing.

calstrs poor judement

we know what's coming, jack. we, the teachers of california, will have to bear the financial brunt of calstrs screw-ups, losses, and excuses...we know b.s. when we hear it...and just how top heavy is the calstrs admin? look it up...see how much we teachers are paying to support this top-heavy board...

STRS getting lumped in with all pension plans

I am very concerned about the trend that pension reform is looked at through a single lens. I think we (those covered by STRS) can all point to someone we know who has a different public pension be it PERS, city or county that has very different formulas and outcomes. I think that the non pension covered public is looking for fairness , transparency and more consistency. Certain practices such as the counties negotiating with itself in the form county administrators who will receive the same benefits as what is agreed upon with the bargaining unit has led to levels of benefits that are not sustainable without costs way out of line with the non -public sector. The fact that STRS is being included in the discussion without acknowledging those differences is a problem. We have already seen reform to our formula for new hires and now are looking at changes for those already in the system. With that said I also believe there are issues with fairness and consistency within the STRS formula. Because the fund was over funded in the 90s the decision was made to give a specific class of educators, those retiring within a certain time frame with 30 years service a lifetime bonus upon retirement. Also those that move to much higher levels of compensation at the very end of there careers receive a disproportionally higher benefit. Both practices do not seem to meet a basic fairness test. Ours and any defined benefit program should in my opinion stay as close to a zero sum formula in which all members receive a defined benefit based as closely as possible on years of work and compensation over time. ok .. off my chest.. I feel better!

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