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.