Baby Boomers Are Accounted For

Blog entry Jack Ehnes

Some of you have expressed concern about the large number of Baby Boomers about to enter retirement and the impact that may have on CalSTRS. Some pension analysts and other pension reform pundits would have you believe that catastrophe is just around the corner, and public pension programs will soon exhaust their assets.

That can’t be farther from the truth at CalSTRS, and here’s why.

CalSTRS is Not Like Social Security

The CalSTRS Defined Benefit Program is not a so-called “pay as you go” system, like Social Security. In other words, benefits are not paid to retired members this month with the contributions collected from active members last month. 

A defined benefit pension program like CalSTRS collects the contributions determined by law from its members, their employers and the state and invests the money so that it will grow over time. Although the amount of your CalSTRS retirement is calculated on a formula based on your age, years of service and final salary – not the specific value of your contributions and their earnings –the money paid in while you are working finances the benefit you receive during your retirement years . Over the past 15 years, investment earnings have funded 55 percent of the CalSTRS Defined Benefit Program benefits while employer contributions and member contributions each account for 18 percent, and the state General Fund nine percent.

Assumptions Include Boomer impacts

Keep in mind also that demographics, as in who is expected to enter the retirement pool and when, are part of the assumptions considered when our actuaries calculate the system’s annual valuation. 

For example, when the calculations in CalSTRS most recent actuarial valuation projected a long-term funding shortfall of $40.5 billion, the Baby Boomer factor was taken into account. However, that shortfall is not caused by the influx of Boomer retirees. CalSTRS assets were at an all-time high at the beginning of the decade, and more than adequate to meet future obligations, but the 2001 dot com bust and the 2008 world economic turmoil created lower than expected investment returns. Absent legislative action to change contribution rates or liabilities, current calculations show the program will deplete its assets by 2044. The state must act to adopt a responsible funding strategy that will protect the state General Fund, and uphold the state’s promise to teachers.

For our part, CalSTRS protects the fund assets with sound long-term investment strategies, asset allocations to address changing conditions and the pursuit of good governance practices and operational accountability.


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