Blog entry Jack Ehnes

CalSTRS Valuation in Perspective

At the September 2010 State Teachers’ Retirement Board meeting, we adopted the actuarial valuation showing the financial health of the retirement fund as of June 30, 2009.

Our funded ratio decreased to 78 percent, down from 87 percent the year before. As a result, the unfunded portion of the future benefits has grown to $40.5 billion.

Valuation Decline Not Unexpected

While the valuation has been much higher, over the past decade, the entire global investment community including CalSTRS experienced a catastrophic economic crisis.

The dot-com bust of 2000 was followed by the 2008 global economic crisis which resulted in a minus-25 percent return for CalSTRS in the 2008-09 fiscal year and negatively impacted our funded status.

We can’t understate the effect of the crisis. If the actual investment return for the fiscal 2008-2009 fiscal year had been 8 percent, the funding ratio would have been 88 percent instead of 78 percent.

In 2000, CalSTRS was 110 percent funded. By 2006, the funding ratio had dropped to 87 percent, and our unfunded liability had grown. At that time, we began an education effort about the need for a responsible long-term funding solution with state decision makers, CalSTRS members and other stakeholders.

Long-Term Funding Solution Needed

Today, we continue to communicate about the need for a solution to achieve the long-term financial stability of the fund. We know that positive investment returns alone cannot solve the situation. Market fluctuations are inevitable and will likely continue.

The latest valuation does impact CalSTRS future ability to pay benefits. We project that we can pay benefits through 2044. The state, as guarantor of pension benefits, needs to develop a structured plan to resolve the unfunded liability.

In the meantime, the falling valuation demonstrates the impact of waiting and points to the need for the state to take action on a responsible solution that is fair to all.

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