Get the Accurate Pension Picture
Followers of pension funding issues in the media know there are plenty of stories and opinions out there. An ongoing challenge for our staff is to make sure that reported information is factual, and not based on inaccuracies or generalities. We do our best to correct errors as they appear.
A recent article in The Christian Science Monitor called attention to pension funding. The author, former U.S. Secretary of Labor Elaine L. Chao, pointed out that private sector pensions are required by federal law to conform to pension funding rules.
ERISA (Employee Retirement Income Security Act) requires accurate measurement of pension liabilities and assets and prevents underfunded pension plans from making new promises they can’t afford. She writes that state and local government plans are not subject to these federal laws and “many failed to take it upon themselves to responsibly ensure that they would be able to make good on their promises.”
However, Chao failed to mention that there are recognized standards for accounting and financial reporting for state and local governments, established and approved by the Governmental Accounting Standards Board. GASB was established in 1984 by agreement of the Financial Accounting Foundation and 10 national associations of state and local government officials. It is recognized by governments, the accounting industry, and the capital markets as the official source of generally accepted accounting principles (GAAP) for state and local governments. CalSTRS follows GASB standards.
CalSTRS made sure that with additional benefits came the ability to finance them. For example, when the California Legislature enacted benefit enhancements in 1998 and 2000, CalSTRS identified the costs. Some of these enhancements, like the Longevity Bonus, were not permanent and will sunset December 2010. Continuing these enhancements would have cost $12 billion over 30 years.