Investment returns help pay your pension
2020 was a bear of a year. But it came with a bull of a market.
On July 26, 2021, we announced the CalSTRS Investment Portfolio earned 27.2% over the 12-month period ending June 30, 2021, which is well above the 7% assumed rate of return. This news was “nothing short of spectacular,” Chief Investment Officer Christopher J. Ailman said of the performance of the $308.6 billion portfolio we manage on your behalf as a CalSTRS member.
You may be asking yourself, why is this important to me?
It’s important because 7% is the annual return we must maintain to keep the fund healthy and avoid the need to raise contribution rates for the state and employers. And this year we cleared that bar—by a lot.
Investment returns generate most of your CalSTRS retirement benefit. For every dollar you receive in pension benefits, about 60 cents comes from investment returns. In other words, most of the dollars you, your employer and the State of California contribute to CalSTRS are invested in stocks, bonds and other investment vehicles and—if we do it right—those dollars earn returns on investments.
Those returns are crucial because we paid $16 billion in total benefits and refunds to members and their families in the 2019–20 fiscal year. The following fiscal year (2020–21), returns added more than $66 billion to the fund, which is the net of external management fees but does not include our internal overhead costs, such as staff time, salaries and office space.
This is the largest return we’ve had since the 1980s, explained Ailman in a video announcing the historic year-end figure.
Returns are a key part of the CalSTRS Funding Plan enacted by the Legislature in 2014. The funding plan was created with the goal of fully funding the Defined Benefit Program by 2046 through incremental shared contribution increases for members, employers and the State of California. Without the funding plan, the trust fund would have been depleted in fewer than 30 years and we would have become a pay-as-you-go plan instead of the pre-funded plan we are today.
We need investment returns of 7% or better each year, as well as contributions by you, your employer and the State of California, to keep the funding plan on track.
We’re well on our way.
Better returns, after all, mean a more secure financial future for you in retirement.