A Snapshot in Time
At its meeting earlier this month, the CalSTRS board adopted the actuarial valuation of the Defined Benefit Program as of June 30, 2010. The valuation is an annual “snapshot” of the fund’s financial condition.
The picture at that point in time reveals short-term good news and continued cause for concern for the long-term that underscores the need to find a funding solution.
Funding gap grows
The short-term funding picture is better than expected due to our most recent investment returns of 12.2 percent and lower-than-expected member earnings. However, there is still a funding gap that continues to grow, although at a slower pace than previously predicted.
As of June 30, 2010, the gap is $56 billion, an increase of $15.5 billion from the 2009 valuation. Most of that increase can be attributed to the losses from the financial upheaval in 2008-09, which cost CalSTRS 25 percent of its investment value. Under accepted actuarial practice, our gains and losses are recognized over a three-year period and we will recognize the final portion of these losses in our next valuation.
Despite its large size the funding gap can be closed, but not through investment returns alone. We hold more than $150 billion in assets, enough to continue to pay benefits through the next 30 years, yet changes to the long-term funding of the plan are needed to sustain it beyond that. If such a plan is not adopted the State of California, as the plan sponsor, will have to assume responsibility for funding the benefits if CalSTRS assets are depleted.
Bridging the gap
The valuation also shows how we can bridge the funding gap. Contributions would have to increase by slightly more than 14 percent of payroll per year for the next three decades to successfully erase the funding shortfall.
All of this points to the need for the Legislature to develop a gradual and predictable funding solution that will uphold the state’s promise to teachers while protecting the state General Fund and education funding.