Year-End Wrap Up and a Look at What 2015 Holds

Blog entry Jack Ehnes

2014 Accomplishments

As we end this year and look forward to the next, we are able to do so with a renewed confidence. In June, consensus recognition of the need to stabilize CalSTRS’ funding emerged with the enactment of the funding solution detailed in Assembly Bill 1469. The shared-responsibility plan gradually increases contributions from all plan contributors by an amount that is projected to fully fund the Defined Benefit Program in roughly 32 years.

Our most significant accomplishment in 2014 contained within the legislative funding solution is that CalSTRS is no longer projected to deplete its assets. CalSTRS is on target to meet the promise of a secure financial future due to California’s educators. The dynamic leadership of our Governor, the Legislature and our stakeholders has been remarkable in reaching this historic accomplishment. We applaud their leadership in this milestone.

And yet another milestone was reached this month, when the President signed into law a final $15.6 million payment to CalSTRS from the 1997 sale of the Elk Hills Naval Petroleum Reserve as part of the $1.1 trillion budget appropriation bill. The federal budget has set aside money to the Teachers’ Retirement Fund as the final installment of an annual payment plan that dates back to 1999, under which the Teachers’ Retirement Fund will have received a total of $315 million in compensation for its interest in the Elk Hills Reserve. Proceeds from the sale will support older retirees’ pension purchasing power.

A quick glance at our newsroom headlines offer insight to many other significant accomplishments and challenges we faced. CalSTRS investment performance earned accolades for best large fund when it received Institutional Investor’s 2014 Public Pension Plan Award. The Investor Intelligence Awards bestowed the CIO of the Year Award to Christopher J. Ailman. Our fiscal year returns in 2013-14 were 18.7 percent, an achievement that far exceeded the fund’s actuarially assumed 7.5 percent rate of return.

Building on the framework set within the California Public Employees’ Pension Reform Act of 2013, the Teachers’ Retirement Board in September adopted Creditable Compensation Regulations, which seek to clarify what can and cannot be credited to the Defined Benefit Program for hires before January 1, 2013.

A new member service center opened in Irvine, while our West Sacramento headquarters building received The Outstanding Building of the Year (TOBY) Award in the ‘Corporate Facility’ class for the Pacific Southwest region of the Building Owners and Management Association (BOMA). A new record keeper, Voya Financial was selected for the supplementary savings plan, Defined Contribution Program, known as Pension2®.

The Teachers’ Retirement Board elected Harry Keiley board Chair and named Sharon Hendricks as Vice Chair for the 2014-2015 terms. Governor Brown appointed new board member, Joy Higa.

Looking Ahead

Looking toward the new year brings focus to a signature concern for CalSTRS; addressing climate change through sustainability and risk management. In fact, the Teachers’ Retirement Board has identified sustainability and risk management as key priorities for CalSTRS in 2015.

Recent media coverage reported that Senate president pro tem Kevin de León announced during a press event on Monday, December 15, 2014, that he plans to introduce legislation that would require state pension plans, CalSTRS and CalPERS, to divest from coal assets. Thus, in the coming year, we anticipate that our investment in coal will be carefully evaluated. Further, we consider our investment in coal an important component of our review of sustainable investing and risk management; and look forward to potentially working with the Legislature in developing a balanced approach toward evaluating our coal investments.

In the meantime, we will formally retire the “Plan Funding” area of the CalSTRS website and replace it with a “Sustainability” section by the end of December. Information regarding AB 1469, which is currently housed within the “Plan Funding” site, will still be available from our “Legislation and Regulations” section located under the “About Us” tab.

CalSTRS seeks to accomplish its mission of providing a secure retirement to California’s educators by prudently managing the investment portfolio. CalSTRS believes our investment decisions must carefully weigh our duty to perform profitably with consideration of the environmental, social and governance effects of those investments. We are a patient, long-term investor, and the ultimate impact of our sustainable strategies will be assessed in the coming year and communicated via our soon-to-be launched “Sustainability” website area.

More than 100 years ago, the Legislature established the Teachers’ Retirement Fund as a means to provide a secure retirement to the devoted educators of this state, and keeping that promise has been no simple task. CalSTRS commends the Legislature, the Governor and our stakeholders for their leadership in this tremendous achievement. With a solid financial plan in place and prudent investment strategy, CalSTRS can confidently carry out its mission, which is to secure the financial future and sustain the trust of our membership.

I, and the staff at CalSTRS, wish you the best for the new year.