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Funding plan, portfolio remain strong despite economic turbulence

CalSTRS remains slightly ahead of schedule in its goal to reach full funding by 2046 amid global economic uncertainty.

This good news is one of the key findings from the eighth annual Review of Funding Levels and Risks report presented to the Teachers’ Retirement Board at the November meeting.

The report helps assess the soundness and sustainability of CalSTRS’ Defined Benefit Program and tracks CalSTRS’ progress toward achieving full funding. This year’s breakdown is based on the June 30, 2022, actuarial valuation of the Defined Benefit Program and reflects relevant changes that have occurred since the valuation, including investment performance in the last fiscal year and the recent growth in the number of public educators who are members of the Defined Benefit Program.

The CalSTRS Investment Portfolio remains strong and CalSTRS’ ability to reach full funding by 2046 continues to be positively impacted by the record-breaking 27.2% investment return from fiscal year 2020–21. Ongoing risks such as geopolitical turmoil, inflation and projected enrollment declines in K-12 public schools remain and will be monitored. Overall, the report demonstrates that CalSTRS is financially stronger today than after the global economic crisis of 2008 and better positioned to handle future risks because of the funding plan.

Key next steps for CalSTRS include:

  • Review of actuarial assumptions: Every four years, CalSTRS’ actuarial assumptions are reviewed to ensure they remain reasonable and reflect the actual experience of the system. These actuarial assumptions are estimates pertaining to the investment performance, the health of the Teachers' Retirement Fund and other factors. A review is currently underway and will conclude in January 2024 when the board will be presented with the findings.
  • Adoption of contribution rates for fiscal year 2024–25: In May 2024, the board will review the results of the annual actuarial valuation of the Defined Benefit Program and will set the contribution rates for the state and employers for next fiscal year. Neither the state nor the employer contribution rates are expected to increase in fiscal year 2024–25.
  • Report to the Legislature on the funding plan: CalSTRS is required by statute to provide a funding plan progress report to the California Legislature every five years. The first report was completed in June 2019; the next report is due in June 2024. These reports educate the Legislature about the funding plan, the health of the CalSTRS Investment Portfolio and the risks encountered in maintaining the Defined Benefit Program.