Economic Downturn Impact on Funding
CalSTRS unfunded actuarial obligation primarily resulted from lower than expected investment returns stemming from the 2008 global financial market collapse coupled with the 2001 dot com bust. In fiscal year 2009 alone, the fund experienced a 25 percent loss.
However, provisions in the CalSTRS Funding Plan (AB1469, Bonta) have considerably increased the likelihood of CalSTRS reaching full funding while reducing the risk of a low funded status or even running out of money.
In 2017, CalSTRS took further steps to strengthen the funding of the system by adopting new actuarial assumptions. Financial markets have also provided better than assumed returns, positively impacting projected funding levels and contribution rates. In addition, the Teachers’ Retirement Board voted to increase the state’s contribution rate by 0.5 percent of payroll in each of the last two years.
The limited rate setting ability provided to the board by the funding plan has considerably reduced the risk of a low funded status or even depleting the fund. However, there is still the possibility that the board may not be able to adjust contribution rates to levels sufficient to fully fund the benefits by the year 2046. Investment returns significantly below expectations, significant improvements in life expectancies above current assumption and declines in membership are factors that could prevent full funding.