CalSTRS Adopts 2012 Actuarial Valuation
Valuation reflects a two-percent drop in funding from last year.
WEST SACRAMENTO, CA – The board of the California State Teachers’ Retirement System (CalSTRS) today adopted the actuarial valuation of the Defined Benefit Program as of June 30, 2012. The gap between current assets and the obligations facing the system—known as the unfunded actuarial obligation—has grown to $70 billion.
The new valuation shows a $5.5 billion increase from the previous year’s valuation as of June 30, 2011, which is consistent with what was anticipated when that prior valuation was adopted last April. The growth of this funding gap means that the system now has 67 cents on hand for every dollar in obligations to its members.
The funding shortfall is due in large part to asset losses since the burst of the dot com bubble in 2000 and the 2008 financial crisis. Unlike most public pension systems, CalSTRS cannot raise its own contribution rates and instead, requires action by the Legislature and the Governor.
“The fact remains that CalSTRS cannot rely solely on investments to make up the ground lost in the economic downturns of the past decade,” said CalSTRS Chief Executive Officer Jack Ehnes. “This valuation reflects the reality that any funding solution will require contribution increases, which can be gradual, predictable and fair to all contributors, while meeting the needs of the system.”
If, for instance, additional payroll contributions were to begin in 2014 to eliminate the gap over 30 years, they would need to rise by 15.6 percent over current levels. This equates to about $4.5 billion in additional annual contributions.
One vital step in the development of a funding plan occurred with CalSTRS’ report, “Sustaining Retirement Security for Future Generations: Funding the California State Teachers’ Retirement System” prepared in response to Senate Concurrent Resolution 105. The report, developed with input from affected stakeholders, provides the Legislature with a range of sustainable funding strategies necessary to secure the long-term funding needs of the Defined Benefit Program.
The California State Teachers’ Retirement System, with a portfolio valued at $161.5 billion as of February 28, 2013, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. For 100 years, CalSTRS has served California’s public school educators and their families, who today number 862,000 from the state’s 1,600 school districts, county offices of education and community college districts.