CalSTRS releases valuation for 2018
Slight improvement reflects better than expected investment returns
WEST SACRAMENTO, Calif. (May 9, 2019) – The Teachers’ Retirement Board today received the results of the actuarial valuation for the CalSTRS Defined Benefit Program as of June 30, 2018. The actuarial valuation provides a snapshot-in-time of the system’s financial health, in addition to monitoring the system’s funding status and its ability to meet long-term commitments.
The report reflects an improving funding picture due to stronger than expected investment returns. The unfunded actuarial obligation, known as the funding gap, inched down from $107.3 billion at the June 30, 2017, valuation to $107.2 billion as of the June 30, 2018, report. The funding ratio—the amount of assets at hand to pay for obligations— improved from 62.6% at the June 30, 2017, valuation to 64% as of the June 30, 2018, valuation.
“Today’s valuation outcome reflects the steady, anticipated trajectory for the fund as determined by the funding plan adopted in 2014,” said Chief Executive Officer Jack Ehnes. “This report validates that we are on a responsible and gradual path toward our long-term financial goal to reach full funding by the year 2046.”
“This report validates we are on a responsible and gradual path toward our long-term goal to reach full funding.”
Jack Ehnes Chief Executive Officer
To ensure the system continues to progress toward its long-term full funding goals, the Teachers’ Retirement Board adopted an increase in the state’s contribution rate effective July 1, 2019. This increase was anticipated and was included in Governor Newsom’s proposed budget for fiscal year 2019-20.
The 2014 funding plan gives the Teachers’ Retirement Board limited authority to adjust the state’s contribution rate upward by 0.5% from year to year, based on the funding status of the plan. Additional increases are expected for each of the next three years.
Overview of Contribution Rate Changes from the June 30, 2018, Actuarial Valuation:
- State of California contributions: The Teachers’ Retirement Board adopted an increase of 0.5% of payroll in the state’s contribution rate, adjusting from the current rate of 9.828% of payroll to 10.228% of payroll, effective July 1, 2019. This includes the additional 2.5% of payroll the state contributes to the Supplemental Benefit Maintenance Account, an inflation-protection program for retirees.
- Employer contributions: This valuation does not impact the employer contribution rates in fiscal year 2019-20. The employer rates are currently adjusting upward, according to the schedule set in statute with the passage of the 2014 funding plan. They will plateau at 19.1% of payroll in July 2020. Employers are school districts, county offices of education and California community college districts.
- Member contributions:
- CalSTRS 2% at 62 members: (Those first hired on or after January 1, 2013) CalSTRS 2% at 62 members’ contributions will remain at the current rate of 10.205% of payroll on July 1, 2019. These members fall under the regulations of the Public Employees’ Pension Reform Act. PEPRA, which requires they pay at least one-half of the normal cost of their defined benefit pension. Normal cost is the annual cost that is necessary to adequately fund the benefit over time. Normal cost does not include any costs associated with amortizing or paying down unfunded liabilities. As of June 30, 2018, slightly more than 100,000 of CalSTRS active members (roughly 22%) were in the 2% at 62 pension formula. This group of members has increased by approximately 20,000 each year.
- CalSTRS 2% at 60 members: (First hired before January 1, 2013) CalSTRS 2% at 60 members’ contributions are set in statute and will remain at 10.25% of payroll.
The California State Teachers’ Retirement System, with a portfolio valued at $227.8 billion as of March 31, 2019, is the largest educator-only pension fund in the world. CalSTRS serves California’s more than 949,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts. A hybrid retirement system, CalSTRS administers a combined traditional defined benefit, cash balance and voluntary defined contribution plan. CalSTRS also provides disability and survivor benefits. CalSTRS members retire on average after more than 25 years of service, with a median retirement age of 62.9, and a monthly pension of approximately $4,475, which is not eligible for Social Security participation. For more data, download the CalSTRS Fast Facts 2018 brochure.
See how CalSTRS demonstrates its strong commitment to long-term corporate sustainability principles in its annual Global Reporting Initiative sustainability report: Global Stewardship at Work.
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