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CalSTRS' unfunded pension liabilities continue to grow


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  • CalSTRS' unfunded pension liabilities continue to grow

    Thursday, Mar. 31, 2011 - 9:48 am

    CalSTRS today reported a big leap in its unfunded liabilities - the gap between its assets and its pension obligations to California's teachers.

    The new estimate could intensify the political debate over public employee retirement costs. An increase in the gap means CalSTRS will at some point need higher contributions from state taxpayers, school districts and teachers. Given the budget problems at state and local levels, many Republican lawmakers are demanding reductions in pension benefits as a means of reducing costs.

    In a report to its governing board, CalSTRS staff said the gap grew to $56 billion in the fiscal year that ended last June, an increase of $15.5 billion. That left the pension fund 71 percent funded. Most experts say systems should be at least 80 percent funded.

    The increase in the gap is a function of pension accounting as much as anything. CalSTRS' investments have performed well in the past two years, which should ease the problem. But the fund is still absorbing the impact of the horrific losses of 2008 and early 2009. Because of a program called "smoothing," the losses are being phased in over three years. In the most recent fiscal year, the 2008-09 effect added $12.7 billion to the pension gap.

    Even though CalSTRS earned a robust investment return of almost 13 percent in calendar 2010, the size of the gap is daunting and will require additional contributions, said Ed Derman, deputy chief executive officer at the California State Teachers' Retirement System.

    "We can't invest our way out of it," he said.

    Previously, CalSTRS had talked about approaching the Legislature in 2011 for help. Derman said that's unrealistic in light of the state's budget mess. But CalSTRS' funding shortfall can't linger forever, he said.

    "It doesn't have to be this year, but ... the longer you wait, the more it will cost," he said.

    School districts contribute $2.3 billion to CalSTRS and teachers around $2.2 billion. The state currently contributes $573 million a year to the teachers' fund.

    The state's contribution will grow next year by around $100 million because of an automatic trigger in CalSTRS' funding mechanism, Derman said. But CalSTRS needs increased contributions in the hundreds of millions of dollars, he said, to make itself healthy.

    Read more:
    Facts do not cease to exist because they are ignored. -- Aldous Huxley
    Two things are infinite: the universe and human stupidity. -- Albert Einstein

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