CalSTRS records strong 2012 – but problems persist

Published: Saturday, Feb. 9, 2013 - 12:00 am | Page 6B
Last Modified: Sunday, Feb. 10, 2013 - 1:59 pm

CalSTRS reported higher investment returns this week, but the teachers' pension system continues to grapple with an enormous long-term funding shortfall.

The system said this week it earned a 13.45 percent return in calendar 2012, well above CalSTRS' official forecast of 7.5 percent.

The results reflect a significant uptick in the financial markets in the second half of the year. In the most recent fiscal year, the 12 months that ended last June 30, CalSTRS earned a mere 1.8 percent return.

However, the gains from 2012 won't begin to erase the fundamental woe about which the California State Teachers' Retirement System has been warning lawmakers for several years: a funding gap measured at $64 billion.

While the $158 billion fund has plenty of cash to pay benefits for the foreseeable future, it is on track to run out of money in 2047, according to a staff report released earlier this week. If that happened, the state would be obligated to fund pensions on a "pay-as-you-go basis," the report said.

The chief culprit is "the weak financial markets of the past decade," the report said. Despite the most recent returns, the fund earned an average of just 6.5 percent a year during the past decade.

Going forward, CalSTRS officials say they can't simply invest their way out of the shortfall and need higher contributions from the state, school districts and teachers.

"We know that doing nothing, it's going to run out of money," said Terry McGuire, representing state Controller and CalSTRS board member John Chiang, during a discussion on the issue at Friday's board meeting.

The board spent nearly two hours debating a series of funding proposals that CalSTRS will send to the Legislature next week.

Unlike the California Public Employees' Retirement System, which can unilaterally raise contribution rates, the teachers' fund needs the Legislature's permission. According to CalSTRS, the longer the Legislature waits to fix the problem, the more expensive the remedy will become.

The proposals include increasing contributions anywhere from $1.5 billion to $4.5 billion a year in order to restore CalSTRS' health gradually. Last year CalSTRS took in a combined $5.8 billion – $2.3 billion from teachers, $2.2 billion from schools and $1.3 billion from the state.

Board members acknowledged that the Legislature, at a time of tight budgets, would have to be prodded to raise contributions significantly.

"They're going to look for the cheapest way out, because that's what you do," said Rich Zeiger, representing board member and Superintendent of Public Instruction Tom Torlakson.

© Copyright The Sacramento Bee. All rights reserved.

Read more articles by Dale Kasler



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