CalSTRS Drops Fund Projections

John Seiler:

Putting its investment projections slightly more in line with reality, yesterday CalSTRS downgraded its fund forecast. According to its own announcement, “The governing board of the California State Teachers’ Retirement System (CalSTRS) today adopted a new set of actuarial assumptions, including lowering the investment return assumption from 7.75 percent to 7.5 percent. The change is part of a four-year experience analysis that sets the parameters for determining the financial health of the system.

“The assumptions update the actuarial experience analysis covering 2006 through 2010 and are used to evaluate the impact of both demographic and economic factors on the long-range financial health of CalSTRS. These assumptions, in turn, have a significant impact on the valuation of the plan, a snapshot of its financial health, scheduled to come before the Teachers’ Retirement Board in April.

“The most recent past valuation, presented in April 2011, showed a $56 billion funding shortfall, meaning that available assets fell $56 billion short of the system’s long-term obligations.”

That means California taxpayers are on the hook for making up that $56 billion.

But at least some reality has crept into the CalSTRS projections.

By contrast, sister fund CalPERS, the California Public Employees’ Retirement System, has refused to change its assumptions. Reported Bloomberg, “Last March, the CalPERS board voted to maintain its 7.75 percent assumed rate, rejecting its actuaries’ recommendation to lower it to 7.5 percent.

“Of the 11 U.S. pension funds with assets of more than $50 billion, CalSTRS and systems in Wisconsin and New York reduced their assumptions since 2007-08, according to the staff report to the CalSTRS board.

New York City owes its pensions more than previously anticipated because officials have been too optimistic in assuming an 8 percent return on the $115.2 billion that the five funds hold in assets, Chief Actuary Robert North has said.

“A more realistic expectation would be 7 percent, which would increase the city’s liability by about $2 billion if paid in one year, North said in a telephone interview.”

Actually, a Stanford study found that even CalSTRS’ 7.5 percent assumption is too optimistic — that 6 percent or lower is more realistic.

These state pension funds still don’t acknowledge that the 2007-09 Great Recession, and the tepid recovery since, scrambled all their calculations of fund gains. Taxpayers increasingly will be dinged to pay for the shortfalls.

Reform is more needed than ever.

Feb. 3, 2012

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  1. eck
    eck 3 February, 2012, 20:13

    This state is more screwed up every day. These CALSTRS and CALPERS boards are completely unknown entities and individuals to almost all Californians. Yet they have ENORMOUS influence over what the cost to us (peons) is. I say, dump these politically connected and dependant boards and contract out (periodically) to private investment managers. We must be stupid. (Duh)

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