CalSTRS unfunded liability hits new high

CalSTRS unfunded liability hits new high

CalSTRS web siteThe California State Teachers’ Retirement System just announced it faces $73.7 billion in long-term liabilities. Left untouched, that would spell bankruptcy in 2043.

For critics of California’s public-employee pensions programs, the grim numbers heighten the urgency for reform. If CalSTRS wants to address its shortfall, it has to get legislative approval.

CalSTRS is the product of a contract with the state of California. Most experts say its funding is guaranteed by the California Constitution. So the state government is responsible for ensuring that CalSTRS remains solvent. CalSTRS CEO Jack Ehnes has admitted that it’s essential to raise rates, shifting pressure to the Legislature.

At least one lawmaker has developed a proposal to address the liability. State Senator Mimi Walters, R-Laguna Niguel, wants to reduce CasSTRS’ burden by $2 billion in the 2014-2015 fiscal year.

“CalSTRS has a $71 billion unfunded pension liability,” she told News 10 ABC. “Two billion is a very small number but it’s a step in the right direction and it shows the teachers we are willing to take care of them and we care about them when they retire.”

By contrast, the California Public Employees’ Retirement system has the legal authority to raise its own rates for member contributions. In February, the CalPERS board voted for a rate increase “that will cost the state treasury around $400 million beginning July 1. The increase will be phased in over three years and will ultimately cost the state an extra $1.2 billion a year. That will bring the state’s annual payout to CalPERS to around $5 billion,” reported the Sacramento Bee.

Brown’s choices

In January, Gov. Jerry Brown’s budget proposal for fiscal 2014-15, which begins on July 1, projected a surplus — or “rainy day fund” — of $1.6 billion. The surplus was produced by Proposition 30, the $7 billion tax increase voters approved in Nov. 2012.

Brown’s budget also included $10 billion in more spending for health care, prison upgrades, schools, paying down some state debt and even the high-speed rail project.

The Brown budget conceded that CalSTRS’ eventually will require $4.5 billion a year in more funding from the general fund and from teacher contributions.

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The California Teachers Association wants billions in increased school funding to offset any increase in teacher contributions to the CalSTRS fund. Bigger teacher contributions, however, are essential to salvaging the CalSTRS budget.

Yet some retired teachers pull in $100,000 or more per year in retirement. That’s information CalSTRS only released when the governor’s office compelled it.

Brown’s actions indicate he’s still formulating how to proceed — especially as his own November re-election campaign picks up steam. According to the Bee story, he favors a legislative funding plan for 2015, but supports Assembly and Senate hearings on what to do.

CalSTRS has run up against its own awkward choices. As Ed Mendel just reported on CalPensions.com:

“On a split vote, the CalSTRS board last week gave members in two unusual retirement accounts, which have a guaranteed minimum return, a $300 million credit from a surplus.

“To some board members it looked like bad timing and a policy out of step with the times. CalSTRS is seeking a multi-billion dollar rate increase for the main under-funded pension system.

“A board member representing Gov. Brown’s finance department, Eraina Ortega, urged a delay until the policy adopted in 2006 during different economic conditions could be reconsidered at the next board meeting.

“’I do think we have to be conscious as well of what those perceptions might be when we are seeking a funding solution to the defined benefit (pension) program,’Ortega said.”

To help navigate such challenges, CalSTRS brought on a new consultant firm, Meketa Investment Group. With a portfolio valued at $180 billion, CalSTRS is the largest pension fund in the world set up solely for teachers.

But however influential its consultants and lobbyists may be, the fate of CalSTRS rests in the hands of the state Legislature.

28 comments

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 14 April, 2014, 19:31

    CalSTRS is n a death spiral. That idiot Jack Ehnes was claiming just a few months ago that the fund is in NO DANGER- he had that on the webpage. Wait until we go into another recession with negative growth for 4-12 quarters…..then the rubber will be hitting the road, at 120 MPH, it will be Detroit and Central Falls RI time…..

    Reply this comment
    • S & P 500
      S & P 500 15 April, 2014, 14:24

      LOL–some investment managers say that you should have 50% invested in cash because of the mediocre stock market and fears of a big Dow collapse. CalSTRS has 15% invested in hedge funds.

      Reply this comment
    • S & P 500
      S & P 500 15 April, 2014, 14:40

      Read the New Republic article about ageism in Silicon Valley–I can’t believe how many billions are invested in useless apps and the search for the next Facebook. That has “bubble” written all over it. Some hot stocks like Amazon, Tesla, and Netflix have suffered steep losses recently. I’m glad I didn’t buy any of them.

      http://www.nbcbayarea.com/news/health/Silicon-Valley-Ageism-Stifles-Medical-Innovation-254617941.html

      Reply this comment
      • Rex the Wonder Dog!
        Rex the Wonder Dog! 15 April, 2014, 17:40

        Telsa is making money ONLY because of the government tax credits and subsidies they receive. They are not making a profit the old fashioned way, by earning it. They are making profit off of taxpayers by way of corporate welfare.

        Reply this comment
        • S Moderation Douglas
          S Moderation Douglas 15 April, 2014, 17:43

          Like Walmart?

          Reply this comment
          • Rex the Wonder Dog!
            Rex the Wonder Dog! 15 April, 2014, 21:44

            Yes. Like all Big Box retailers who play muni’s off of each other for tax credits. Hardly limited to Walmart, 60% of the Fortune 500 pay no income taxes. Another 20% pay less than 5% of revenue in income taxes.

            Telsa is playing the same scams with their start up production plants of their car, playing muni’s and states off each other for tax rebates/credits.

            At least they kept it in America, which I guess is a minor miracle.

        • S & P 500
          S & P 500 16 April, 2014, 00:53

          Tax credits for business are a big mess. This article appeared in the LA Times about how the movie “42” received tax credits to film in some Southern states but then the music was recorded in the UK–so apparently some of the tax credits were used to outsource musicians’ jobs. This piece also mentions how smaller studios like Lionsgate or subsidiaries of the major studios have no obligation to record their soundtracks or do their CGI and post production here.

          http://articles.latimes.com/2013/aug/02/business/la-fi-hiltzik-20130804

          Reply this comment
  2. Ulysses Uhaul
    Ulysses Uhaul 14 April, 2014, 20:19

    Yawn….stretch…..yawn…..roll over….Zzzzzzzzzzzzzzzz

    Reply this comment
    • S & P 500
      S & P 500 15 April, 2014, 14:28

      How can you be bored? This is better than a low-budget disaster movie. They closed 50 schools in Chicago. Philadelphia schools opened with no librarians, counselors, nurses, or music teachers. COOL!

      Reply this comment
  3. Ted O'Steele, CEO
    Ted O'Steele, CEO 15 April, 2014, 08:05

    LOL— Glad that mosney is only due many years down the oad as the investment pool and further contributions accumulate——- zzzzzzzzzzzzzzzzz————-doooooooomers—————-

    Reply this comment
    • S & P 500
      S & P 500 15 April, 2014, 14:35

      This is the one time that I’ll agree with you. Any plan to save CalSTRS will consist of wishful thinking, hot air, and optimistic stock market predictions. I’m not worried about a tax increase because Prop 13 is still untouchable. Teachers, however, need to stop depending on CalSTRS for their retirement.

      Reply this comment
      • Rex the Wonder Dog!
        Rex the Wonder Dog! 15 April, 2014, 17:42

        I doubt the legislature will raise taxes to cover the CalSTRS deficit, and the longer they stall the more likely the fund will crash. I am 100% positive/sure it is in a death spiral and once the next recession hits it will be time for Central Falls RI/ Detroit pension cuts.

        Reply this comment
      • Ted O'Steele, CEO
        Ted O'Steele, CEO 15 April, 2014, 20:13

        S and P— Teachers don’t need to worry– know why?

        Because parents (voters) won’t destroy the teachers lot all the way because they need them to babysit their little brats— relax—- this whole thing works out.

        Reply this comment
        • Rex the Wonder Dog!
          Rex the Wonder Dog! 15 April, 2014, 21:46

          How would a pension correction “…destroy the teachers lot…”???

          Oh wait, it is just more of Teddy the Dork hyperbole. My bad 🙂

          Reply this comment
  4. SeeSaw
    SeeSaw 15 April, 2014, 10:38

    The State Legislature needs to act now! I don’t see any reason why any particular pension plan should be underfunded. Funding for budgets should include line-items for payments to the pension plan–period!

    Reply this comment
  5. S & P 500
    S & P 500 15 April, 2014, 14:19

    What happened to Prop 30 money and Indian casino money? Teachers insist that their pensions are affordable–they always say “listen to us”–so just leave CalSTRS alone and let it run out of cash. And teachers–stop complaining about budget cuts. Budget cuts are part of the deal with db pensions. If the pension fund managers can’t produce 8% returns then they make budget cuts to come up with the money to send out the pension checks.

    Reply this comment
  6. NTHEOC
    NTHEOC 15 April, 2014, 14:30

    The construction industry is booming again and new homes and neighborhoods are being built at a lightning pace! Can you imagine how many UNFUNDED LIABILITIES there are going to be!!!!!!!!!! We are all doomed…….

    Reply this comment
  7. Ulysses Uhaul
    Ulysses Uhaul 16 April, 2014, 07:28

    Where is the moderator?

    Reply this comment
  8. SeeSaw
    SeeSaw 16 April, 2014, 11:40

    My comment, No. 4, was lifted from this forum yesterday and posted on the Pension Tsunami, Union Watch article by John Moore, Pacific Grove. The comment is not in context with the subject of the PG article. How’s that for ethics on the part of the blog owners?

    Reply this comment

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