The Assembly committee that will decide how to fix the multi-billion dollar funding shortfall for teacher and administrator pensions will get good – and some sobering – news when it holds its first hearing on the issue this week.
First, the good news: New figures indicate that impressive return on investments by the California State Teachers Retirement System for the fiscal year ending June 30, 2013, would shave about $550 million from the additional dollars that teachers, school districts and the state will have to pay annually for the next 30 years to erase CalSTRS’ $71 billion deficit, according to CalSTRS.
Now, the sobering news: Even with that great one-year stock market return of 13.8 percent – nearly twice as high as the assumed return of 7.5 percent – contributions from teachers, school districts and the state combined would need to increase at least $4.2 billion annually, starting July 1, 2015.And if, as is more likely, the additional contributions are phased in gradually over four or five years, that figure will rise to about $4.8 billion per year, diverting more money to pension contributions that would have gone to teachers’ take-home pay and to increasing programs and services for California’s students.
The cost of delay: Postponing implementation of the increase needed to bring the Defined Benefit Program to full funding would add hundreds of millions of dollars in contributions from employees, school district and the state. Source: CalSTRS memo to its board of directors, Feb. 2014.
The conclusion from CalSTRS’staff in a memo to the CalSTRS board: “No matter how it is measured, the risk associated with excessive delays in implementing the funding solution for the (defined benefit pension) program shortfall is that the cost of that solution … would have a major impact on the budgets of those who pay those contributions.”
On Wednesday, the Assembly Public Employees, Retirement and Social Security Committee will
