By Ed Mendel
January 30, 3016
The two big state pension funds have been on very different paths since both had large surpluses in 2000. But they will have identical funding levels if CalSTRS, like CalPERS last month, adopts a recommended lower investment earnings forecast this week.
Though their pension generosity and investment portfolios are different, both of their funding levels will have dropped from about 69 percent of the projected assets needed to pay future pensions, before the earnings forecast were lowered, to 64 percent afterward.
Identical funding levels are even more suprising because the annual rates school districts pay to CalSTRS, a public pension oddity with no power to raise employer rates, have been frozen for most of the time since 2000 when it was 120 percent funded.
Legislation for a “funding solution” in 2014 and pension reform in 2013 gave CalSTRS limited power to raise state and new teacher rates, following small current rate increases for the state and teachers. School districts were hit hard with new rates that more than double by 2020.
CalPERS dropped employer rates to near zero when it was 135 percent funded in 2000. Then rate increases were limited by an unusual actuarial method (reformed in 2013) that “smoothed” investment gains and losses over 15 years and refinanced pension debt annually.
CalPERS also had major losses from ill-advised real estate investments, made an untimely shift to global stocks outperformed by U.S. stocks in recent years, and had a five-year investment performance that Wilshire consultants ranked dead last among big pension funds.
Yet despite their different paths, the 69 percent funding levels last year of the California Public Employees Retirement System and the California State Teachers Retirement System were not far from national averages.
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