By Dale Kasler
dkasler@sacbee.com
Published: Friday, Apr. 1, 2011 – 12:00 am | Page 6B

CalSTRS’ pension funding shortfall has ballooned to $56 billion, a development likely to intensify the political debate over public employee retirement costs.

The California State Teachers’ Retirement System said Thursday its unfunded liabilities – the estimated gap between its assets and future pension obligations – increased by $15.5 billion in the fiscal year that ended last June. The new estimate came in a staff report to the CalSTRS governing board.

Separately, Gov. Jerry Brown said a plan to address CalSTRS’ shortfall is “under development.” He made that comment as he unveiled a broader package of pension reforms.

The increased CalSTRS shortfall is largely a function of complex pension accounting. Under a system called “smoothing,” CalSTRS is still phasing in the effects of the $43 billion investment loss it suffered in fiscal 2008-09. Other pension funds “smooth” out their gains and losses, too.

What that means is that CalSTRS’ official estimate of unfunded liabilities is still growing – even though the pension fund’s investment portfolio has partly bounced back. CalSTRS earned returns of nearly 13 percent in calendar 2010.

Nevertheless, the $56 billion shortfall could create a giant bull’s-eye for critics of public pensions. The increase in the gap underscores CalSTRS’ need for higher contributions from state taxpayers, school districts and teachers.

The Legislature already cut pension benefits for newly hired state workers. But many Republican lawmakers and other conservatives are demanding additional reductions in pension benefits as a way of reducing the deficit.

“It’s not sustainable,” said Marcia Fritz, a Citrus Heights accountant and president of the California Foundation for Fiscal Responsibility.

CalSTRS officials say they need more money from taxpayers, not less.

“We can’t invest our way out of it,” said Ed Derman, CalSTRS’ deputy chief executive.

As it is, the state will contribute an extra $110 million to CalSTRS in the next fiscal year under an automatic triggering system. That will bring the state’s annual contribution to the main CalSTRS benefit program to $688 million.

Teachers and school districts contribute more than $2 billion each.

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