By Ed Mendel
Monday, Fenruary 4, 2013

A new report says CalSTRS needs $4.5 billion more a year to fully fund pensions over the next three decades, a 75 percent increase in the $6 billion total annual payments now being made by teachers, school districts and the state.

There is no cheap fix in the report. A final draft, scheduled to be considered by the CalSTRS board this week, was prepared after meetings with stakeholder groups as directed by a Senate resolution asking for options to address a funding shortfall.

An additional $3.6 billion a year would yield 80 percent funding, $2.9 billion would prevent the investment fund (roughly $160 billion now) from running out of money, and $1.5 billion would push back the estimated run-out date from 2047 to 2058.

One of the less costly rate increase that falls short of full funding, but eliminates or lengthens the CalSTRS run-out date, would allow school districts to report a smaller pension debt under new government accounting rules that take effect next year.

The report said the partial funding could result in “significantly reducing the employer’s liabilities on their financial statements, and increasing their ability to issue bonds for other parts of their programs.”

The nation’s second largest public pension fund also is one of the oldest, formed in 1913. This is its centennial year. Somehow CalSTRS evolved without the self-preserving power of most California public pension systems.

The California State Teachers Retirement System board cannot set annual payments that must be made by employers, needing legislation instead.

In 2004 CalSTRS began telling the Legislature it was underfunded, suggesting a rate increase. The first sign of movement was a Senate resolution last year, SCR 105, calling for at least three funding options by Feb. 15.

But with a state budget back in the black after a decade of deficits, the powerful teacher unions that hold sway over school funding want to restore classroom cuts. And Gov. Brown wants to shift funding to schools in low-income areas with English learners.

The new report looks at scenarios in which the start date for a rate increase is delayed several years, and then the increase is phased in over several years, allowing more time to adjust to the change but adding to the total cost in the long run.

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