By Ed Mendel
Monday, April 15, 2013

If not for pension and benefit increases as the stock market boomed more than a decade ago, CalSTRS would be one of the nation’s best-funded large retirement systems with 88 percent of the assets needed to pay promised pensions.

Instead, an annual report said last week, the CalSTRS funding level dropped from 69 percent in the previous year to 67 percent, while the “unfunded liability” or debt increased from $64.5 billion to $71 billion.

To reach full funding in 30 years, the annual payments to CalSTRS from employers, teachers and the state, estimated at $5.7 billion this fiscal year, would have to nearly double with an additional payment of more than $4.5 billion a year.

In their new report, Milliman actuaries include a calculation, required to see if a small increase in state payments is triggered under an old law, that puts new light on the cost of a half dozen benefit increases enacted around 2000.

“If we were still operating under the 1990 benefit structure, the plan would be about 88.4 percent funded instead of 67 percent,” Mark Olleman of Milliman told the CalSTRS board last week. “So the difference between 88.4 percent and 67 percent shows that one of the impacts on the funding of the plan currently is benefits.”

The Milliman actuaries went a step further with a chart showing how much of the steep drop in CalSTRS funding since 2000 is due to the benefit increases, an issue raised at a board meeting in February by a representative of a retiree group.

CalSTRS was 120 percent funded in 2000 using the market value of assets rather than the actuarial value, which spreads gains and losses over three years. (Using market value, CalSTRS is 62 percent funded now, not 67 percent as with the actuarial value.)

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