Calstrs

Chris Megerian
June 28, 2014

When fifth-grade teacher Maggie Ellis receives her next paycheck at the end of the month, it will be a bit lighter. That’s because she’ll be contributing more money to the teacher pension fund, a small part of a sweeping, long-term plan to repair one of the state’s most difficult financial problems.

“It hurts a little bit,” said Ellis, who works in the Sacramento area and has more than a decade left until retirement. “But I look at it as a long-term investment.”

The plan, which takes effect Tuesday, phases in higher contributions from employees, schools and the state over the next several years. If successful, the $74-billion shortfall in the teacher retirement system, the second largest public pension fund in the country, will be erased in three decades.

It’s a sign that California’s economic recovery has provided lawmakers with the cash necessary to tackle a problem that has dogged politicians around the country.

“If California can lead the way and show other states that this is the way to fund plans, this is a good step and a role model for other states to follow,” said Hank Kim, executive director at the National Conference on Public Employee Retirement Systems.

Texas and New Mexico have already taken similar steps, requiring higher contributions into their teacher pension funds. Both states also reduced retirement benefits, something California did two years ago for newly hired educators.

Even with California’s new plan in place, there are risks. The teacher pension fund’s investments could be less lucrative than expected, making the shortfall more expensive to close. And schools are being forced to more than double their contributions into the fund, worrying district officials who are watching their own bottom lines.

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