Ed Mendel
Monday, November 10, 2014

A new look at how CalSTRS members changed during the last 15 years shows the average teacher working fewer years, retiring at an older age and collecting a pension that grew faster than pay or inflation.

Retirees grew much faster during the period than active workers, increasing from 27 percent to 36 percent of total membership and raising questions about the impact of longer life spans on projected pension costs.

The new CalSTRS demographics report issued last week, done in part to show differences among employer types, covers a period beginning in fiscal 1997-98 as a stock-market boom yielded big earnings for pension fund investments.

A brief pension fund surplus helped prompt legislation in the late 1990s and 2000 that increased pension benefits in several ways, while also cutting the annual employer and employee contributions to the pension fund.

According to the new report, the average final compensation of a K-12 teacher increased 54 percent during the 15-year period, growing from $52,200 in 1997-98 to $80,500 in 2012-13.

The average CalSTRS pension benefit for a K-12 teacher increased 70 percent during the same period, growing from $28,309 in 1997-98 to $48,094 in 2012-13. The California consumer price index grew 48 percent.

“The reason why the benefits went up is during that period of time there were changes in the benefit structure, which improved benefits for the majority of our members, so they are getting a bigger benefit,” Ed Derman, CalSTRS deputy chief executive officer, told the board.

“For people retiring after the benefit increase, the benefit is going to be greater for a given compensation than people who retired in 1997-98 — one-year final compensation, increased age factor, longevity bonuses, a whole variety,” he said.

In addition to a number of small benefit increases, the state CalSTRS contribution was cut from 4.6 percent of pay to 2 percent. For 10 years, a quarter of the teacher contribution, 2 percent of pay, was diverted to a new pension supplement for teachers.

The California State Teachers Retirement System funding level peaked in 2000 at about 110 percent of the projected assets needed to pay future pension obligations. In the latest actuarial report as of June last year, the funding level had dropped to 67 percent.

A Milliman actuarial report last year said CalSTRS would be 88 percent funded if it had continued to operate under the contribution and benefit structure in place in 1990, without the changes that began 15 years ago.

Now legislation last June phases in a $5 billion CalSTRS contribution over seven years. Most of the money comes from school districts, whose rates will more than double from 8.25 percent of pay to 19.1 percent of pay by July 2020.

Teachers in CalSTRS do not receive Social Security in addition to their pensions, unlike state workers and many local government employees. A report several years ago said CalSTRS pensions and supplements usually replace about 70 percent of job income.

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