The Legislature has begun public hearings to address a $71 billion funding gap in the pension system for K-14 teachers. Without an increase in contributions, CalSTRS predicts its assets will be depleted in about 30 years.

CFT Senior Vice President Lacy Barnes, also president of the State Center Federation of Teachers, said the CFT has formed an advisory committee that has begun analyzing solvency issues faced by CalSTRS, how these problems will ultimately affect CFT members, and what legislative solution will produce fair and equitable results. “Our efforts will be primarily aimed at preserving secure retirements for our members,” Barnes said.

The CalSTRS portfolio was pummeled by steep market declines in the 2008 economic meltdown and the 2001 dot.com bust. By the close of 2011, CalSTRS investments and deposits were valued at $181 billion, but fund actuaries say that represents only 67 percent of the amount needed to fund present and future pensions.

CalSTRS estimates that its investments will deliver a 7.5 percent annual return, but in 2013 they grew by 13.8 percent. Actuaries called the gain significant, but insufficient to close the gap.

Legislation calling for increased contributions (up to 15 percent total) must balance the conflicting demands of teachers, districts and the state. A decade ago, the state reduced its contributions, resulting in the loss of $10 billion that could have helped build the fund, although the governor wants to evaluate the “state’s long-term role as a direct contributor to the plan.”

Secure pensions are critical for attracting and keeping qualified teachers. The governor already established a two-tier system, in which new teachers will pay more, yet receive reduced pensions.

Further complicating matters are the critics who say public employee pensions are dead weight on state, city and school budgets. Defined benefit plans that provide guaranteed payouts to retirees, they say, no longer exist in the private sector, so public workers should not get them either. These critics often focus on retirees who earn over $100,000 per year. CalSTRS pensions, however, are modest, averaging $3,300 per month for a teacher with 25 years of service.

Both CalSTRS and CalPERS say defined benefit pensions for their members are guaranteed in the U.S. and California Constitutions and by case law.
— By Malcolm Terence, CFT Reporter