CalSTRS Response: http://www.calstrs.com/Newsroom/whats_new/pension_reform_response.aspx CalSTRS appreciates that Governor Brown has taken a very important step in addressing the critical and complex issues facing the state’s public pension systems. We look forward to receiving more detail on the proposal and having the opportunity to review it in depth. The most important reform CalSTRS needs is a plan of action to address its long-term funding shortfall, which only the Legislature and Governor have the authority to implement. We will continue to work with the Governor, Legislature and our stakeholders to develop a plan that includes contribution increases that are gradual, predictable and fair to all parties. It’s important to note that some provisions of the Governor’s proposal, such as board governance and health care costs, do not apply to CalSTRS. Moreover, since CalSTRS contribution rates are set in statute by the Legislature, our contribution structure is extremely predictable and has not experienced pension “holidays.” CalSTRS members contribute 8 percent of salary to fund their pension, while their employers contribute 8.25 percent. These rates haven’t changed since 1972 and 1990, respectively. The State’s contribution of 2.541 percent was reduced from 4.607 in 1998. CalSTRS administers a hybrid pension system consisting of a mandatory traditional defined benefit pension and a cash balance plan which is similar to a 401(k). CalSTRS also offers its members a voluntary defined contribution supplemental savings program such as 457(b) and 403(b) plans. A look at the average CalSTRS member who retired in 2009-10 further illustrates the unique aspects of CalSTRS: • Retired at age 62 • Performed 27 years of service • Earned a pension that replaces nearly 60 percent of salary • Receives approximately $49,000 in earned benefits annually • Does not earn Social Security benefits for their service • Does not receive employer-paid health care benefits after age 65
The CalPERS, Terminated Agency Pool lacks the ability to get more money from employers and taxpayers if investments expected to fund roughly 67% of pension costs fall short.
That coupled with the increased number of agencies exploring the idea of terminating their participation in CalPERS lead the Board of Directors to approve a sharp increase in the cost of terminating pension plans.
Currently the Terminated Agency Pool is responsible for the pensions of 4700 members of 118 terminated plans. Two years ago the terminated pool had assets of $144m, liabilities of $60m and annual pension payments of $54m.
A 3.8 percent bond-based earning rate will be assumed when calculating the money an employer must set aside to offset future obligations, down from the 7.75 percent used when forecasting earnings, drastically increasing the cost of termination.
The new 3.8 percent earning rate will increase the terminated pool’s liabilities from $60m to $92m.