A Review of the CalSTRS Funding Plan

In 2014, the Legislature and Governor approved a plan that aims to fully fund teacher pensions over the next 30 years. This online series will examine how the CalSTRS funding plan is being implemented.

Funding Plan Is a Major State Accomplishment. Prior to state action, CalSTRS projected that it would run out of assets in the mid-2040s, an alarming prospect for a pension system. The funding plan aims to fully fund CalSTRS by that time. As we describe in our first post, the CalSTRS funding plan is a major state accomplishment.

As we describe in our second post, however, the implementation of the law differs from our earlier understanding. Specifically, the plan now relies on a calculation that is complex even by pension standards. While CalSTRS appears to be interpreting and implementing the law in good faith, we are concerned that some aspects of the funding plan may no longer reflect the intent of the Legislature when it passed the law. As we described in our concluding post, tweaks to the law may be necessary to ensure that the Legislature realizes its intent for CalSTRS.

Update. In June 2016, after we published this series, the CalSTRS board voted to approve an amendment to their policy that implements the funding plan. The amendment—sought by the Governor’s administration—will maintain the state’s contribution rate at its fully phased-in level until the state’s share of CalSTRS’ unfunded liabilities is eliminated. Over the near term—perhaps the next decade or so—annual state contributions to CalSTRS will be hundreds of millions of dollars higher than they otherwise would have been. Over the longer term, however, the amendment produces even greater state savings, offsetting the higher near term costs. In addition, the amendment is projected to modestly improve CalSTRS’ funded status. We note that the amendment mostly changes the timing of state contributions to CalSTRS and does not fundamentally change our findings as described in this series.

List of Posts in Series

Our first post provides some basic background about CalSTRS and the funding plan.

Our second post critiques the abstract calculation central to the CalSTRS funding plan.

Our third post explains why theoretical investment gains have increased the school and community college district share of CalSTRS’ unfunded liabilities.

Our fourth post explains why CalSTRS’ treatment of the higher teacher contributions required by the funding plan has increased the school and community college district share of CalSTRS’ unfunded liabilities.

Our fifth post describes why the state’s share of CalSTRS’ unfunded liabilities will be more sensitive to investment gains and losses than the district share.

Our sixth post explains why the plan might fall short of meeting the principle of “shared responsibility,” a key legislative goal when the plan was passed.

Our seventh post looks at how a recent policy change by CalSTRS shifts costs from the state to districts under some scenarios.

Our eighth post concludes this series for now.