No one can predict the outcome or precise timing of any potential pension reform measures. As meaningful discussions on pension reform take shape, it’s important to remember that the Governor’s 12-Point proposal must work its way though the legislative process before anything is official.

On October 13, 2011, CalSTRS along with a number of our stakeholders participated in GASB’s public hearing and formally recommended the Board to suspend adoption of the Exposure Drafts as they are currently written until more appropriate accounting standards can be implemented.

GASB‘s intent behind the new accounting rules is to implement improved financial reporting, which CalSTRS supports. However, in their current state, the proposed GASB amendments do not accurately address the cost-sharing accountability structure of the CalSTRS pension system.

CalSTRS has been very transparent in providing the Legislature and Administration with financial data that illustrates the need to address a $56 billion funding shortfall, the gap between projected future assets and obligations to retired educators. CalSTRS assisted the State Auditor in developing the information for the report which further underscores that, absent any thoughtful action, the fund is projected to be depleted in the early 2040s.

The last actuarial valuation, a snapshot of the CalSTRS fund’s assets and liabilities, as of June 30, 2010, shows the fund is 71 percent funded. Another important number from the actuarial valuation is the amount of the funding shortfall. This difference between projected future assets and future benefit payments is currently $56 billion.

As a fiduciary, each Teachers' Retirement Board member is to perform duties and make decisions to guide the system solely for the benefit of CalSTRS members and to do so in an economical manner. That means each of the trustees must think of how the decisions they are asked to make will benefit the members of the system first, before all other considerations.

It would be extremely costly for CalSTRS to freeze its current defined benefit plan system and transition to a 401(k) system.

The 18.11 percent contributed by members, school districts and the state is based on a percentage of total state teacher payroll.

The 55 percent figure is instead based on an annual average of the total benefits paid for by investment earnings over the past 15 years. The remaining amount of total benefits paid over the last 15 years, averaging 45 percent each year, comes from contributions from members, school districts and the state.

Contribution rates are set by state law. CalSTRS members contribute 8 percent of their pay to CalSTRS, a rate that has not changed for nearly 40 years. School districts contribute 8.25 percent of each member’s earnings, an amount that has not increased since 1990. Since 1998, the state’s contribution to the Defined Benefit Program has decreased from 4.607 percent of payroll to the current 2.017 percent. The state pays an additional 2.5 percent of payroll for purchasing power protection.