Frequently Asked Questions
Review the most common questions we receive and find helpful information and resources in return.
CalSTRS members are prekindergarten through twelfth grade teachers, public school administrators, community college instructors and their beneficiaries. Our members' local school district employers set their salaries and determine whether or not to provide health benefits.
The amount of a CalSTRS member's benefit is based on a formula set by California law and determined by years of service, age at retirement and final compensation. Benefits are adjusted at a rate of 2 percent to protect against inflation.
The 2001 dot com bust and the 2008 world economic turmoil led to lower than expected investment returns and is the primary reason CalSTRS now faces a $64.5 billion funding gap. Even under current economic conditions, CalSTRS has sufficient assets and projected contributions to pay benefits until 2044.
Although CalSTRS has projected that current funds will sustain member benefits for at least 30 years, a responsible funding strategy must be adopted to close the funding gap over that time, much like a mortgage. The State of California is constitutionally obligated to fulfill CalSTRS member benefits, which means if no such plan is adopted, California taxpayers will be responsible for funding these benefits at far greater cost than if a funding plan had been adopted earlier. For more information about the funding gap, take a look at a recent blog entry by CalSTRS CEO Jack Ehnes.
The terms of the current and retired CalSTRS members' pension plan is a legal contract with the State of California, protected by the California and U.S. Constitutions. As the pension plan guarantor, or sponsor, the state is obligated to ensure that benefits are paid and contributions are received.
Additionally, the CalSTRS board does not have the authority to change contribution rates. The Legislature and the Governor have this authority, along with the responsibility to resolve CalSTRS long-term funding gap. A responsible solution will likely include gradual increases in contributions, which have not changed in decades. Without additional contributions or legislative action, the CalSTRS fund will be depleted in the early 2040s.
Currently, states do not have the legal authority to declare bankruptcy. If somehow this changed through a new federal law, it is by no means clear that the state could escape its obligation to fund and pay retirement benefits because the CalSTRS core retirement benefits are constitutionally protected under California law.
Member contribution rates have been at 8 percent since 1972, while the 8.25 percent contributed by employers has remained the same since 1990. The state's contribution to the Defined Benefit Program in 1998 was 4.607 percent of payroll. It is currently 2.541 percent. The state pays an additional 2.5 percent of payroll for purchasing power protection.
The CalSTRS Defined Benefit Program is not a “pay as you go” system. Unlike Social Security, current working members do not pay for the benefits of now retired teachers. CalSTRS takes the contributions of a teacher's career and invests this money to finance the benefits teachers receive during their retirement years. CalSTRS takes into account who is expected to enter the retirement pool and when. This means the entry of CalSTRS baby boomer members into retirement has already been factored into calculating the projected long-term funding shortfall of $64.5 billion.
CalSTRS benefits are constitutionally protected with significant legal precedent protecting the rights of its current members. Any legislation that affects the core benefits of existing members would be subject to rigorous judicial review. For more information, check out an October 26, 2010 webinar on the subject.
Current projections show that CalSTRS has assets to pay benefits for at least the next 30 years. Without additional contributions or legislative action, the CalSTRS fund will be depleted in the early 2040s. Should that happen, the state, as the CalSTRS plan sponsor, will be obligated to pay the difference between the benefits paid and the contributions received.
No, the median benefit for new retirees is just over $49,000 annually, which represents approximately 60 percent of a member's highest average salary. Also, the average member retires at the age of 62 with a career spanning an average of more than 25 years. Moreover, CalSTRS members do not receive Social Security benefits on their CalSTRS-covered wages and most do not receive health benefits from their employers in retirement.
An actuarial valuation provides a snapshot of the fund's assets and liabilities over a 30-year period.
An actuarial valuation determines CalSTRS long-term ability to cover the benefits already earned by the members of the Defined Benefit Program.
CalSTRS uses a smoothing, or averaging, process to spread gains and losses over a three-year period when performing its valuation, which is a snapshot of the fund's assets and liabilities. Smoothing is a standard practice that meets the Government Accounting Standards Board's rules governing public pension funds. Smoothing is the reason why the fund's recent valuation had the fund still feeling the impact of losses incurred during the market downturn.
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