Understand Funding the Future

Educators, school employers, the California Legislature and the California State Teachers’ Retirement System (CalSTRS) have created the second largest pension fund in the nation.

Since 1913, CalSTRS has delivered on promised benefits.

Despite prudent money management, CalSTRS has a projected funding shortfall. This funding gap is the dollar amount needed to pay future benefits. As of June 30, 2011, the shortfall is $64.5 billion.

What This Means for Retired Members

CalSTRS core benefits for current and retired members are guaranteed by the U.S. and California Constitutions.

Benefits and contribution rates are unchanged as active and retired educators, school employers, the California Legislature and CalSTRS develop a plan to deal with the funding challenges.

Working together, the funding shortfall is solvable.

Supplemental Benefit Payments Not Guaranteed

The primary pension benefit is the Defined Benefit Program which is funded by a combination of employee contributions, employer contributions, state general fund contributions and investment earnings returns. The Defined Benefit Program is guaranteed to current and retired CalSTRS members.

Under current law, the state must make two separate annual payments to CalSTRS from the General Fund:

• A payment of about 2 percent of prior–year teacher payroll for CalSTRS’ Defined Benefit (DB) Program, which funds the basic pension benefits of retired teachers.
• A payment of 2.5 percent of prior–year payroll for the Supplemental Benefit Maintenance Account (SBMA), which is also known as the “purchasing power account.” The SBMA funds prevent erosion of the purchasing power of retirees’ benefits by the effects of inflation. Currently, this benefit is guaranteed to the extent that the guaranteed payments from the state together with accrued interest are sufficient to make the benefit payments.