◼ STATE LAWMAKERS have pushed the California teacher pension fund toward a financial cliff and are now standing on the side of the road, apparently hoping divine intervention will stop the ensuing plunge off the edge. - contracostatimes.com
While most pension systems in California -- including the largest, the California Public Employees' Retirement System -- are irresponsibly manipulated with unrealistic actuarial assumptions, at least they are making small efforts to reduce their debts in the coming decades. They aren't talking about insolvency.
That's because they control their destinies -- they have authority to require more contributions from employers and workers to correct for financial shortfalls. The teachers' retirement system does not.
It's at the mercy of state legislators and the governor, who set the contribution rates. So the funding of the second largest public employee retirement system in the nation, which provides pensions for California's public school teachers and community college instructors, relies on political whim rather than actuarial calculations.
For a decade now, state lawmakers have underfunded the system, failing to ensure it receives the money actuaries say is needed to cover newly earned benefits and pay off mounting debt. In 2009-10, teachers, school districts and the state -- the three sources of contributions to CalSTRS -- paid only 55 percent of what was required.
The underfunding since 2001-02, increases in benefits just before the turn of the century, and major investment losses during the dot-com bust and the Great Recession have left the teacher retirement system, by its own calculations, only 71 percent funded and $56 billion in debt -- or about $4,450 for every household in the state.
Actually, it's worse than that because the system relies on overly optimistic estimates of its future investment returns, in part because its board has rejected its own staff's advice to lower expectations. If the system used more conservative investment projections, its liabilities would be worse.
