Teacher's Retirement Fund Wants You - The Taxpayers!
Original post made by Arnold on Dec 30, 2011
""…the state will have to increase CalSTRS funding by $3.8 billion a year for 30 years for a total of more than $114 billion.""
"Spokespersons for the government unions and the government worker pension funds have long stated that "the market has just been beat up a bit lately," and "investment professionals assure us there is no cause for concern." But the sobering truth is starting to emerge, and according to "contract," taxpayers are going to get hit hard.
On December 20th the CalSTRS CEO, Jack Ehnes, in a rather convoluted acknowledgement on the "Ask Jack" section of CalSTRS website, admitted that funding to CalSTRS would have to increase by $3.8 billion per year for the next 30 years. Here is what he wrote:
"Recent media reports have suggested that to solve the unfunded liability the state will have to increase CalSTRS funding by $3.8 billion a year for 30 years for a total of more than $114 billion.
Although this is an accurate statement based on current projections, achieving adequate funding can occur several ways that would be phased in over time. The CalSTRS $56 billion funding shortfall can be managed, but it will require gradual and predictable increases in contributions.""
If the increased funding is phased in, like what CalPERS is currently doing, then the annual cost will exceed 4 billion per year, in addition to the billions taxpayers are now funding, after a the three year phase-in period. Currently taxpayers are paying 7.75% interest on the CalSTRS 56 billion in unfunded liabilities, which doesn't include another 10 plus billion they've lost since July 1, 2011.
Where is that money coming from? How will the PUSD absorb their share of those additional costs? The problem has been known for sometime so I hope they have adequately planned for the inevitable increase in employee pension costs. Hopefully they've been building their reserves.
CalSTRS Admits Annual Pension Funding Must Increase
on Dec 30, 2011 at 8:12 pm
Stacey is a registered user.
There's something not quite clear here. Is the $3.8 billion extra per year the State's share of CalSTRS funding or what CalSTRS needs in total? The State should get out of CalSTRS funding. Having normal costs paid by three different parties adds unnecessary complexity, especially when the State has lagged behind on its obligation.
on Jan 2, 2012 at 11:10 am
Good question, Stacey. The 3.8 billion per year (for 30 years) that CalSTRS is asking for is in addition to current contributions. Here is the current contribution/payment breakdown:
2.36 billion - employees
2.31 billion - from the employer (school districts)
1.2 billion - state of CA/Fed (by my estimate 840 million of that comes from the state)
5.87 billion - is the total contribution with the taxpayer portion of funding at 3.51 billion.
Adding 3.8 billion more to contributions, money the state doesn't have, and education funding comes from the state GF, the total contributions grow to approx. 9.67 billion. Retiree benefit payouts are 10.1 billion. Retirement systems often claim that 75% of benefits come from investment earnings but that doesn't seem to be the case here, at least not at this point in time or for the foreseeable future.
On page 33 of the CalSTRS CAFR, they provide a breakdown (table) of the total contributions required under different investment return assumptions. These costs, listed under "Funding Rate" are what is most relevant to the PUSD. The percentages are expressed as a percentage of payroll given specific return rates over a thirty year period. For instance, given annual returns of 7.75%, the CalSTRS assumed rate of return, total pension funding needs to jump from the current 18.75% of payroll to 29%. If the assumed rate of return were lowered to 7%, the cost of payroll to fund pensions increases to 35% (every 100K of payroll = 35K in cost). CalSTRS average annual return over the past 10 years is less than 6%. The table provides data for rates of return between 6 and 9 percent.
CalSTRS most recent CAFR: Web Link