Retaining Effective Teachers Policy
The state should ensure that excessive resources are not committed to funding teachers' pension systems.
As of June 30, 2009, the most recent date for which an actuarial valuation is available, California's pension system for teachers is 78 percent funded and has an infinite amortization period. This means that if the plan earns its assumed rate of return and maintains current contribution rates, the state will never pay off its unfunded liabilities. Without a change to funding levels and/or benefit structure, the system projects that funds will be depleted in 2044. Neither California's funding ratio nor its amortization period meets conventional standards, and the state's system is not financially sustainable according to actuarial benchmarks.
California does not commit excessive resources toward its teachers' retirement system. The mandatory employee contribution rate to the defined benefit plan is 8 percent, and the current employer contribution rate is 8.25 percent for local districts. These rates are reasonable, considering that teachers and local districts are not also contributing to Social Security. The state is required to contribute an additional 2.017 percent plus additional funds up to a total of 3.522; increases are only made if there are unfunded liabilities or normal cost deficits based on benefits in place July 1, 1990. According to the most recent valuation, no additional contribution by the state was needed based on these criteria.
California State Teachers' Retirement System, Comprehensive Annual Financial Report, for the Fiscal Year Ended June 30, 2010 http://www.calstrs.com/Help/forms_publications/printed/CurrentCAFR/cafr_2010.pdf
Ensure that the pension system is financially sustainable.
The state needs to ensure that its pension system is financially sustainable. The state would be better off if its system had an amortization period of 30 years or less and a system that was more that 95 percent funded to allow protection during financial downturns.
California was helpful in providing NCTQ with facts that enhanced this analysis.
The state further maintained that the California State Teachers' Retirement System (CalSTRS) continues to work with the California legislature to solve the long-term funding gap, and that the authority and responsibility to resolve the funding gap lies with the legislature and governor—not CalSTRS.