Funding CalSTRS needs to be top legislative priorityNews added by Benefits Pro on May 9, 2014

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By Nick Thornton

California’s non-partisan Legislative Analyst’s Office is insisting California’s legislature make CalSTRS its top budget priority, given its massive unfunded liability and the relatively fast growth of the fund’s debts.

The majority of California’s $340 billion of long-term debt has not been addressed by that state’s budget, according to a paper released this week.

The largest gap in funding is a $73.7 billion liability in the teachers’ pension fund. Absent corrective action, CalSTRS will deplete all of its assets some time in the 2040s.

The legislature has addressed $140 billion of key budget liabilities, according to the executive summary of a report released Wednesday. Recent action taken by Calpers, the pension system for public employees, intends to eliminate liabilities over the course of the next 30 years.

The paper recognizes the difficulty of the task at hand, but says that the challenge “only grows more costly the longer we wait, meaning that the most important action the state can take to minimize costs is to act quickly to increase contributions to CalSTRS.”

Retiree health liabilities for state employees will also have to be addressed if the long-term risk to California’s budget is to be reduced. Both CalSTRS and retiree health liabilities have higher interest rates relative to areas of the state’s debt, meaning a failure to immediately improve their funding will only add to budgetary risk in the long run.

The CalSTRS fund, which oversees the retirement of 868,000 members, needs an additional $5 billion a year of funding over the next three decades if it is to meet its obligations down the road. The debt of the nation’s largest teacher-only pension fund grows by $22 million each day nothing is done.

California’s retirement system has not been properly funded for most of its 101-year history, according to the paper. Lawmakers and union leaders are currently negotiating higher contribution rates for teachers going forward.

California’s state budget is due next month. Revenues for the current fiscal year are higher than initially projected, in large part due to higher capital gains taxes.

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