CalSTRS Fully Funded in 52 Years?

James Nash of Bloomberg reports, California Teacher Pension Fully Funded in 52 Years:
The California State Teachers’ Retirement System, with higher contributions from teachers, school districts and the state, may have all the money needed to pay its obligations, 52 years from now, according to a new report.

Calstrs, whose $144.8 billion in assets make it the second- largest U.S. public pension, had only 71 percent of what it needs to cover forecast benefits as of June 30, 2010, down from 78 percent a year earlier, according to a statement. The shortfall amounts to $56 billion.

The fund would be at 100 percent by 2064 if new teachers were required to put 12.2 percent of their salaries toward retirement, from 8 percent now, phased in beginning in 2016, according to one projection in a report to the board. Current teachers would contribute 10 percent; school districts, 14.5 percent of payroll, from 8.25 percent; and the state, 3.1 percent of its budget for teacher payroll, now about 2 percent.

“This is really the governor and the Legislature’s decision,” Ed Derman, the fund’s deputy chief executive officer, said on a conference call with reporters yesterday. “We’re here to help you do this, but you’ve got to solve the problem.”

Full funding by 2064 would also require Calstrs’ investments to earn an average annual return of 7.75 percent. Actuaries have recommended lowering the rate to 7.5 percent.

Six Projections

The report to the Calstrs board, scheduled for discussion tomorrow, outlines six scenarios that would spread the added costs among school districts, educators and the state. Each would require instructors to pay more. Only one would impose additional cost on new teachers. All six would squeeze more from school districts to varying degrees. Four would require additional state money.

Governor Jerry Brown didn’t include additional funds for Calstrs in a series of measures he outlined in October to narrow pension funding gaps.

Derman said Brown’s proposals, which include raising the retirement age and creating a 401(k)-style hybrid retirement plan for new employees, would only partially deal with the funding gap, which was estimated at $56 billion in June 2010.

“You still have the unfunded liability for all of the existing members,” he said. “The governor’s proposal doesn’t change that.”

As far as investments, Dale Kasler of the Sacramento Bee reports, CalSTRS may cut forecast again:

CalSTRS is thinking of cutting its investment forecast for the second time in barely a year, a move that acknowledges the increased financial strain on the pension fund.

The teachers' retirement board on Thursday will consider a recommendation from its actuarial consultant to cut the forecast by a quarter point, to 7.5 percent.

The consultant, Milliman Inc., told the board the current forecast "exceeds the expected long-term return."

Pension funds are reluctant to adjust their investment forecasts. After months of hand-wringing, the California State Teachers' Retirement System cut its forecast by a quarter point in December 2010 – the first adjustment in 15 years.

Now it might do so again, just a week after CalSTRS revealed that its earnings for calendar 2011 came to just 2.3 percent.

The timing is coincidental, pension officials said. The latest recommendation is part of a typical review that takes place every four years, said Ed Derman, CalSTRS' deputy chief executive.

What happened in 2010 was unusual, and was a reaction to the extraordinary losses suffered in the 2008 market crash, he said.

In any event, lowering the forecast could intensify the pressure on the Legislature and Gov. Jerry Brown to come up with a funding solution for CalSTRS. The retirement system is already underfunded by tens of billions of dollars.

CalSTRS gets more than $5.5 billion a year in contributions from the state, school districts and teachers. It says it needs at least $4 billion a year more to eventually get healthy. With the lowered investment forecast, that requirement would grow by an additional $500 million a year, Derman said.

Toward that end, CalSTRS' staff plans to present the Legislature with six different scenarios for raising contributions. The increases wouldn't begin until 2016, which Derman said is partly a bow to political reality as the Legislature deals with a huge deficit.

At the same time, a lowered forecast could bolster arguments by many Republican lawmakers that public pensions are unsustainable. In their view, the solution is reining in costs, not raising annual contributions. One conservative group is pushing a ballot initiative to force newly hired public employees to accept a 401(k)-style program.

Brown, a Democrat, is pushing a proposal to give newly hired workers a retirement plan that blends a traditional pension with a 401(k).

Read more here:
I hate anything with "401 (k)" in it. It just means higher fees and more pension poverty down the road. At least CalSTRS is discussing options, putting it all on the table so their members can understand what is needed to shore up their pension plan.

Most pension plans stick their head in the sand until it's too late. The WSJ reports that AMR told its employees with a plan to dump their pensions:

American Airlines parent AMR Corp. is planning to cut 13,000 jobs and terminate its four employee pension plans covering its workers and retirees.

In a memo to employees, the company said it’s necessary to dump its pension obligations for 130,000 workers and retirees in order to successfully restructure its business under bankruptcy protection.

The company has yet to ask the bankruptcy court for approval to walk away from it pensions.

“Pensions have not been discussed with the unions,” said AMR spokesman Scott Sayres in an email to Bankruptcy Beat. “When they have, it will be on the site.” The company is set to speak with its unions Wednesday.

The government’s pension insurer, which would assume responsibility for American’s obligations if the carrier obtains approval from a bankruptcy judge, says the plans have assets of $8.3 billion to cover $18.5 billion in benefits.

Read AMR’s statement on its pensions here.

Read AMR Chief Executive’s Thomas Horton’s letter to employees here.

What a disaster! As I stated before, with few exceptions, most companies shouldn't be managing pension plans. Pensions should be public defined-benefit plans accessible to public and private sector employees. This way when a company goes under, which often happens, employees' retirement funds are secure and well managed.

Don't get me started on the pension crisis, it's a frigging mess and politicians are the ones who are sticking their heads in the sand or taking stupid decisions that will come back to haunt us all. The dynamics at CalSTRS will be interesting to watch because if they succeed in achieving fully funded status by implementing these changes, many others will follow. Stay tuned and mark your calendar for 2064.

Below, Tom Frank of USA TODAY discusses his findings that pensions for state legislators across the country can be highly lucrative. Tell that to American Airlines employees and many others in the private sector that have lost or are at risk of losing their pensions. Think it's time we started treating our workers more like state legislators, offering them a safe and secure retirement.