Huey P. Newsom’s Mid-Morning Report posted this afternoon reveals the stunning complexity of the California State Teachers Retirement Fund.
Welcome to the Sacramento Brie’s Mid-Morning Report! Brought to you by the One Party State that will provide its residents 100% renewable power by the year 2045. I’m your host Huey P. Newsom. But first, some more dramatic music to prepare you for the news.
In the 1990s, thanks to an unexpected stock market windfall, the “World’s Largest Educator-Only Pension System” – the California State Teachers’s Retirement System – had enough money to pay all the retirement benefits of all its members.
By 2014, thanks to leaders who reacted to the windfall by simultaneously cutting contributions and increasing benefits, actuaries projected the fund would be “fully depleted of assets” by roughly 2045. For teachers who live in Rio Linda, that means “insolvent” or “bankrupt.”
After this “alarming projection” that no one could have predicted in the 1990s, the Legislature passed the CalSTRS Funding Plan with the goal of fully funding the retirement system by 2046. The State, its school districts, and teachers all began contributing substantially more money to CalSTRS.
As of 2019, the program was 66.6% funded and actuaries predicted achieving 99.9% funding by 2046.
Yesterday, the California Legislative Analyst – sometimes referred to as “the only non-partisan agency in the government” – said “Certain Aspects of the Funding Plan May Impede Its Likelihood of Success.” Those aspects include “Exceedingly Complex Formulas” calculated for “theoretical alternate universes.”
The LAO report notes that, “Each year, these structures become increasingly complex as CalSTRS accounts for an additional year of data and hypothetical difference between real experience and the theoretical structures.” This results in “Complicated and Counterintuitive Effects on Contribution Rates.”
“Due to these annual fluctuations, as well as the sheer complexity of the structures and calculations themselves, the funding plan’s progress can be difficult for the state, employers, and other stakeholders to understand and track,” the report says.
In other news, the California Legislature has passed a new law saying that Earth’s climate is less complex than the State Teachers Retirement Fund.