Assembly to Address CalSTRS Liability Immediately

Categories: California Developments,Legislative Updates
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School Services of California Inc., by Michelle McKay Underwood, January 29, 2014

Assembly Speaker John A. Pérez (D-Los Angeles) and Assembly Public Employees, Retirement and Social Security Committee Chair Rob Bonta (D-Alameda) today announced the Assembly’s intent to address the California State Teachers’ Retirement System (CalSTRS) funding liability this year, currently estimated to be $71 billion. Noting that delaying will only exacerbate the problem and that the economic recovery alone will not fully fund the liability, Speaker Pérez believes the solution will need to fall on all three sources: employers, employees, and the state.

In his 2014-15 State Budget Proposal, Governor Jerry Brown stated that his administration intends to work with stakeholders on a “plan of shared responsibility” to achieve a fully funded system within 30 years, noting that school and community college districts should anticipate absorbing much of any new CalSTRS funding requirement, as the state’s role as a contributor to the plan should be evaluated. Speaker Pérez’s approach seems to lean more heavily on the state as part of the solution than the Governor does, responding to a reporter’s question “Look, the state created this fund in the first place . . . for us to suggest that we back out at this point would be creating an undue toll on [districts and employees].” Pérez rebuffed questions asking how contribution rates will increase, stating much work needs to be done before reaching a solution.

Quickly responding to the announcement, CalSTRS Chief Executive Officer Jack Ehnes issued a statement welcoming swift action: “With costs rising by $22 million a day, having a plan in place as early as this year could result in billion-dollar savings to the state.”

Controller John Chiang followed suit, stating “If lawmakers can meet the challenge with courage and fiscal prudence today, Californians can avoid a crisis tomorrow that imperils not only teachers, but taxpayers and the education system in which they have entrusted our children’s future.”

The first hearing to address the issue is scheduled for February 19, with future hearings planned to address such important issues as the impact of increased employers contributions on Proposition 98 funding levels and the how the vesting rights of members impacts the Legislature’s ability to increase member contribution rates. Assembly Member Bonta hopes that his bill, Assembly Bill 611, will ultimately contain the solution to fully fund CalSTRS over the next “several decades” and avoid the current projection of the fund running out of money by 2046.


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