STRS Funding: Are we going there?Categories: California Developments
Public Retirement Journal, by Amy Brown, March 2014
Last year in January, the Public Retirement Journal published an article titled “STRS Funding: Our 2013 Pension Problem.” Sometimes we feel like naysayers but in this case, boy, were we sure optimistic. Turns out our predictions were totally off. It wasn’t much of a problem in 2013 after all, primarily because it was pushed under the rug. It was optimistic on our part to think the issue would be tackled. It’s now 2014 and it’s still unclear whether this enormous pension problem, which tarnishes all public employee pensions, will be hogging the spotlight in 2014.
The problem – namely the intentional underfunding of the massive State Teachers’ Retirement System (STRS) has been the elephant in the room during the last few years of budget talks and pension reform negotiations. Last year when Governor Brown wanted to celebrate a balanced budget for FY 2013-14, all of the budget- watchers came out of the woodwork to remind the Legislature that it can’t declare a budget victory without first addressing the ticking time-bomb of teachers’ pensions. STRS has been trying to draw attention and action to address its $70 billion unfunded liability for over a decade. If you take a peek at the STRS website, there’s an entire section dedicated to “The Cost of Waiting.”
Given Governor Brown’s recent urgings to the Legislature to exercise fiscal prudence now that the State’s fiscal condition is improving, most seemed surprised that Brown didn’t address the STRS funding issue in his proposed FY2014-15budget that was released last month. With Governor Brown pushing for pension reform and fiscal prudence, it seems a change of roles for the Legislature to be the one that is now insisting that STRS funding be on the table for action this year since they seem most interested in tackling the issue, based on their recent press coverage.
We’re talking about relying on the Legislature’s ability to tackle STRS’ funding gap, but we’re going to take a momentary detour because we feel compelled to point out Brown’s seemingly unpredictable policies on pension funding. With respect to STRS funding, Brown says we should begin discussions on how to solve the problem but, apparently, we shouldn’t put any money toward the issue until at least FY 2015-16. He’s content to kick the can down the road, even though the STRS Board can’t act without the Governor and the Legislature taking corrective actions. But with PERS, which has such a plan in place, it’s a totally different story.
Across the river from STRS, there’s a different drama being played out. PERS actuaries are requesting huge rate increases from employers to deal with the increased life expectancy of its members.
When it comes to PERS, Brown wants the rate increases phased in immediately, publicly questioning the integrity of the PERS Board for not requiring the State to pay more in the next fiscal year. “The [PERS] board has the legal authority and moral responsibility when the facts warrant,” the governor told reporters; “And the facts certainly warrant prompt action now.” We’re not the only one that sees the irony in this, right?
Back to STRS… Assembly leaders have stepped up to keep pushing the STRS funding issue forward. Speaker John Perez and Assembly Member Rob Bonta, Chair of the Assembly PER&SS Committee, announced they will push to implement a long-term solution to STRS’ funding shortfall this legislative session. Perez said, “Further delay only means further cost and further exposure for the state’s general fund. We believe there must be shared responsibility for a funding solution between school districts, the state and teachers.”
The announcement of the Assembly’s plan received strong echoes of support from State Treasurer Bill Lockyer, State Controller John Chiang, and STRS CEO Jack Ehens. Ehens reminded everyone that STRS’ costs are rising about $22 million a day, and having a plan in place this year could result in billion-dollar savings to the state.
In 2012, the Senate passed a resolution (SCR 105) directing STRS to work with stakeholders to develop three options for addressing the system’s long-term funding needs and affirming the Senate’s intent to enact legislation in the 2013-14 Session to address those long term funding needs. We’re in the final year of that session, so we’ll see if the Senate intends to do its part in fulfilling this commitment. (Continuity in intentions from one year to the next is sometimes a weakness of our term-limited Legislature.)
The issue of STRS funding will keep public employee pensions in the spotlight. If you’re interested in learning more about how STRS got here and why STRS is so much different than the rest of us, please visit the Public Retirement Journal’s website. If this issue gets traction and the Legislature moves forward with a plan to address STRS’ unfunded liabilities, you’ll be hearing more from us more in months ahead.
Published by Amy Brown, the Public Retirement Journal provides a very timely source of valuable information and insight into public retirement, health care and related benefits. The Journal seeks out, and interviews, those people shaping public retirement policy and helps our readers understand just what they have planned in this field.
For more information, please visit http://www.publicretirementjournal.org