STRS Funding: Are we going there?

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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


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