28
Aug
2014

CalSTRS Unfunded Liability Drops Significantly

Categories: California Developments
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School Services of California, by Michelle McKay Underwood, August 27, 2014

As discussed previously (see “Ask SSC . . . How Would a Funding Solution for CalSTRS Affect GASB 68?” in our June 13, 2014, Fiscal Report), one of the benefits of a long-term funding solution for California State Teachers’ Retirement System (CalSTRS) is a decrease in the system’s unfunded liability. Before the passage of the CalSTRS funding bill, AB 1469 (Bonta, D-Alameda), the unfunded liability (the difference between the actuarial value of assets and actuarial liabilities that is based on the historic 7.5% annual rate of return on investment) was pegged at $74 billion.

When counted another way, based on Governmental Accounting Standards Board (GASB) standards, the net pension liability was as high as $167 billion. The GASB methodology factors in a mixed, more conservative discount rate because the fund was projected to run out of money in the future.

Because the CalSTRS funding solution was adopted before the end of the fiscal year, and the Defined Benefit program is no longer projected to run out of funds “in any future year” according to CalSTRS’s actuary, the calculated net pension liability has been significantly reduced. The net pension liability is now $59.9 billion due to the new funding plan, above-average returns in 2013-14, and the fact that net assets of supplemental programs and accounts (such as the Defined Benefit Supplemental program and the Cash Balance Benefit program) are included in the calculation.

As a reminder, GASB 68 will require school and community college districts to recognize their proportionate share of the net pension liability of their employees’ pension programs (i.e., CalSTRS and the California Public Employees’ Retirement System) starting with the 2014-15 fiscal year. While districts will still have to reflect their attributed portion of the unfunded liability, it will now be significantly smaller for CalSTRS.

For more information on GASB 68, see “CalSTRS Provides More Information for Implementation of GASB 68” in the May 2, 2014, Fiscal Report and “No Delay of GASB 68 Implementation” in the April 4, 2014, Fiscal Report.

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