CalSTRS Releases 2015 Actuarial Valuation

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The Defined Benefit program remains on track toward full funding

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CalSTRS CEO Jack Ehnes

This valuation proves the fund is sound, despite naysayers’ attempts to use unrealistic investment assumptions and short-term focused investment theories to create unsubstantiated blog posts and headlines. CalSTRS CEO Jack Ehnes

The California State Teachers’ Retirement System today released the actuarial valuation of the Defined Benefit Program as of June 30, 2015, reflecting the importance of adequate funding over the long term.

According to CalSTRS’ actuarial consultant, Milliman, the $76.2 billion funding gap is well below the projected $85.1 billion figure outlined when the long-term funding plan was developed in 2013-14. Initially, projections for this year’s funding ratio put CalSTRS at 64.8 percent of the assets needed to fund its obligations. However, the actual funding status has remained stable at 68.5 percent, unchanged since 2014.

“The truth of the matter is that CalSTRS is moving steadily forward on the path to full funding, thanks to the actions of Governor Brown and the Legislature in 2014 to enact a 32-year funding plan for the system,” said CalSTRS Chief Executive Officer Jack Ehnes. “That plan of shared responsibility by CalSTRS members, employers and the state ensures the financial future of the nearly 900,000 California educators and their families who depend on the modest retirement benefit CalSTRS administers.”

While CalSTRS continues to deal with a gap between its current assets and the obligations facing the system, known as the unfunded actuarial obligation, or funding gap, the system is still on track to close its shortfall. Even though the current funding gap of $76.2 billion has increased by $3.5 billion since the previous valuation, it is $8.9 billion less than originally forecast.

Milliman projects future revenue from contributions to the Defined Benefit Program will be sufficient to finance its future obligations based on meeting its long-term assumed annual investment return of 7.5 percent. Despite this past year’s market volatility, CalSTRS remains ahead of pace, posting an average investment return of 8.2 percent over the past 25 years, as of December 31, 2015.

“This valuation proves the fund is sound, despite naysayers’ attempts to use unrealistic investment assumptions and short-term focused investment theories to create unsubstantiated blog posts and headlines. The long-term financial stability of the fund is a top priority for CalSTRS, and it’s especially significant for teachers—a sector of public employees who do not receive Social Security for their CalSTRS-covered employment,” Mr. Ehnes added. “The benefit they earn from dedicating years in the classroom to educate and guide California’s youth serves as the cornerstone of their retirement income.”

The past three fiscal years have seen investment gross returns range from 13.8 percent in 2012-13, to 18.7 percent in 2013-14, to 4.5 percent in 2014-15.

Actuarial valuation reports forecast long-term projected costs and revenues. Detailed analyses of these reports are essential in CalSTRS ability to determine the sufficiency of future contributions from members, employers and the state to meet current and future obligations of the Defined Benefit Program.

About CalSTRS
The California State Teachers’ Retirement System, with a portfolio valued at $178.7 billion as of February 29, 2016, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California's 896,000 public school educators and their families from the state’s 1,700 school districts, county offices of education and community college districts. Follow us on Twitter @CalSTRS

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