Issue link: http://educator.cta.org/i/2868
Investors watching their 401(k)s diminish have to completely rethink savings strate- gies and extend retirement plans indefi- nitely. However, school employees have no need CalSTRS, CalPERS benefits protected by law I n these rocky economic times it’s natu- ral to be distressed about falling stock prices and the decline of your savings. is rock solid.” With diversified assets made up of U.S. stocks, international stocks, bonds and other fixed-income securities, real estate, and pri- vate equity invested throughout the globe, the long-term invest- ment is sound. Regarding Cal- to worry about their CalSTRS (California State Teachers’ Retirement System) and CalPERS (California Public Employees’ Re- tirement System) pensions, which are fully protected by law. Fears that market fluctua- tions will affect CalSTRS or CalPERS pay- ments after retirement are unfounded. CalSTRS CalSTRS’ primary responsibility is to provide retirement-related benefits and ser- vices to educators in public schools and community colleges. The largest teachers’ retirement fund in the nation, CalSTRS has a membership of 813,000 and assets of $147 billion. “CalSTRS benefits are not dependent on the funds in the CalSTRS investment portfolio,” says Sherry Res- er, spokesperson for Cal- STRS. “These benefits are a contractual right protected not only by the California Constitution but also by the U.S. Constitution.” CalSTRS assures mem- STRS’ investment strategies, Reser says, “Over the last three y e a r s Ca lSTRS achieved an average return of 9.72 percent, which exceeds the 8 percent average an- nual return needed to meet long-term ben- efit liabilities. And CalSTRS’ long-term funding status is at 88 percent, which a 2007 Pew Charitable Trusts report calls ‘healthy,’ being above 80 percent. These attributes put CalSTRS among the soundest pension funds in the nation.” Reser explains that Cal- Any fears that market fluctuations will affect CalSTRS or CalPERS bers that the pension is financially stable. Reser explains that benefits are secure, despite the ongo- ing historic changes to the world’s financial mar- kets. The CalSTRS retirement, survivor and disability benefits will not change with the downturn in the economy. Jack Ehnes, CalSTRS chief executive of- ficer, says of the fund’s strength, “The in- vestment portfolio is built to ride out the shocks of a fluctuating marketplace, even in times as unprecedented as these. As you read more bad news daily, please remember you have good news. Your CalSTRS benefit 34 California Educator | november 2008 payments after retirement are unfounded. STRS paid out $7 billion last year from a total fund of $147 billion, illustrating the capacity of the CalSTRS pension fund to pay its members without issue. “When CTA members retire, their pension is going to be there,” says Reser. “They’re going to get every dollar due them after their years in the classroom. It’s secure, it’s safe, it’s going to be there when they need it.” CalPERS Similar to CalSTRS, the CalPERS pension funds are defined retire- ment benefits that are protected by law. CalPERS, the nation’s largest public pension fund with more than $190 billion in assets, provides retirement and health benefits to 1.6 million active and retired state and local public agency employees, including non- teaching school employees, on behalf of 2,600 public employers. Regarding stability of the fund, CalPERS chief actuary Ron Seeling says, “Cushioning the impact of investment setbacks is the fact that CalPERS experienced double-digit gains in the four years leading up to the 2007-08 fiscal year. We had saved 14 per- cent of the fund for cushioning the blow of a future market downturn, and our smoothing policy is wo r k in g a s i t should.” “One thing is known,” says Kurato Shimada, chair of the Benefits and Program Administration Committee for CalPERS, “when the dust settles, we will apply the impacts of losses or gains over a 15-year period. No large change in investment performance in one year will directly translate into the same level of change in employer rates in a single year.” Rob Feckner, president of the CalPERS Board of Administration, explains that his- torically market downturns are followed by recoveries. “CalPERS began in the Depres- sion of the 1930s. We survived the 1987 stock market crash and the recession of 1990. During the 2000-02 recession, our pension fund lost $50 billion on paper, but we rebounded with a gain of $120 billion over the next four years.” As of this year, CalPERS has an overall funding ratio of 92 percent. Seeling says even a 20 percent negative investment return for the current 2008-09 fiscal year wouldn’t affect state and school contribution rates until the fiscal year that begins July 1, 2010, and public agency em- ployers until July 1, 2011. It could be possi- ble to see an increase in rates that range from 2 to 4 percent of payroll. “It may take time for markets to recover,” says Feckner, “but CalPERS has more than enough cash to pay benefits without selling a single asset.” For up-to-date information on CalSTRS and CalPERS go to: www.calpers.ca.gov, www. calstrs.com.