California Educator

September 2016

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W ith schools and colleges back in session, the last thing CTA mem- bers may want to think about is the rate of return and the overall health of their retirement benefits in the California State Teach- ers' Retirement System (CalSTRS). " That's why we are here," says Chris Ailman , CalSTRS chief invest- ment of ficer. Ailman affirms that CalSTRS, the world's largest educator-only pension fund, is indeed healthy despite worries over the worldwide volatility in the stock market (think terrorist attacks, Brexit, etc.). CalSTRS ended its 2015-16 fiscal year on June 30 with a 1.4 percent net return on investments. While the net return is somewhat lower than previous years, those short- term peaks and valleys should be examined through the lens of long-term performance, says Ailman. "Looking at a one-year rate of return is like trying to measure one mile of an Olympic marathon. It is more important to look at long-term trends of five, 10 and 20 years." CalSTRS' net returns reflect the following longer-term performance: • 7.8 percent over three years. • 7.7 percent over five years. • 5.6 percent over 10 years. • 7.1 percent over 20 years. Ailman notes that the decade of the 2010s has been a "good performer, averaging 10.3 percent net." What's more, the CalSTRS funding plan, which was put into place in June 2014 with the landmark pension legislation AB 1469, remains on track for full funding by 2046. AB 1469 by Assembly Member Rob Bonta (D-Alameda) addressed the $74 billion funding shortfall created by the Great Recession in 2008. Although CalSTRS has historically been a sound system, absent any changes in con- tribution rates, the program would have been depleted of its assets as early as 2046. AB 1469 called for member contributions to increase from 8 to 10.25 per- cent between July 1, 2014, and July 1, 2016. e state's portion increased from 3.041 percent in 2014 to 6.3 percent on July 1. School and community college districts shoulder the greatest increase: eir contributions were 8.25 percent in 2014 and will continue to increase to 19.1 percent by 2021. e impact of those contribution increases on current teachers is minimal compared to what they will see in their pension benefits upon retirement. AB 1469 was negotiated with full collaboration and support by all stake- holder groups, representing employees, employers and the state. While some critics raised concerns that the larger contribution from school Teacher Pensions: Healthy & On Track By DINA MARTIN About CalSTRS The California State Teachers' Retirement System was established in 1913 to pro - vide retirement, disability and sur vivor benefits to public school educators from pre-K through community college. It is an independent state agency headed by an independent teacher-majority board, and administered by an executive officer not subject to political control. CalSTRS is the largest educator-only pension fund in the world, and the sec- ond-largest pension fund in the U.S. The market value of its investment portfolio was $193.4 billion as of July 31, 2016. Unlike most workers, teachers in Cal- ifornia do not earn any Social Security benefits, and teachers who previously worked in the private sector often see their Social Security benefits reduced or elimi- nated from federal Social Security offsets, despite the fact that they paid into the Social Security system. Teachers' retirement benefits, secured over nearly three decades of ser vice, replace about 62 percent of their working income. As such, the CalSTRS pension is the only source of reliable monthly income a retired teacher receives. In addition, most public school educators in the state retire without employer-sponsored health care after age 65. CTA believes all Californians should have a safe and secure retirement system. The problem is not that teach- ers and other public ser vants have defined-benefit plans (pensions), but that private-sector workers do not. California gains when teachers have a secure retirement. Studies show that retiree spending from these benefits creates more than $34.5 billion in total economic output for the state each year. Also, thousands of jobs have been created due to the economic activity of retirement benefit plans. For more information: 50 CTA & you

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