What are the CalSTRS changes?

On February 13, 2014, Jack Ehnes (CEO of CalSTRS) released a report indicating that the unfunded liability was more than $60 billon, with actuarial projections showing that the fund would be unable to pay all constitutionally guaranteed benefits starting sometime in 2046.

At that point in time, the incoming contributions from current working members would be paying out as much of the benefits as possible, making the pension payments about 50% of the actual amounts. This report and other previous reports caused Governor Jerry Brown to draft a bill calling for extreme changes to the funding amounts. This happened extremely quickly over the past few months and the bill was sent to the Senate, where only minor changes occurred. AB 1469 was passed by the legislature to the happiness of CalSTRS, but the concern of many others.

AB 1469 makes significant changes to CalSTRS with respect to the funding formula for the Defined Benefit (Pension). Historically, the employee rates have not changed since 1972, employer rates have not changed since 1990, and the state rate is lower now than it was in 1997.

Here are the future contribution rates for those hired prior to 2013 (known as 2% at 60).

* State contribution increases are capped at 0.50% per year from 2017-18 and beyond, based on actuarial assumptions at that time.

** Employer contributions are allowed to change by no more than 1% per year (up or down) after 2021, and shall not exceed 20.25% of the salary at any time.

The contribution rates for the Defined Benefit Supplement (DBS) account remain capped at 8% for employees and 8% for employers. There is no change to this account/fund as it does not have a defined benefit (pension). This separate account is only funded with salary amounts over the contract amount, so your overtime puts payments into this DBS account.

For those hired in 2013 or later (called 2% at 62), the maximum future contributions are slightly lower to employees because total benefits are capped and could be slightly less over time:

Based on AB 1469, CalSTRS is required to report the fiscal health of the Defined Benefit Program (Pension) every five years beginning on or before July 1, 2019. The report given should identify adjustments required to all portions that will completely eliminate the unfunded liability by June 30, 2046.