SACRAMENTO AP) — State lawmakers should consider changing a plan they adopted two years ago to stabilize the finances of California’s teacher pension system, the nonpartisan Legislative Analyst’s Office said Tuesday.
There’s a good chance the state will pay no more than it would have if the reforms were never adopted, the analyst’s report found. That outcome would fall short of the Legislature’s intent to require that the state, school districts and teachers all share the cost of erasing the $74 billion unfunded liability.
The analyst’s concerns stem from the complex funding formula adopted by the California State Teachers’ Retirement System (CalSTRS).
“In our view, CalSTRS now has become one of the most complex programs in state government,” the report concluded. “Such complexity dramatically limits the ability of everyone to effectively oversee such a public program”
CalSTRS said in a statement that the funding plan was the product of several years of research and discussions with Gov. Jerry Brown’s administration, the Legislature and others. “The funding plan prescribed in the legislation meets solid actuarial and proven accounting practices and offers a complete approach to fully funding the CalSTRS Defined Benefit Program by the year 2046,” the agency said.
CalSTRS is the nation’s second-largest pension system with nearly 900,000 members and $186 billion in assets at the end of last year. Lawmakers voted to require the higher contributions over three decades amid concerns that the system had to spend far more on retirement benefits than it was projected to earn from investment returns and taxpayer contributions.
The report says CalSTRS is using a complex formula to calculate how unfunded liabilities are attributed to the state and to school districts. It’s based on results in an “alternate universe” in which different decisions were made in the past, the report says.
Using the formula, the state’s share of the unfunded liability dropped from $20 billion to $15 billion, even without significant changes in the system’s funding picture, the report found. The same formula, along with its treatment of higher teacher contributions, caused the share of unfunded liability attributed to school districts to rise from $47 billion to $58 billion.
Depending on the performance of investments, the state’s share could vary wildly over the next 30 years and school districts could be required to cover a portion of the state’s obligation, the report found.
The report recommends that lawmakers consider tweaks such as abandoning the complicated formula or capping the amount the state’s rate can change in a year or the plan will risk becoming “less and less comprehensible with each passing year.”
The bill’s author, Assemblyman Rob Bonta, D-Alameda, said the pension plan is complying with the strict language of the law and the Legislature’s intent.
“I am committed to working with stakeholders to clear up any questions they may have about the proper implementation of this funding plan,” Bonta said in a written statement.