California governor offers schools a bitter pill to heal CalSTRS

Wednesday, May 14, 2014

At long last, Gov. Jerry Brown has stopped ignoring the burgeoning fiscal sinkhole that is CalSTRS, the state teacher retirement fund. The question now is whether he can sell his plan to lawmakers and the schools in their districts.

CalSTRS holds nearly $74 billion less in assets than it needs to meet its pension obligations to public school teachers and community college instructors, and the gap is growing by $22 million daily. If the state does nothing, the fund is projected to be cleaned out in 33 years. Policymakers have known for years that CalSTRS was locked into a funding formula that led to ruin, yet they averted their gaze because there was no easy or affordable path out.

As with any pension fund, CalSTRS can't simply cut the benefits it pays to retirees, not even the ones it has promised to teachers who haven't yet retired. Such changes are barred by federal law and the California Constitution. The most the state can do is reduce the benefits offered to future employees, which the Legislature and Brown did in 2012. That's not much help for CalSTRS, though, given that there aren't a lot of new teachers being hired.

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