The Assembly committee that will decide how to fix the multibillion-dollar funding shortfall for teacher and administrator pensions will go proficient – and some sobering – news when it holds its commencement hearing on the result this week.

First, the good news: New figures signal that impressive return on investments by the California State Teachers Retirement Organization for the fiscal year ending June 30, 2013, would shave about $550 million from the additional dollars that teachers, schoolhouse districts and the state volition take to pay annually for the next thirty years to erase CalSTRS' $71 billion arrears, according to CalSTRS.

Now, the sobering news: Even with that great 1-year stock market render of 13.eight percent – well-nigh twice every bit high equally the assumed return of 7.5 percent – contributions from teachers, school districts and the country combined would need to increment at to the lowest degree $4.two billion annually, starting July 1, 2015. And if, equally is more likely, the additional contributions are phased in gradually over four or 5 years, that figure will rise to about $iv.8 billion per twelvemonth, diverting more money to pension contributions that would have gone to teachers' take-abode pay and to increasing programs and services for California'south students.

The cost of delay: Postponing implementation of the increase needed to bring the Defined Benefit Program to full funding would add hundreds of millions of dollars in contributions from employees, school district and the state. Source: CalSTRS memo to its board of directors, Feb. 2014.

The toll of filibuster: Postponing implementation of the increase needed to bring the Defined Benefit Programme to full funding would add hundreds of millions of dollars in contributions from employees, school districts and the state. Source: CalSTRS memo to its board of directors, February. 2014.

The conclusion from CalSTRS' staff in a memo to the CalSTRS lath: "No matter how it is measured, the gamble associated with excessive delays in implementing the funding solution for the (divers do good pension) program shortfall is that the toll of that solution … would have a major impact on the budgets of those who pay those contributions."

On Wednesday, the Assembly Public Employees, Retirement and Social Security Committee will begin work toward what Chairman Rob Bonta, D-Oakland, hopes will be a solution effective in the next financial yr. That's not saying higher contributions into the fund would start July 1: Bonta's making no commitment at this point. But an agreement would lay the path to financial security for the nation's second-largest pension fund, with about 860,000 members. ­(The largest is CalPERS, the pension program for nigh state and local public employees, along with school employees who aren't teachers and administrators.)

CalSTRS' pension program guarantees administrators and teachers a pct of their final years' pay on retirement (sixty percent at age 62 for those who work 30 years). Information technology is funded by a combination of yearly returns on investments and yearly contributions by employees, employers and the state. CalSTRS members exercise not receive Social Security benefits.

As with CalPERS, CalSTRS' problem is that a modest increase in benefits, granted by the Legislature during the dot-com years, was followed past a 40 pct plunge in the value of its assets when the stock market place tanked in 2007-08. CalSTRS' investment portfolio is now back to where information technology was at the meridian in 2007. Simply it lost billions in predicted returns in the acting, leaving it with an unfunded liability – the amount needed to meet pension obligations to current employees – of $71 billion. Unlike pension benefits for other California public employees, which tin exist negotiated with employees, only the Legislature can set contribution rates for CalSTRS.

Annual contributions are calculated as a per centum of pay. Employees currently contribute 8 percent; school districts 8.25 percent; and the state next year will contribute 3.three percent for a total of 19.55 per centum. (An additional two.5 per centum from the state goes to a separate fund that ensures retirees' benefits don't erode with inflation.)

Eliminating the unfunded liability won't come cheap. Updated figures that Ed Derman, CalSTRS deputy chief executive officer, will present indicate that for the contributions to achieve 100 percent funding of the pension fund in 30 years, current contributions would accept to go from 19.55 percent of pay to 33.75 percentage (a 14.2 percent increment). That'south the $4.2 billion increase, dissever among employees, districts and the state, that benefits from the 13.eight per centum rate of render last year. It assumes that the entire increase will go into upshot in July 2022 – an unlikely scenario, since it could devour virtually, if not all, spending increases for schools.

But delaying the start of the increases or phasing them in a few percentage points per year as well raises the cost.

  • Postponing the start of the increases until 2022 would enhance contributions by $300 million per year, to 15.08 percent;
  • Phasing in the contributions past 3 percent points per yr, starting in July 2015, would lead to an increment of contributions of $600 million per year, an increase of 16 percent of pay.

Derman said that each percent increase adds almost $290 one thousand thousand in annual contributions.

The goal of the first hearing will be to constitute the size of the gap to reach full funding of the alimony fund. Future hearings will determine the more contentious issue of how the increment will be divided among teachers and administrators, school districts and the state. The Legislature must determine that. Another option, stretching out the implementation period beyond 30 years to 35 or twoscore years – another way to lower the yearly increase while putting hereafter ratepayers and taxpayers on the claw for more years – will also be discussed at some point, Bonta said terminal month.

The hearing on Midweek, Feb. xix will brainstorm at 10:xxx a.k. Check hither to encounter whether the hearing will exist circulate live.

John Fensterwald covers education policy. Contact him and follow him on Twitter @jfenster. Sign up here  for a no-cost online subscription to EdSource Today for reports from the largest education reporting team in California.

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