CalSTRS Board Votes on Comprehensive Funding Strategy; Creates Framework for Long-term Full Funding.

SACRAMENTO, Calif. -- At its meeting today, California's Teachers' Retirement Board took a major step in closing the California State Teachers' Retirement System's long-term funding gap of $20 billion. The board approved guiding principles CalSTRS staff will use to draft legislation. Any change to the system must be signed into law by the Legislature and Governor.

The board's principles include no decrease to member benefits, a mechanism to provide financing for retiree health care and sharing any necessary increases in contributions among the members, school districts and the state. Any increase in contributions would be done incrementally over time and begin no earlier than July 1, 2009.

"We have worked closely with our members and thoroughly researched all of the options to reach our goal of 100 percent funding," said Carolyn Widener, CalSTRS board chair. "Today's rich discussion included support voiced by leaders from our constituent groups. We welcome their participation in our efforts for a healthy and secure fund for our members."

The principles include:

--No changes to existing benefits, other than to guarantee the current annual 2 percent benefit adjustment

--An increase in member contributions of 1/2 percent

--An increase in the General Fund support of the Defined Benefit Program of up to 1.25 percent

--An increase in the employer contribution rate to be determined by the Teachers' Retirement Board as necessary to fully fund the Defined Benefit Program within 30 years, not to exceed a specified percentage

--Employer contributions for post-retirement employment

--The use of excess employer contributions to fund retiree health care liabilities

The next step is to draft legislative language, which will be presented to the board at its November 3 meeting, followed by staff identifying authors for the proposed legislation.

The board's adoption of legislative intentions is one facet of the proactive approach undertaken by the board to address the system's projected shortfall. The day before, the board approved new asset allocations that balance their tolerance for investment risk with positive long-term investment returns. The new asset allocation long-term targets allow for more opportunistic investments in private equity and real estate and further diversify the system's investment portfolio.

"We have had exceptional returns on our investments but we know positive returns alone cannot bridge our funding gap," said Ms. Widener. "Although the funding status has improved since last year, we know that the sooner we tackle this issue, the less expensive it will be."

With a $144 billion investment portfolio, the California State Teachers' Retirement System is the second-largest public pension fund in the United States. It provides retirement, disability and survivor benefits to California's 776,000 public school educators from kindergarten through community college.