Will lowering the rate of return mean that teachers inevitably contribute more?
Ed Derman: The lawyers who have reviewed this for CalSTRS have concluded that the contribution rates charged to existing members cannot be increased to pay for the benefits that are already in place. Therefore, existing teachers would not be called upon to contribute more to pay for the liabilities associated with the current benefit plan. Higher contributions can be imposed on new teachers, however, as well as employers and the state. If the rates don't change at all, CalSTRS will eventually deplete the trust fund and retirement costs would fall entirely to the state. The rates will need to go up for new members, because none of us can expect investment returns to generate a double-digit return for the next two decades. However, only the Legislature can increase contribution rates.
There have been proposals for years for teachers, districts, and states all to kick in a little bit more in order to stabilize the fund; the legislature would have to approve this, as CalSTRS officials cannot do so unilaterally.
Remember back when we were being told how rosy everything was with STRS? How could it have been, given this:
What is the amount of the unfunded liability?
Ed Derman: We won't know the current unfunded liability until we complete the valuation — a snapshot of the health of the system — in the spring of 2011. If the new, reduced investment return assumption had been applied to the last valuation, it would have increased the unfunded liability from $41 billion to $45 billion. CalSTRS is currently funded at the level it was funded in 1990.
Since I'm sure no one's been lying, I'll have to try to come up with some other explanation.