In order to get the same retirement I've always been promised, the state, the school district, and I are
all kicking in more money to the State Teachers Retirement System, CalSTRS.
It's not enough:
CalSTRS just missed its target rate for annual investment returns, recording 6.8 percent for the fiscal year ending June 30, according to a Tuesday news release.
The rate fell short of the $237 billion fund’s annual target of 7 percent, according to the release.
“It was a roller coaster year and a very challenging environment in which to generate returns,” said California State Teachers’ Retirement System Chief Investment Officer Christopher J. Ailman. “Thanks to the in-house expertise of our investment team, we were able to come very close to our assumed rate of return despite the instability of the market.”
What "instability of the market"?
Returns for both funds suffered amid a stock market slump in late 2018 and then climbed steadily through the first half of this year.
Most of us call that "normal". If the market went up all the time, there wouldn't be much risk, would there? We wouldn't need all that "in-house expertise of our investment team", would we?
The fund is about 64 percent funded, according to the release, meaning it has 64 percent of what it would need to pay all current and future obligations to retirees.
The fund has a plan to increase the funded status to 100 percent by 2046. Teachers’ contributions increased from 2014 through 2018, and they now contribute just over 10 percent of their pay toward their pensions. School districts contribute about 18 percent. Districts’ rate will increase to about 19 percent next year and then drop back down to 18.2 percent, according to CalSTRS projections.
Anyone betting on 2046? I'll have been retired for 18 years by then.
There will be no fix. Eventually, when salaries and pension obligations eat up enough of the budget, the state legislators will have no choice but to reduce benefits. Of course, this will be followed by a drawn-out court fight, but the public will have developed enough of a distaste for subsidizing benefits for the elderly.
ReplyDeleteAs a fellow math teacher, I have been discussing the developing "age war" with my students for years. "You better learn about exponential growth and compounding so you're equipped to battle my generation in the age war!".
I would have been proud of my former students if they did the fiscally responsible thing and made the required cuts to benefits. What I never expected, however, was for them to attack on a different front. "You old guys want a bunch of free stuff that we can't afford? Fine! We want ours! Pay off our student loans and provide free health care!" In the cold war we used to call this M.A.D!
Yes, at some point the pols will "make sausage" when the situation becomes more dire. But there are other states that will probably face this situation before CA does, like Illinois. Puerto Rico is already there, and the pension situation for teachers and government workers in Puerto Rico has been more or less ignored by media outlets, even if there may be lessons there for the rest of us. Puerto Rico, however, is not a state, so the situation isn't quite the same as when a regular state defaults. The federal receivership of Puerto Rico (bankruptcy by another name) is probably infeasible for Illinois or California, but some apparently believe a federal bailout is plausible. I don't. I realize, lots of strange bedfellows in politics, but the idea that some senator or rep from a state with poor fiscal management (Illinois, California) would be able to convince a peer from a well-run state that it is in their interest to screw over the people in the well-run state in order to bail out idiots who couldn't manage their own state seems improbable.
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