Copyright© 1999 by School Services of California, Inc.
CalSTRS Terminates Contract with Actuarial Firm
According to a Sacramento Bee article, the California State Teachers Retirement System (CalSTRS) has terminated its contract with Watson Wyatt, one the nation's largest actuarial consulting firms. The termination comes on the heels of Watson Wyatt's admission that it understated by about $1.9 billion the cost of a teachers' retirement benefit increase approved by the State Legislature last year.
Last year, the Legislature and former Governor Pete Wilson approved a four-bill package of legislation intended to enhance retirement benefits for STRS members. The cost for these benefits was to be paid by anticipated STRS surpluses due to improved investments and a booming economy. However, CalSTRS officials say Watson Wyatt underestimated by "up to $1.9 billion" the 30-year cost of these teachers' retirement benefit increases.
According to the Bee, CalSTRS sent a letter to Watson Wyatt notifying the firm that it is terminating a four-year, $675,000 contract, due to expire at the end of next year, because they had lost confidence in the firm's ability to provide the expected services of a consulting actuary. The contract was still worth an estimated $250,000. CalSTRS now plans to sign a contract with Milliman and Robertson to complete Watson Wyatt's work and other projects. Milliman and Robertson, of Seattle, consulted for CalSTRS for nine years before it switched to Watson Wyatt in 1997.
STRS members are hopeful that CalSTRS will have more confidence in its surplus projections so that the pension system might support a change in how final retirement compensation is computed. STRS members would like to see final compensation determined by the highest consecutive 12 months salary (which is currently the case for all other public sector employees).
- Arnold Bray