Copyright© 2006 by School Services of California, Inc.

                                      Volume 19                   For Publication Date: December 15, 2006             No. 26

 

A Plan to Address STRS Deficit Will Debut This January 

Text Box: The Board of the State Teachers’ Retirement System (STRS) intends to advocate a plan to eliminate the long-term pension deficit beginning in January. The current estimate for the pension’s shortfall is $20.3 billion over the next 50-60 years. 

This may end up being a particularly hard sell, in the face of a looming structural deficit—$5.5 million and counting—and its potential impact on Proposition 98, which is a political “third rail.” However, despite the uphill battle, the Board intends to educate legislators, including a huge incoming freshman class, this legislative session on a plan to change contribution rates and benefits. 

Specifically, the plan would include increased contributions from teachers, the state, and school districts effective July 1, 2009.

The proposal also includes the following: 

·                    The teachers’ contribution rate would increase to 8.5% (up from the current 8%). This would slightly increase the annual payments to retirees and guarantee by law a 2.5% annual cost-of-living adjustment increase.

·                    School districts would see the current 8.25% rate increase by 0.5% a year until it reaches a cap at 13.5%. Officials project school districts could meet their obligation with an 11.9% rate.

·                    The current 2% state rate would increase by 0.5% annually to a maximum of 3.25%.

·                    The STRS board also wants the authority to adjust the rate, however existing law requires the Legislature approve any rate changes. (The Public Employees’ Retirement System currently has this authority.) 

The big issue with this proposal is related to the state’s Proposition 98 school funding guarantee. The question regarding who will pay and how much looms large.  

—Maureen Evans and Terry Anderson

 

[Editor’s Note: For further information on this topic, see “STRS Board to Consider Options to Increase Funded Proportion of Retirement Program” in the September 1, 2006, Update, page 202.]