The California State Teachers’ Retirement System, the second-biggest U.S. public pension, said the gap between its assets and projected obligations rose $8.5 billion as investment gains failed to cover earlier losses.
The unfunded liability climbed 13 percent to $64.5 billion as of June 30, according to a report from actuaries released today. The system had about 69 percent of assets needed to cover promises to current and future retirees at the end of fiscal 2011, down from about 71 percent a year earlier.
The widening gap may require increased state funding, plan officials have said. Public pensions nationwide had a median of about 75 percent of the funds needed to cover obligations in 2010, according to Bloomberg Rankings data. The California teachers’ fund overseers said losses on invested assets in 2008 and 2009 added $12.7 billion to the new deficit figure.
“The projected revenue shortfall is due primarily to investment return experience averaging 5.5 percent per year over the last decade that was significantly less than the long-term actuarial assumption of 7.5 percent,” consultants for the fund said, according to the report. The study will be formally presented to the $152 billion plan’s board members April 12.
The so-called funding ratio has been less than 100 percent since 2001. Because the ratio is “smoothed” by averaging three years of investment returns to minimize volatility, the latest gap only partially reflects the almost 24 percent net gain from investments in fiscal 2011, according to the report. The system earned 2.3 percent on assets in the past calendar year, the system reported in January.
Teachers pay 8 percent of their income toward retirement. Districts add 8.25 percent, while the state’s share is about 2 percent. Contribution rates for teachers and school districts haven’t changed since 1990.
In February, plan overseers lowered the assumed rate of return on investments to 7.5 percent from 7.75 percent. The change retroactively added $3.5 billion to the system’s funding gap as of June, according to the plan report.
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