California teachers’ pension fund faces $43 billion shortfall

[Hannah Bell]

The California State Teachers’ Retirement System (CalSTRS)...is reporting a budget gap of $43 billion. As of the middle of last year, CalSTRS has said that it could only meet 77 percent of its future pension obligations.

CalSTRS provides retirement and disability benefits to 833,000 of California’s pre-kindergarten through community college teachers. The pension fund paid $7.9 billion in payments to its members and beneficiaries as of June 30, 2008, according to its website. In addition to being the largest teachers’ pension fund in the US, CalSTRS is also the seventh largest pension fund in the world.

CalSTRS lost a quarter of its value during the 2008-2009 fiscal year, witnessing a 43 percent decline in its real estate portfolio and a 27 percent decline in private equity. The unfunded liability of CalSTRS—the difference between assets and future costs—nearly doubled from $22 billion in June 2008 to $43 billion in 2009...

Despite record losses in 2008, CalSTRS was able to pay huge bonuses to their management.

According to an April 19, 2009, article in the Sacramento Bee, Christopher Ailman, chief investment officer for the fund, received an “incentive award” of $208,677 on top of his base pay of $330,000 for fiscal 2007-2008.

In total CalSTRS paid $2.9 million in bonuses to 35 employees, including Ailman and CEO Ehnes, who received $205,000 in additional compensation as the pension fund’s finances were tanking.

CalSTRS officials have insisted that these bonuses were the only incentive they had to recruit “top talent.” CalSTRS spokesman Sherry Reser said in a statement, “Incentive pay is a valuable tool in attracting and keeping the best and the brightest.”

While thus far CalSTRS has yet to be implicated in the influence scandal engulfing the other major state pension fund in California, CalPERS, which serves public employees, there appear to be certain similarities between the way in which the two pension funds were run. Over the course of the past six months, there have been ongoing revelations about the existence of a revolving door between CalPERS and Wall Street firms; former members of the pension fund’s board of directors became so-called “placement agents” with major banks and used their insider knowledge and connections to lobby for multi-million dollar investments from CalPERS...

In short, while California’s teachers are facing the prospect of having their pensions dramatically reduced, if not eliminated, the financial managers who oversaw the investments that created this disaster are cashing in on their “experience” to advance their careers and further enrich themselves...

http://www.wsws.org/articles/2010/feb2010/cals-f17.shtml

[HeresyLives]

1. Ruh-oh, that's a ...cough...helluva 'shortfall'.

[Hannah Bell]

2. if it's anything like the social security "shortfall," it's mostly a crock.

i'd bet that number comes from forecasts that go far into the future; perhaps into infinity, like one set of ss numbers does.

[Festivito]

8. Or a preparation warning that Credit Default Swaps held will fail.

Those CDSs had to go somewhere.

It's a great way for the RW to stick to the LW: undermine its fiduciaries and thereby make progressive idea country look bad.

[Goldstein1984]

3. These shortfalls exist in government pension systems all over the country.

In the case of Alaska, the shortfall is real and a result of financial managers simply not paying into the system, planning to make up the difference later when "conditions are better," and gambling in high-risk investments to try to make up the shortfall.

[Greyhound]

4. Simply stunning. A decade ago CalSTRS was one of the best run,

safest, and most stable funds in existence. Now they're insolvent and the jagoff that made them so got a 63% bonus.

Why are Californians out in the streets?

[Phoebe Loosinhouse]

5. "Revolving doors" are the major route to influence peddling and corruption

and they should be banned outright for any public employees, whether they be local, state, or federal. If there were a 5 year ban on employment with any entity having business before you, we might start to see an end to this BS. This should be in effect for positions which actually have the ability to affect contracts, awards, bids, placements, etc., not lower level employees.

[Toots]

6. A penalty for Californian teachers that produce people so dumb they throw out a good

Democratic Governor and put into place a disastrous Republican Governor. If teachers can't teach basic american History well enough so people know how Republicans operate then they get Republican treatment..

[raccoon]

7. This is why I'm hesitant to buy back time in SC retirement system. nt