California’s teacher pension fund on Wednesday followed the example of its state pension big brother and knocked a half percentage point off its assumed rate of return on investments.
The California State Teachers’ Retirement System (CalSTRS) board voted to lower its return rate from 7.5 percent to 7 percent over the next 18 months. Late last year, the California Public Employees’ Retirement System cut its estimated rate to 7 percent as well.
It’s interesting to note that CalSTRS actuarial consultants recommended a cut to 7.25 percent, but the board decided to take it a step farther.
You might recall that last November, the Colorado PERA board lowered its projected rate of return from 7.5 percent to 7.25. PERA’s actuarial consultants recommended holding firm at 7.5 percent. Presumably, they have a higher level of confidence in PERA investments then CalSTRS board has in theirs. But some renowned experts don’t share Cavanaugh Macdonald’s optimism.
The CalSTRS move comes with a steep price tag, as is always the case when these tough but necessary decisions are made. For one, all teachers hired from 2013 on will be contributing about $400 more per year to their pensions.
More significant is the impact on the state budget. According to the Sacramento Bee, Gov. Jerry Brown’s budget proposal for the new fiscal year includes an additional $153 million for CalSTRS, bringing the annual contribution to $2.8 billion.