The San Diego County Taxpayers Association (SDCTA) today released a study that finds contributions to the public retirement system for California’s teachers are continuing to fall short of mandated obligations – by hundreds of millions of dollars – despite a decade of warnings.

The California State Teachers Retirement System (CalSTRS) is the 100-year-old Defined Benefit Pension system for the state’s public school teachers, from the elementary level through community college. All 47 San Diego County school districts use this system. The required combined annual contribution rate to fully fund retirement obligations is 34 percent, but total contributions by employees, employers and the state have consistently hovered around 19 percent, which is closer to half the needed amount.

Among the key findings in the report, “California State Teachers’ Retirement System: Analysis of School Districts’ Pension Costs and Liabilities in San Diego County”:

• Assets needed to cover retirement benefits for the Defined Benefit Program will be depleted by 2044.
• For districts in San Diego County, 41 percent of annual pension obligation costs – $305 million – were not funded in fiscal year 2012.
• The current unfunded liability for CalSTRS as a whole is $71 billion, and that is expected to rise.

While some of the funding ratio decline can be blamed on investment losses, SDCTA’s analysis found that the unfunded liability is, in large part, the result of poor decision-making over the past 13 years.

“Independent sources have been sounding the pension alarm and highlighting the need for reform for our school districts for over a decade,” said SDCTA Economic Policy Analyst Sean Karafin. “Our current system for how we fund teacher pensions is clearly unsustainable.”

A significant source of the CalSTRS funding loss was the decade-long diversion of one-quarter of all employee contributions to a Defined Benefit Supplement Program, resulting in $4.1 billion never making it to the Defined Benefit Program.

While costs have continued to increase, it is difficult to quantify these costs when reviewing data at local districts in San Diego County, for example. District contributions to the state pension system were often unreported in financial reports and/or did not specify if amounts were on behalf of employees or the district.

“School districts need to be transparent about pension costs in order to have an open and honest dialogue,” Karafin said. “Taxpayers and our elected leaders need to understand that year after year we promise pensions without finding a way to fully pay for them.”

SDCTA recommends that policymakers:

• Enact a timely plan to address the unfunded liability, including considering providing additional funding.
• Avoid reducing CalSTRS contributions, by both employees and employers, and increasing benefits during good times.
• Provide additional information in districts’ annual audits, including a full description of funding sources and a significantly increased level of transparency.

SDCTA’s full report, including statewide and regional findings, recommendations and references is available at www.sdcta.org.

The San Diego County Taxpayers Association is a non-profit, non-partisan organization, dedicated to promoting accountable, cost-effective and efficient government and opposing unnecessary taxes and fees. Founded in 1945, SDCTA has spent the past 67 years saving the region’s taxpayers millions of dollars, as well as generating information to help educate the public.