The funding liabilities of the California State Teachers Retirement System, coupled with the cost of retiree health benefits, is putting the state's budget at high risk, according to a report from the state auditor.
From 2001 through the end of fiscal 2012, the report said the proportion of future liabilities that are funded by CalSTRS – the nation's largest public teachers' retirement system with more than 860,000 members and benefits recipients – fell from 98 percent to 67 percent. That is far below the recommendation of the Government Accountability Office, which believes that such liabilities should be funded at 80 percent.
The state's history of employing short-term solutions to address long-term financial obligations puts more pressure than needed on the state's overall budget, the report said.
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The report found that the major reasons that the CalSTRS fund is in trouble include the board's inability to set employee contribution rates and poor investments returns caused by the Great Recession.
The auditor's report comes as California has been wrestling with reforming its public pension systems. The legislature passed changes, including raising the retirement age from 60 to 62. Some of the changes are being fought by unions who say their collective bargaining rights are being usurped.
Rising costs in retiree health benefits and the state's method of paying for them have been cited as problems since the 2011 version of the audit. The number of retirees receiving benefits hit 144,000 in fiscal 2011-12, a 7 percent increase in two years. That, along with rising health care premiums, increased the state payout to $1.5 billion from $1.1 billion over the same period.
The accrued liability of retiree health benefits, estimated at $63.85 billion, is almost completely unfunded, the report said, and benefits are paid by the state on a year-to-year basis. That method means there is no fund generating investment returns to defray the costs of future liabilities.
The audit cited a Pew Center report that found California lagged other states in funding health care costs for retirees. Pew said California's funding raised "serious concerns."
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