The California State Teachers Retirement System has sent a letter to the Legislative Analyst’s Office to clarify information provided in a recent webinar concerning public pensions.

The Feb. 23 letter, sent by CalSTRS Chief Executive Officer Jack Ehnes to Legislative Analyst Mac Taylor, aimed to clear up generalizations made during the Feb. 10 webinar Ehnes said don’t necessarily apply to CalSTRS.

Ehnes praised the LAO for encouraging retirement savings and valuing a well-managed and properly funded retirement system, but added there is a need to correct the record. While statistical facts presented during the webinar appeared to be accurate, sweeping generalizations do not hold true in all cases and misstate the causes of the problems facing CalSTRS.

“Ignoring the circumstances of the second largest public pension fund in the state and the nation in making your points does a serious disservice to policymakers who will accept your statements as true and your conclusions and recommendations as consistently valid,” Ehnes wrote.

Ehnes also said that contrary to what the LAO suggested in a graph, there has been no significant increase in the state’s contribution rate to STRS over the years. In fact, he said, the rate is actually lower than in the 1990s; what has gone up is the number of members and the average salaries paid to public school educators.

“Moreover, between 1989-90 and 2009-10, the percentage of General Fund revenue spent on the state’s contributions to CalSTRS increased from 1.3 percent to 1.4 percent. This hardly suggests that the burden of CalSTRS benefits on the state has increased significantly,” Ehnes wrote.

Further, in the webinar it was stated that in the late 1990s, pension systems cut employer contributions to near zero. This was a generalization made about other pension systems, not STRS. In fact, STRS has no authority to set contribution rates; this is done by the Legislature and governor. In addition, STRS employer contributions have not changed since 1990 and employees’ have not changed since 1972, Ehnes said.

Another clarification concerned a statement that defined benefits are “very” generous compared to those in other states; such plans are increasingly non-existent in the private sector. But according to Ehnes, the average percentage of final compensation paid to STRS members retiring last year was under 60 percent – after almost 27 years of service and retirement at age 62. It was also noted STRS members do not receive Social Security, so these benefits are their only means of support in retirement.

In addition, the comparison between the private sector speaks more to the inadequate retirement security provided to private sector workers, not to the over-adequate security provided to public workers.

“To conclude that public employees should receive retirement benefits that more closely reflect those paid to other Californians is understandable, but that goal should be achieved by increasing the financial security of other Californians, not by reducing the security of public employees,” Ehnes said.

Ehnes also noted that the LAO misstated the state’s responsibility regarding financial responsibility. Should the costs of future STRS members be paid entirely by employers and employees, not by the state, as suggested, the state would still be financially responsible as plan sponsor and guarantor of the fund.

“In the event that STRS has inadequate resources to pay benefits, the state will still have the legal responsibility to pay the difference between assets and liabilities,” Ehnes said.

Finally, Ehnes commented that the benefit structure should not be blamed for the impact of the financial downturn. While some public pension plans may need to be re-examined, the webinar did not give any consideration to the fact that the current funding problems faced by most, including STRS, is not the structure, but the unprecedented financial turmoil the world has faced over the last decade. If the markets had behaved even close to what has occurred historically, CalSTRS would not be in this situation today.

“The Teachers’ Retirement Board agrees that improvements need to be made in the financing of the retirement plans offered by STRS, and has evaluated dozens of financial options over the last several years to address the situation,” Ehnes said. “Such discussions, however, can only be successful if the facts are clear to everyone with respect to the specific retirement system being discussed, and not obscured by generalizations that do not apply to all plans.”

To access the letter in its entirety, visit www.calstrs.com.