CalSTRS' funded status falls to 64% as deficit grows $21 billion following rate reduction

CalSTRS' unfunded liability increased to $97 billion in the fiscal year ended June 30, a $21 billion increase from the previous year, officials of the West Sacramento-based retirement system said Thursday.

Officials during a press briefing Thursday said much of the increase results from the pension fund board's vote in February to lower the system's expected rate of return to 7.25% from 7.5%, starting July 1. It is part of a two-year plan to lower the rate of return to 7%.

The increase in unfunded liabilities is part of an actuarial valuation, a snapshot in effect, of the fund's assets and liabilities. While the snapshot is as of June 30, it is based on the 7.25% rate that goes into effect July 1.

The $202.1 billion California State Teachers' Retirement System's 1.4% investment return for the year ended June 30 and an increase in the mortality rate for teachers after retirement were also contributing factors to the increase in the unfunded liability. CalSTRS' funding ratio has also dropped to almost 64% as of June 30, from 68% a year earlier, officials said.

Despite the news, David Lamoureux, the retirement system's deputy system actuary, said the pension fund was on track to achieve full funding by 2046. The full funding target was part of a package approved by the state Legislature in 2014 that increased contributions by employers, employees and the state to the nation's largest teachers' pension plan.

But Mr. Lamoureux conceded that the full funding is dependent on the system achieving its expected rate of return over the long term.

Critics have contended that even with the rate of return being lowered, CalSTRS' return assumption is still overly optimistic.