CalSTRS staff urged the board to oppose proposals requiring state workers hired after July 1, 2007, to enroll in new defined contribution plans. The proposals, sponsored by Gov. Arnold Schwarzenegger, Assemblyman Keith Richman and the Howard Jarvis Taxpayers Association, "represent a repudiation of CalSTRS' mission to secure the financial future and sustain the trust of California's educators," according to a memo staff sent to the board of the $126 billion California State Teachers' Retirement System, Sacramento.
The memo said the proposals would force CalSTRS to have more liquid investments over time. Staff said DC plans are more costly to administer than defined benefit plans and provide less stable retirement security.
CalSTRS' consulting actuary, Milliman USA, estimated that adopting a mandatory defined contribution plan would increase contributions by $900 million through June 30, 2017. Cumulative cost savings would not occur until the 2028 fiscal year, the memo said.
Staff also recommended opposing Gov. Schwarzenegger's budget proposal that would end state contributions to CalSTRS, shifting the burden to school districts and teachers. The CalSTRS board will consider the recommendations on Feb. 3.
Separately, CalSTRS committed up to $859 million to private equity partnerships and co-investments at the end of 2004, including 250 million euros ($325 million) to Apax Europe VI, according to a report to the investment committee. The fund also committed £120 million ($226 million) to Alchemy Plan, which has an unusual structure of requiring three equal payments of £40 million spread over three years. Other commitments are: up to $100 million to Clayton, Dubilier & Rice VII; $50 million to Energy Spectrum Partners IV; up to $50 million to Frazier Healthcare V; and up to $40 million to Prism Venture Partners. Co-investments are: $20 million in Affinia Group Holdings Inc.; 17 million euros in The Automobile Association; and 20 million euros in Ahold Supermercados.