CalSTRS on Thursday voted to lower its rate-of-return assumption to 7.75% from 8%, effective July 1.
The board of the $141.3 billion California State Teachers’ Retirement System, West Sacramento, voted 8-3 in favor of the reduction, a compromise among the board, investment staff and consultants Milliman and Pension Consulting Alliance.
Staff and the consultants had recommended a 7.5% return assumption, but board member Dana Dillon suggested the 7.75% rate to lessen the impact on teachers and school districts, which would have contributed more with the lower rate.
But even with the compromise, Thursday’s decision is expected to have wide financial and political implications in budget-strapped California. School districts and teachers now contribute a combined 16.25% of teachers’ pay to the system. The rate decrease would raise that contribution to 31.35%.
The state Legislature must approve any contribution increase.
Before the vote, Milliman actuary Mark Olleman told the board there was only a 37% chance the system could meet the 8% return assumption in the next 30 years, but reducing it to 7.5% would increase the chances of matching the rate of return over 30 years to 50%.
He said he hadn’t studied how, if at all, the compromise would affect CalSTRS’ chances of meeting the return rate.
