California Teachers Pension Fund Lowers Investment Target

LOS ANGELES — The California State Teachers' Retirement System board voted Wednesday to lower its investment earnings forecast to 7% from 7.5% over the next two years.

The change was driven by new lower assumptions for inflation and improving life expectancies of beneficiaries, which reduced the long-term probability to 50% that the pension fund would achieve its 7.5% return.

"To retain and recruit talented educators, we must preserve a pathway to retirement security," said California State Treasurer John Chiang, one of 12 CalSTRS board members.

The California Public Employees' Retirement System lowered its projected rate of return by the same amount in December, but is phasing its plan in over a three-year period.

CalSTRS will lower its rate immediately to 7.25% and drop it further to 7% next year. Investment returns of 1.4% for the current fiscal year came in well below the 7.5% assumed rate of return, according to its comprehensive annual report for the fiscal year ended June 30, 2016.

Public pension funds around the nation have lowered their investment projections amid weak actual market returns.

The lower earnings forecast was phased in over two years to ease the impact on teachers hired after 2013 who get lower pensions under the Public Employees' Pension Reform Act of 2013. Their CalSTRS employee contribution rate will increase by 1% from the current 9.21% of salary.

CalSTRS unfunded liability grew by $3.5 billion to $76.2 billion as of June 30, 2015 compared to the previous year, according to its CAFR.

Creating a more fiscally stable system, means the state "is keeping our promise to teachers to safeguard their hard benefits for years to come," Chiang said.

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