Posted on 11/13/2010 5:22:16 PM PST by rhema
California taxpayers have almost become immune to stories about the high cost of generous defined-benefit pensions, employer-subsidized healthcare plans, job protections and degree- and seniority-based pay scales struck by the state, school districts, and affiliates of the National Education Association and American Federation of Teachers. Not even the fact that 3,090 of its retired teachers are earning more than $100,000 a year in annuity payments causes a stir.
But they are getting riled up -- and learning about such concepts as internal rate of return and special situation fund -- thanks to the notoriously underfunded California State Teachers Retirement System. Over the past four decades, CalSTRS has fueled these pension deals by offering rates of return on its portfolio that were way too optimistic given the historic volatility of the stock and bond markets. Even now, CalSTRS assumes that its portfolio will increase in value by eight percent a year, three points higher than the 20-year compound annual growth rate for the S&P 500 stock index. To meet those return rates, CalSTRS has spent the past three decades pouring money into an array of hedge fund and other risky investments, including purchasing minority stakes in private-equity firms and real estate deals that haven't exactly panned out.
But these days, CalSTRS can no longer keep up the ruse. Thanks to an (official) $23 billion pension deficit, billions more in investment losses (including $43 billion in the 2008-2009 year alone), and embarrassing reports about its unrealistic investment expectations, it is preparing to reduce its expected annual rate of return to a barely less-inflated 7.5 percent. The state government and districts will have pony up $5 billion more a year just to meet the growing payouts to the pension's dependents. By the way, CalSTRS' request comes just as news came out that it
(Excerpt) Read more at spectator.org ...
And as usual, they will go to the taxpayers looking for a bailout.
New Jersey PERS system thinks it’s even smarter than CalSTRS and uses a 8.25% annual return rate in it’s calculations.
If CalSTRS or NJ PERS had to realistically model portfolio returns at 5% both states would be immediately bankrupt.
CalSTRS needs an extra US$10B per 1% drop, and 31B+ for a 3%drop in portfolio return annually. California isn’t going to come up with another 30B+ a year to pay for the system. New Jersey RINOS and Democrats solved this problem years ago, they just stopped funding PERS annually and demanded they increase yearly portfolio return models from 8% to 8.25%, so it would go broke just shortly after the last generation of politicians could retire and move out of state.
Awesome.
I heard it was 600 billion, for all the state union pensions.
Don’t pay them and give them SS.
So the districts will not be able to, nor will the State. The TEA folks at the House will say no.
It’s not my fault the teachers, cop’s bought into this. I could of taught, got any public job I wanted. I saw the coming mess,You did too, We all did. Just like the property bubble.
You guy’s lived the good life. It’s done.
NEVER PROMISED YOU A ROSE GARDEN
CA has eaten the seed corn and the rats are getting restless.
Shrug. California had the chance to elect people who could fix the pension mess but chose not to. I just hope the GOP puts the brakes on funding any more benefits for that state.
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