On The Money: CalSTRS Forecast Downgraded

SACRAMENTO (CBS13) -- The California State Teachers' Retirement System - the nation's second largest public pension fund – voted today to lower its future earnings forecast from 8% down to 7.75%.

While the quarter point downgrade might seem inconsequential – it amounts to what is essentially a $4 billion hit – and it means teachers and taxpayers will have to shell out more money to pay for future pension benefits. CalSTRS' unfunded liability has now grown from $41 billion to $45 billion, according to CalSTRS officials.

The new forecast comes at a time when California is already more than $25 billion in debt.

Today's vote comes just one month after CalSTRS handed out more than one million dollars in bonuses to top managers, as On The Money reported in November.

But the financial forecast of 7.75% is still way too optimistic – according to Governor Schwarzenegger's chief pension expert David Crane, a former CalSTRS Board member. Read then official press release.

"They pull wool over people's eyes by keeping these investment assumptions way too high," Crane told CBS 13.

In response, CalSTRS spokesman Patrick Hill stated, "We're not pulling the wool over anybody's eyes."

Hill added, "We have addressed these (issues) in open forum for months."

But critics like Crane say CalSTRS doesn't want to reveal the real costs, because it must now ask the Legislature for billions more – to pay out future pension benefits.

Crane told CBS 13, "For STRS having to go to the Legislature to get approval, I can see why they're anxious about showing them the true size of the numbers."

Crane told CBS 13, "For STRS having to go to the Legislature to get approval, I can see why they're anxious about showing them the true size of the numbers."

All this comes after CalSTRS recently gave its Chief Executive Officer Jack Ehnes a $146,000 bonus.

And Chief Investment Officer Christopher Ailman

took home a $116,000 bonus.

On The Money asked spokesman Patrick Hill how CalSTRS justifies the bonuses, when the retirement plan is underfunded.

"(It's) Money well spent to manage the fund on behalf of the state's teachers," Hill told this reporter.

On The Money dug deeper: "But if it's money well spent, then why are you having to ask the Legislature for more money?"

"Two different questions Mike," Hill stated. "We are talking about the long term funding issue of the system."

CalSTRS may find that giving out bonuses – and then asking the Legislature for more money – is a tough sell in these economic times – especially when the state is already drowning in red ink.

California now spends $6.5 billion each year on retirement benefits for its pension funds – but that number will jump to $30 billion in just ten years, according to the Governor's pension expert, David Crane.

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