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California Lawmaker Set to Propose Fix for Teacher Pension Gap

California Democrats will introduce legislation to shore up the state’s $181 billion teacher pension fund, which is projected to run out of money in three decades without a fix.

Any plan must include higher contributions from teachers as well as more from schools and taxpayers, said Assembly Speaker John Perez, a Los Angeles Democrat. How much of an increase will be determined in hearings next month, he said.

Pension costs for retired public employees are straining governments from California to Rhode Island. The California State Teachers’ Retirement System, the second-biggest in the U.S., is more than $70 billion short of the amount it would need to cover benefits.

“There must be a shared resolution between school districts, teachers and the state,” Perez told reporters in the capitol in Sacramento. “There is simply no way to rely on investment income alone.”

Perez, a former labor organizer, is running for state controller in November, a position that would give him a seat on both the teachers fund and the California Public Employees’ Retirement System, the largest U.S. pension.

The fund’s governing board in 2012 lowered its assumed rate of return on investments to 7.5 percent from 7.75 percent. The assumed rate is used to help calculate how much is needed each year from investment earnings to match pension costs.

Unlike Calpers, which has $280 billion of assets, the Calstrs board can’t boost contribution rates without legislative approval.

California now pays about 5 percent of teacher payroll into Calstrs. School districts provide 8.25 percent of payroll, while teachers and other employees give 8 percent of their pay.

The pension told lawmakers last year that it would need teachers, school districts and the state to boost contributions by 15 percent combined annually, or about $4.5 billion more a year, to erase its funding gap.

To contact the reporters on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net; Mark Melnicoe in Sacramento at mmelnicoe@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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