California Teachers’ Fund Reduced Goal Will Hit These Districts Mostby
Los Angeles, San Diego and Long Beach districts to pay more
Calstrs follows Calpers’ lead to 7 percent return assumption
The decision by the California State Teachers’ Retirement System to follow the larger California Public Employees’ Retirement System in rolling back its annual investment-return target means school districts will have to increase their contributions because they can’t count as heavily on the gains to cover future benefit checks.
The system’s move to 7 percent from 7.5 percent over two years will compel higher yearly payments from the state, workers, and about 1,740 schools and other participating public agencies. The impact will be the biggest for those already in debt to the retirement plan.
California’s schools, which are already on a gradual schedule of higher payments, won’t feel the impact from the recent decision until the year beginning in July 2021, when their contributions will hit 19.5 percent of payroll compared with 12.58 percent this fiscal year, documents provided by Calstrs show.
Los Angeles Unified School District, San Diego Unified School District and Long Beach Unified School District -- the state’s largest three by enrollment -- have the highest unfunded liabilities among localities that participate in the system, known as Calstrs, according to an analysis by Moody’s Investors Service of those it rates that are in the plan.
Increased contributions will reduce the risk of coming up short for retirement funds later if market gains falter, said Eric Hoffmann, senior vice president at Moody’s. Calstrs earned 1.4 percent on its investments in the fiscal year through June 30 and averaged 5.6 percent over the last 10 years.
But the need to put more into the pension won’t be easy. "It will be a persistent fiscal pressure for school districts to manage their increasing pension contribution," he said.
The three districts with the largest liabilities are highly rated with strong balance sheets and should be able to juggle the increased costs, Hoffman said.
The following are key facts from financial filings:
Los Angeles Unified School District
Total enrollment including adult education: 734,641
Number of employees: 60,191
Moody’s rating: Aa2
Net Calstrs pension liability: $4 billion
Latest Calstrs contribution: $373.4 million in fiscal 2017
Size of general fund: $7.59 billion
Impact: "We’ll make budget adjustments just as we have with the current Calstrs rate increases. In the long run, it sounds like it’s good for the pension system. It’s the distribution of costs that’s going to be the question for us," said John Walsh, deputy chief financial officer.
San Diego Unified School District
K-12 enrollment: 130,325
Number of full-time equivalent employees: 12,625
Moody’s rating: Aa2
Net Calstrs pension liability: $782 million
Latest Calstrs contribution: $73.4 million in fiscal 2017
Size of general fund: $1.4 billion
Impact: "We continue to struggle with rising pension costs because we do not receive any state revenue to help offset those costs. We have to constantly balance what we have available to spend with what we have to spend it on. These are things that are out of our control that we would like assistance from the state," said Patricia Koch, interim chief financial officer.
Long Beach Unified School District
K-12 enrollment: 77,987
Number of full-time equivalent employees: 5,971
Moody’s rating: Aa2
Net Calstrs pension liability: $504 million
Latest Calstrs contribution: $48.7 million in fiscal 2017
Size of general fund: $761 million
Impact: "Our budget remains sound, though, and we’re aware of potential increases in pension contributions down the road. We’re carefully monitoring the situation so that we can make adjustments as needed," said spokesman Chris Eftychiou.