CTA: Are the funds in CalSTRS stable since the economic downturn?
Christopher Ailman: The benefits our members receive do not depend on the size of the CalSTRS investment portfolio. However, the portfolio has more than enough assets to weather today’s turbulent market. Also, CalSTRS’ 88 percent funding status is well above the 80 percent average considered healthy for a public pension fund.
What investment strategies does CalSTRS have in place to safeguard against turbulent markets?
CalSTRS’ main investment strategy for protection from market turmoil is threefold. First, our diversification spreads the risk. Our asset classes are U.S. stocks, international stocks, bonds and other fixed-income securities, real estate, and private equity. Secondly, we are a patient, long-term investor, which has been the most reliable model for investment growth over time. Thirdly, our highly skilled professional staff works with the best asset managers in the world.
Can you explain how the funds are protected by law?
CalSTRS benefits are a contractual right protected not only by the California Constitution but also by the U.S. Constitution. Article 1 Section 9 of the California Constitution and U.S. Constitution Article 1 Section 10 both hold the state to its contractual obligations.
Pensions tend to use a system which includes actuarial smoothing. Can you explain what actuarial smoothing is and how it results in predictable performance over the life of a CalSTRS pension?
To understand how smoothing affects the CalSTRS fund, you have to keep in mind that the fund makes money in two ways: through contributions by members, school districts and the state of California, and through investment income. So double-digit investment returns the past three years will help cushion us during lean years such as 2007-08. That means CalSTRS doesn’t have to ask the Legislature to raise contribution rates because of one bad year.
Can you provide any current educational information (online or otherwise) that can assure members of CalSTRS’ financial stability?
Your best bet is to look at the following webpage: http://www.calstrs.com/Newsroom/What's%20New/market_fluctuations.aspx. There you will see that our size, diversification and legal guarantees mean that our members’ benefits will be paid out and that the fund will weather this financial turmoil.
Anything else you would like us to include in this brief Q&A for our members?
Since its founding 95 years ago, CalSTRS has grown and evolved into a sophisticated, well-managed and well-diversified financial institution. CalSTRS is not only built to withstand the difficulties of a struggling economy, but is poised to take full advantage of the coming financial recovery. CalSTRS is dedicated to fulfilling its mission of sustaining the financial security of California’s educators today and far beyond the next 95 years.