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CalSTRS Pension2: officials tout growth and low fees, warn educators about high‑fee vendors
Summary
CalSTRS staff reported nearly 33,200 participants and about $2.5 billion in assets in the Pension2 program, described a revenue-neutral funding model with a 25 basis-point administrative fee, and warned that high-fee vendors in the 403(b) marketplace can materially reduce long-term outcomes for educators.
CalSTRS staff told the Benefits & Services Committee that the agency’s Pension2 defined-contribution program has seen sustained participant and asset growth and that its low-fee structure is central to its mission of providing affordable supplemental savings to educators.
Carrie Fisherstone, assistant director of retirement readiness, said the Pension2 program has experienced an average year-over-year participant growth rate of 16.5% since 2008 and reported participant counts cited in the presentation at roughly 33,187 (presenters also characterized that as "nearly 34,000"). She said the program closed the last fiscal year with about $2.5 billion in assets under management.
Fisherstone explained Pension2’s funding model: administrative fees of 25 basis points (0.25%) are assessed quarterly; revenue is directed into the Teachers Defined Contribution Fund (TDCF), which is separate from the Teachers Retirement Fund (TRF) for the defined-benefit program. "This is a very low competitive fee by industry standards," Fisherstone said.
Patrick Bivens illustrated the real-world effect of fees with a case study (sourced to advocate Dan Otter): two teachers who both contribute $5,000 a year from age 22 at an assumed 7% return could end up with markedly different balances when fees differ. "Fees matter," Bivens told the committee, noting a presented example in which one account grew to a little over $500,000 while another grew to almost $800,000 — a difference the presentation put at about $283,808 over a career horizon.
Staff also reviewed the 403(b) marketplace and its regulatory history, noting a 1970 law that led to an "any willing provider" environment and a large number of approved vendors statewide (presenters cited approximately 51 approved vendors in California and said a district example showed 38 on that district’s list, of which many were high-fee options). Staff described common on-site vendor marketing tactics and said the Pension2 team focuses on employer engagement, education, statement-comparison services and workshops to help educators identify lower-cost options.
The presentation highlighted the 403bCompare website — a statutorily required comparison tool where vendors register and post fees, performance and contact information — as a resource for employers and employees. Staff noted operational improvements underway, including a shift to point-of-service surveys and expanded digital self-service tools; a new online self-service scheduling tool introduced in June produced a 41% increase in Pension2 appointments compared with the same period last year.
Board members asked detailed questions about district-level market share, outreach prioritization and the role of third‑party administrators (TPAs). Staff said they are validating market-share data before publication and that TPAs are widely used because compliance and administration can exceed district staffing capacity. Staff described active outreach to employers and individualized support to help new participants complete enrollment and salary-reduction agreements.
The committee approved the agenda and May minutes earlier in the meeting but took no formal programmatic action on Pension2 at this session.
