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Actuaries say CalSTRS funding plan is ahead of schedule but flag investment and demographic risks
Summary
CalSTRS actuaries reported that, driven by above-assumption returns and payroll growth, the funding plan is now projected to reach full funding in 2043 (one year earlier) but warned that investment volatility and long-term demographic trends — notably declining birth rates — remain primary risks.
CalSTRS actuaries Rick Reed and David (system actuarial lead) presented the annual funding-level and risk review on Nov. 7, telling trustees the system remains slightly ahead of the funding-plan schedule after favorable returns and an increase in active membership.
David said CalSTRS's time-weighted investment return for the prior year was 8.4% and that the plan's average compounded return since adoption is about 7.7%, moves that combined with payroll growth have shifted the projected full-funding date to 2043 from prior estimates. He flagged three main risks the system monitors: investment performance (the 7% assumption), longevity (members living longer), and membership/payroll mix (changes in number of teachers and payroll).
Actuaries emphasized a structural risk tied to the state's supplemental contribution rate: statute currently reduces that supplemental rate to zero once the state's share is paid, but if that occurs it could reduce the system's ability to respond rapidly to a negative investment shock. David illustrated that a hypothetical -5% return in a year could require a materially higher state rate if the supplemental rate were at zero, delaying recovery and raising the state's long-term unfunded share.
Trustees asked about the demographic drivers behind K–12 enrollment projections; the actuaries pointed to downward trends in fertility — California around 1.5 births per woman — as a principal long-term factor affecting future teacher numbers and payroll. They recommended continued monitoring and noted potential strategy options, including different contribution structures or investment choices to manage cash-flow and funding risks.
