California teachers’ pension fund posts 2.3% gain in 2011

Reporting from Sacramento —  Battered by a volatile market, the California State Teachers’ Retirement System posted a 2.3% return on its investments for the year that ended Dec. 30.

The performance, though modest, was more than twice as good as reported by the larger California Public Employees’ Retirement System, which had a return of only 1.1% on its $229.5-billion portfolio in the just-ended calendar year.

CalSTRS had a rough year in 2011. The pension fund had a return of 0.9% on its U.S. stocks, 7.2% on bonds, 9.9% on private equity and 15% on real estate. It lost 14.1% on non-U.S. stocks. It ended 2011 with a portfolio valued at $144.8 billion.

CalSTRS did better a year earlier, reporting a 12.7% return that boosted the fund’s value to its October 2008 level in the midst of the recession that ended in June 2009.

The fund’s portfolio lost about a quarter of its value during the worst downturn since the 1930s.

“We continue to feel the effects of the most precarious markets in decades,” CalSTRS Chief Executive Jack Ehnes said.

The lingering financial crisis has had a strong effect on CalSTRS’ ability to meet medium- and long-term obligations to its membership: 856,000 public school educators and their families.

It currently faces a $56-billion shortfall. As of June 30, 2010, it had only 71% of the funds it estimates are needed to pay future benefits.

CalSTRS’ funding differs in one significant way from that of CalPERS. The CalPERS board has the independent authority to ask participating governmental agencies to increase their annual employer contributions. But CalSTRS’ board lacks that power and needs the approval of lawmakers and the governor to raise contributions.

“The funding shortfall can be managed,” Ehnes said, “but the governor and the Legislature must develop a specific funding plan, as only they have the authority to do so.”

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