The board’s decision challenges a major state budget deal that slashed $3.7 billion from the state’s projected $38.2 billion-budget deficit, according to a Sacramento (California) Bee news story. Those cuts included deferring the $500 million deposit until the next fiscal year to a CalSTRS benefit fund, which provides cost-of-living protection for older retirees whose buying power is eroded by inflation.
The state is penalizing “the most financially vulnerable retired teachers in the state of California,” George Avak, president-elect of the California Retired Teachers Association, told the Bee. The group has pledged to join any court action filed by CalSTRS, the nation’s third-largest pension fund, with 715,000 members and $100 billion in assets.
While the missed state payment won’t affect supplemental benefits paid to the current 60,000 retired educators, CalSTRS officials say it could threaten the fund’s ability to pay full benefits in the future by dampening its future investment income.
From the outset, CalSTRS and the teacher’s group opposed the cut outlined in Governor Gray Davis’s January budget. But they found themselves on the losing end this spring after lawmakers hammered out their first significant budget-cutting pact, which Davis signed last month. CalSTRS trustees quickly hired attorneys to investigate litigation against the state.
The fund is focusing on a measure carried by Assemblyman Gene Mullin. His bill calls for skipping the state payments for the next two fiscal years and then increasing contributions from 2010 and 2011 to 2019. The measure cleared the Assembly this week and has moved to the Senate.