Will COVID-19 Trigger Teacher Retirements? Webinar August 14, 2020 - PowerPoint PPT Presentation

Will COVID-19 Trigger Teacher Retirements? Webinar August 14, 2020

Agenda 01. Introductions 02. Research Review 03. Q&A 1 National Institute on Retirement Security

Speakers Dan Doonan David Lamoureux NIRS Executive Director CalSTRS Deputy System Actuary 2 National Institute on Retirement Security

Speakers Paul Angelo Rocky Joyner Segal Senior Vice President and Actuary Segal Senior Vice President and Actuary 3 National Institute on Retirement Security

Number of Students Enrolled in Traditional Education Programs 615,842 592,890 544,014 430,757 382,036 346,115 337,707 330,759 328,163 2009-2010 2010-2011 2011-2012 2012-2013 2013-2014 2014-2015 2015-2016 2016-2017 2017-18 Source: US Dept of Education, Title II: https://title2.ed.gov/Public/Home.aspx 4 National Institute on Retirement Security

National Institute on Retirement Security -80% -60% -40% -20% 20% 40% 60% 0% -37% NATIONAL AVG Source: US Dept of Education, Title II: https://title2.ed.gov/Public/Home.aspx NEW MEXICO PENNSYLVANIA MICHIGAN IDAHO NEW JERSEY ILLINOIS DELAWARE CONNECTICUT OHIO ALASKA MARYLAND INDIANA ALABAMA OKLAHOMA Change in Teacher Pipeline WEST VIRGINIA 2009-10 through 2017-18 TENNESSEE MONTANA OREGON NEW YORK IOWA SOUTH DAKOTA RHODE ISLAND NEBRASKA SOUTH CAROLINA KENTUCKY VIRGINIA MAINE MISSOURI ARKANSAS COLORADO NORTH DAKOTA VERMONT MISSISSIPPI NEW HAMPSHIRE WISCONSIN MINNESOTA UTAH CALIFORNIA WYOMING KANSAS LOUISIANA MASSACHUSETTS HAWAII ARIZONA NEVADA FLORIDA GEORGIA NORTH CAROLINA TEXAS DISTRICT OF COLUMBIA WASHINGTON 5

National Institute on Retirement Security -100% -80% -60% -40% -20% 20% 40% 60% 0% -47% NATIONAL AVG Source: US Dept of Education, Title II: https://title2.ed.gov/Public/Home.aspx NEW MEXICO IDAHO MICHIGAN PENNSYLVANIA DELAWARE NEW JERSEY INDIANA ILLINOIS Change in Enrollment: Traditional Programs CONNECTICUT MARYLAND ALASKA WEST VIRGINIA NORTH CAROLINA OHIO OKLAHOMA 2009-10 through 2017-18 NEW YORK SOUTH CAROLINA KENTUCKY OREGON TENNESSEE IOWA ARKANSAS RHODE ISLAND MONTANA DISTRICT OF COLUMBIA MISSISSIPPI SOUTH DAKOTA NEBRASKA VIRGINIA VERMONT ALABAMA COLORADO TEXAS MISSOURI NORTH DAKOTA MAINE MINNESOTA CALIFORNIA WISCONSIN UTAH KANSAS FLORIDA WYOMING LOUISIANA NEW HAMPSHIRE MASSACHUSETTS ARIZONA NEVADA GEORGIA HAWAII WASHINGTON 6

2016 UCLA/CIRP American Freshman Survey: Percent of Freshmen Pursuing Education Majors 14.0% 12.0% 9.56% 10.0% 8.0% 6.0% 4.2% 4.0% 2.0% 0.0% 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 7 7 7 7 7 7 7 7 7 8 8 8 8 8 8 8 8 8 8 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 % Intending to Major in Education Pre-Recession Avg. Sources: Chronicle of Higher Education: https://www.chronicle.com/interactives/freshmen-survey and UCLA/CIRP: https://heri.ucla.edu/publications-tfs/ 7 National Institute on Retirement Security

A large majority of teachers will serve out long careers • Teachers in the 6 states will typically serve 25 or more years and leave service at age 58 or later. • Nearly 7 out of 10 will serve until at least early retirement age under current pension rules. • Many defer retirement past the first eligibility for retirement benefits • Clearly the benefit designs for most teacher plans encourage this behavior • The next slides provide context 8 National Institute on Retirement Security

FY 2017 Teacher Service Distribution 9 National Institute on Retirement Security

Typical teacher will serve 25 years and leave at age 58 10 National Institute on Retirement Security

65% of Teachers Will Serve 20+ Years 11 National Institute on Retirement Security

68% of Teachers Will Serve Until Retirement Eligibility 12 National Institute on Retirement Security

But what if COVID-19 disrupts pattern? 13 National Institute on Retirement Security

This could lead to greater retirements than predicted with possible consequences • Increased benefit payouts, potentially creating cash flow issues • Increase in required contributions for pension plans • Teacher shortages • Where will replacement teachers be found? • What is a Pension Board or School District to do? • Will COVID be considered a “line of duty” disability (NYC schools has enacted this) • Or (as has started in some states), will laws be adopted that limit liability for employers and others from claims relating to COVID-19 exposure? 14 National Institute on Retirement Security

What are implications if retirements spike? Payroll Liability OPEB Retirement Eligibility Rules 15 National Institute on Retirement Security

Modeling Risk 16

CalSTRS Review of Funding Levels and Risks Investment Risk Longevity Risk Potential for lower returns Members living longer in retirement and increased market volatility Membership and Payroll Growth Risk Affects incoming contributions if membership base declines 17

Distribution of CalSTRS Active Members by Age Group Age 70 and over Age 65 to 70 Age 60 to 65 Age 55 to 60 Age 50 to 55 Age 45 to 50 Age 40 to 45 Age 35 to 40 Age 30 to 35 Age 25 to 30 Age Less than 25 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 18

Number of Active Members for the Last 15 Years (Defined Benefit Program Only) 475,000 Number of Active Members 450,000 425,000 400,000 375,000 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 19

Impact of Membership Fluctuations on Funded Status 80% 78% 76% 74% 72% 70% 68% 66% 64% 62% 60% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Actual Population Stable Population 20

Modeling the Impact of a Recession and Recovery • Scenario #1 – “Dot Com Bubble” –2000 to 2008 period • Scenario #2 – “Financial Crisis –2008 to 2018 period 21

Projected Funded Status and Contributions Rates Projected Funded Status 120% Base Scenario 100% 7% return each year 80% 3.50% annual payroll growth 60% 40% Funded Status in 2046: 99.9% 20% 0% 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 Unfunded Actuarial Obligation Eliminated by 2046 Projected Contribution Rates 25% Employers’ Share YES 20% 15% State’s Share YES 10% 5% Unallocated NO 0% FY 19-20 FY 21-22 FY 23-24 FY 25-26 FY 27-28 FY 29-30 FY 31-32 FY 33-34 FY 35-36 FY 37-38 FY 39-40 FY 41-42 FY 43-44 FY 45-46 22 Employer State

Projected Funded Status and Contributions Rates Projected Funded Status 120% Recession and Recovery 100% Scenario #1 80% Dot Com Bubble 60% 40% Funded Status in 2046: 98.8% 20% 0% 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 Unfunded Actuarial Obligation Eliminated by 2046 Projected Contribution Rates 25% Employers’ Share YES 20% 15% State’s Share YES 10% 5% Unallocated NO 0% FY 19-20 FY 21-22 FY 23-24 FY 25-26 FY 27-28 FY 29-30 FY 31-32 FY 33-34 FY 35-36 FY 37-38 FY 39-40 FY 41-42 FY 43-44 FY 45-46 23 Employer State

Projected Funded Status and Contributions Rates Projected Funded Status 120% Recession and Recovery 100% Scenario #2 80% Financial Crisis 60% 40% Funded Status in 2046: 71.0% 20% 0% 2018 2020 2022 2024 2026 2028 2030 2032 2034 2036 2038 2040 2042 2044 2046 Unfunded Actuarial Obligation Eliminated by 2046 Projected Contribution Rates 25% Employers’ Share YES 20% 15% State’s Share NO 10% 5% Unallocated NO 0% FY 19-20 FY 21-22 FY 23-24 FY 25-26 FY 27-28 FY 29-30 FY 31-32 FY 33-34 FY 35-36 FY 37-38 FY 39-40 FY 41-42 FY 43-44 FY 45-46 24 Employer State

Questions 25 National Institute on Retirement Security