Enhanced decadal variability in sea surface temperature (SST) centered on the Kuroshio Extension (KE) has been found in the Community Climate System Model version 3 (CCSM3) as well as in other coupled climate models. This decadal peak has higher energy than is found in nature, almost twice as large in some cases. While previous analyses have concentrated on the mechanisms for such decadal variability in coupled models, an analysis of the causes of excessive SST response to changes in wind stress has been missing. Here, a detailed comparison of the relationships between interannual changes in SST and sea surface height (SSH) as a proxy for geostrophic surface currents in the region in both CCSM3 and observations, and how these relationships depend on the mean ocean circulation, temperature, and salinity, is made. We use observationally based climatological temperature and salinity fields as well as satellite-based SSH and SST fields for comparison. The primary cause for the excessive SST variability is the coincidence of the mean KE with the region of largest SST gradients in the model. In observations, these two regions are separated by almost 500 km. In addition, the too shallow surface oceanic mixed layer in March north of the KE in the subarctic Pacific contributes to the biases. These biases are not unique to CCSM3 and suggest that mean biases in current, temperature, and salinity structures in separated western boundary current regions can exert a large influence on the size of modeled decadal SST variability.