Defined benefit program and defined contribution plans are alike in that both the employee and
the employer make contributions.
Defined benefit program pensions are based on a formula. For CalSTRS members that formula is: Service
Credit x Age Factor x Final Compensation. Defined contribution plan pensions are based on funds paid into a retirement account, plus the outcome
of investment decisions made by individual employees.
CalSTRS Defined Benefit Program Features
- You cannot outlive your benefit because a lifetime pension is guaranteed.
- Funds are managed by CalSTRS investment professionals.
- Your benefit is based on your age at retirement, years of service, and highest salary,
not the amount in your account.
- Guaranteed disability and survivor benefits based on your salary, not on your account balance.
- Selling point for employers when recruiting and retaining teachers.
- Generates a predictable, steady retirement income.
- Only guaranteed retirement income for CalSTRS members because they did not pay into Social Security.
Defined Contribution Plan Features
- You can outlive your benefit because it is based on the amount in your account.
- Success depends on each employee's ability to make good investment decisions.
- Provides disability and survivor benefits based only on the individual's account balance.
- Can generate an unpredictable retirement income.
- Workers may be required to stay on the workforce longer.
- Portable from job to job.
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