CalSTRS has conducted an assessment of AB 340, the California
Public Employees’ Pension Reform Act of 2013, and its impact on
CalSTRS members and operations and outlined key changes.
Ask Jack is an online communication channel offered by CalSTRS CEO, Jack Ehnes. This Web forum solicits questions about the funding and administration of the CalSTRS Defined Benefit Program. Not all will be posted directly, but Jack's responses will be inclusive of views and perspectives.
The annual maximum amount than can be contributed during a
calendar year to a 403(b) is currently $17,500, plus an
additional $5,500 if you are over age 50, for a total potential
deferral of $23,000.
You may be eligible to purchase permissive service credit for
past employment or an approved leave of absence for which you did
not make retirement contributions to CalSTRS. The cost of
the service credit depends on your age and your highest annual
earnable compensation during your last three years of creditable
service.
No, California law does not allow you to take a partial refund or
borrow against your accumulated contributions and interest on
account with CalSTRS. Under the law, only members who are no
longer employed by a CalSTRS-covered employer are eligible for a
refund of accumulated retirement contributions. If you are
eligible for a refund, the consequences should be carefully
considered as you’ll no longer be a CalSTRS member.
Although this is an accurate statement based on current
projections, achieving adequate funding can occur several ways
that would be phased in over time and fair to all parties
involved. Many of the media stories follow recent developments on
how the Legislature is beginning to address the funding needs of
CalSTRS.
If a member has completed their full-time load, the compensation
earned from extra duty assignments, summer school or overload
teaching is credited to the cash balance component known as the
Defined Benefit Supplement Program and is not included in final
compensation used to establish pension benefits associated with
the Defined Benefit Program. (If a member earns less than a full
year of service, such as when they retire in the middle of the
school year, this additional service will be credited to the
Defined Benefit Program, and will affect the final compensation.)
A cash balance plan acts like a hybrid plan that contains
features of a 401(k) plan and defined benefit plan. Contributions
to the cash balance program component are made by both the
employer and employee.
Under current pension codes, 125/Cafeteria plans apply to active
members and are not a viable offering for retirees. However, in
2008-09 CalSTRS explored the implications of offering health care
reimbursement plans and programs that would allow active members
to set aside money for health care expense reimbursement for use
after retirement.
By law CalSTRS has a fixed contribution rate, thus the
responsibility to adopt a funding solution rests with the
Governor and the Legislature—not the CalSTRS board. Moreover,
only the Legislature and the Governor can change the benefit
structure, not the board. As a result, CalSTRS has been
working for some time to raise awareness of the Legislature and
successive governors of our funding shortfall, the cost of
waiting to address it and the ultimate risk failing to do so
presents to the state’s General Fund.
If your final compensation for retirement purposes is based on
your highest average three consecutive years of compensation and
your highest three consecutive years of compensation are not the
last three years you worked, CalSTRS would then use your highest
three consecutive years of compensation instead of your last
three to calculate your final compensation amount.
CalSTRS administers a qualified retirement plan. A qualified
retirement plan satisfies specific requirements of the Internal
Revenue Code in both form and operation, and receives special
certification by the IRS. Requirements for qualified plans set
forth by the Internal Revenue Code include things such as
participant eligibility, the tax treatment of contributions and
corresponding interest, the payout of distributions, the rollover
eligibility of funds, etc.
The State of California is the plan sponsor of the CalSTRS
Defined Benefit Program. According to current law, CalSTRS core
pension benefits (retirement, disability and survivor benefits)
are guaranteed by the U.S. and California constitutions. If the
CalSTRS fund were to become depleted, the State, as plan sponsor,
would be obligated to step in and pay the difference between the
benefits paid and the contributions received by CalSTRS.
Yes, the 180-day separation-from-service requirement applies to
anyone who retires on or after January 1, 2013, and includes
individuals who may be offered a voluntary early retirement with
a stipend or medical benefits. This separation requirement
applies to what is considered CalSTRS-covered employment under
existing laws.
That depends upon your age and where you take a job; for example,
if you are under the normal retirement age of 60 years, there
currently is a six month separation from service requirement that
applies to you and any member under normal retirement age who
retires and returns to work under CalSTRS-covered employment.
Returning to work under CalSTRS-covered employment before the six
month separation from service requirement is fulfilled means you
will have your retirement benefit reduced dollar for dollar, up
to your annual benefit amount, for any compensation earned.
Yes, all provisions under the recently signed Assembly Bill 340,
the California Public Employees’ Pension Reform Act of 2013, take
effect January 1, 2013.
With the recent passage of Assembly Bill 340, the Public
Employees’ Pension Reform Act of 2012, all purchases of
nonqualified service credit, also known as ‘air time’, will be
prohibited beginning January 1, 2013. Members who have earned at
least five years of service credit are eligible to purchase up to
five additional years of nonqualified service credit or ‘air
time.’
Difficult economic conditions have many districts using furloughs
as a way to address budget shortfalls. These furloughs could
affect members for whom the reduction in pay occurs.
Prior to January 1, 2013 you may purchase up to five years of
nonqualified service credit if you are a CalSTRS member with at
least five years of qualified service credit. Nonqualified
service credit is not connected to any specific prior employment.
You cannot use the purchase of nonqualified service credit, or
air time, to qualify for the career factor benefit enhancement or
one-year final compensation, but you can use it to retire as
early as age 50 by helping you reach 30 years of service credit.
Recently passed legislation changes the postretirement earnings
limit, postretirement employment and reinstatement. Under AB 178,
which became effective July 1, 2012, the postretirement earnings
limit formula is now based on one-half of the median final
compensation for recently retired members instead of what was
approximately one-half of the average annual salaries of all
active members.
Last fall 2011, the previous CalSTRS Home Loan Program master
servicing agent/program administrator made a strategic decision
to cease mortgage originations via its correspondent lending
channel nationwide. As a result, CalSTRS temporarily suspended
its Home Loan Program and began the process of finding a new
partner.
In your situation, deferring your retirement would increase your retirement benefit, although you would have to weigh this increase against the cost of foregoing of benefit income.
Purchasing additional service credit is a personal choice. It’s
recommended that you compare the cost of additional service
credit with the increase it provides to your lifetime income.
There are two forms of service credit: permissive service credit
and nonqualified service credit.
Your retirement benefit is based on a formula (Service Credit x
Age Factor x Final Compensation = Member-Only Benefit). How
confident are you in your understanding of how this formula
determines your Member-Only Benefit amount?
