CalSTRS Retired Educator - Summer 2007 eNewsletter - Legislature Preserves Inflation Protection Program

On Friday, June 30, the state Legislature’s Budget Conference Committee acted to protect the Supplemental Benefit Maintenance Account program by rejecting a proposal put forth in the Administration’s 2007-08 budget. As a result, the program was fully funded for this coming fiscal year.

The proposal would have:

Unconditionally guaranteed the purchasing power benefit provided by the program at the current 80 percent level, regardless of the inflation rate.
Reduced the state’s contribution to the program from the current 2.5 percent of payroll to 2.2 percent of payroll.

Committee members were persuaded that the proposal could reduce the fiscal soundness of the program by guaranteeing the benefit level while reducing the program’s funding support. The proposal would have decreased state contributions to the account by $75 million in fiscal year 2007-08 alone.

CalSTRS Board Opposed the Change

The Teachers’ Retirement Board had voted to oppose the proposal at the April 5, 2007, board meeting, based on detailed analyses provided by outside actuarial and fiduciary counsel. Both expressed concern that the guaranteed benefit had a significant probability of exceeding available resources in the future, depending largely on the inflation rate.

“We’re concerned about this proposal and its threat to the long-term stability of the trust fund,” said Board Chair Dana Dillon after the April meeting. “While this benefit would be assured for our members, the funding would not be assured and could put the fund at risk.”

SBMA Provides Critical Inflation Protection

Currently, the SBMA program provides qualifying retirees and beneficiaries with payments that supplement their regular monthly benefit to 80 percent of its original consumer purchasing power. About 61,000 of the 210,000 current CalSTRS benefit recipients will receive a supplemental benefit in 2007-08. The annual payments average $4,266.

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