February 3, 2005

Sacramento – The Teachers’ Retirement Board today voted to oppose a 2005-06 state budget proposal that could affect the contributions paid by current and future educators to both their core retirement benefit program and a supplemental retirement income program.

Under the proposal, the existing General Fund contribution to the CalSTRS Defined Benefit Program would be eliminated. The state’s obligation would be shifted to the school districts, which currently contribute 8.25 percent of payroll, for a total of 10.25 percent. The total cost to the school districts would be approximately $500 million annually. Each school district, through the collective bargaining process, could seek to have all or part of the 2 percent increase paid by its CalSTRS member employees, who currently contribute 8 percent.

“This proposal has serious implications for the future stability of our retirement system and our members’ benefits,” said Board Chair Gary Lynes. “The state has supported its teachers’ retirement benefits since 1913. Now is not the time to stop.”

The board’s opposition was based on its belief that this shift in costs would potentially undermine the funding of the existing benefit program, as well as pose significant administrative and financial burdens to CalSTRS.

The budget proposal could also change the contribution structure into the Defined Benefit Supplement Program, which would result in the educators getting less supplemental retirement income.

Through 2010, one-fourth of the members’ 8 percent contribution of their pay goes into their Defined Benefit Supplement accounts to be used as additional retirement income. The proposal allows each member to opt out of this re-allocation to their Defined Benefit Supplement account.

“The result would be a lower supplemental benefit when the member retires, becomes disabled or dies,” said CalSTRS Chief Executive Officer Jack Ehnes. “Regardless of the legality of this choice, it presents a terrible dilemma for the member; deciding whether to accept a reduction in take-home pay or a reduction in future benefits.”

An additional reduction in take-home pay could occur for educators after 2010. In 2011, the 2 percent of pay currently going into the member’s Defined Benefit Supplement account will be restored to their Defined Benefit Program contribution. If the state’s shift of 2 percent of pay had been collectively bargained to the members, then the member’s total contribution to CalSTRS would increase from 8 percent to 10 percent of pay.

The board’s action today reaffirmed its commitment to keep as paramount its fiduciary responsibility to CalSTRS members.

“Our highest mission is to protect the interest of California’s teachers and ensure that their benefits remain secure,” said Lynes. “In the coming months, we will work with the Legislature, the Administration and the teachers’ organizations to help craft a solution that maintains the integrity of our members’ benefits."

CalSTRS is the third-largest public pension fund in the United States, with a current market value of $125 billion. It provides retirement, disability and survivor benefits to California’s public school teachers from kindergarten through community college, serving more than 750,000 members and their families. For more information, visit the CalSTRS Web site at www.calstrs.com.