Two years ago the state withheld a $500 million contribution that supports supplemental payments to approximately 63,000 retired educators and their survivors. These quarterly payments are made from CalSTRS' Supplemental Benefit Maintenance Account to retirees when inflation erodes their monthly benefit below 80 percent of its original consumer purchasing power.

While current supplemental benefit recipients and those in the near future will not be affected by the missed contribution, the Teachers' Retirement Board sought restoration of the contribution through both legislation and litigation due to the long-term threat it presents to the program.

There has been recent movement on both fronts.

Legislation Vetoed

Assembly Bill 55 (Mullin), which received broad bipartisan support, and would have allowed the state to repay, with interest, the withheld contribution over five years, has been vetoed by Governor Arnold Schwarzenegger. In the October 7, 2005, message accompanying his veto, the Governor stated, “In 2003 the Legislature determined, on a one-time basis, that a payment of $500 million was unnecessary to provide purchasing power protection to retired teachers. That determination is the subject of ongoing litigation. This additional payment of $800 million would not resolve that litigation.”

Favorable Ruling Appealed by the State

In addition to co-sponsoring AB 55, CalSTRS previously filed suit in October 2003 to recover these funds in Sacramento County Superior Court. The complaint sought to invalidate the law that allowed the state to miss its scheduled contribution because it violated the vested rights of teachers and retirees while providing no assurance the withheld amount would be returned and because it jeopardizes the capability of CalSTRS to make the supplemental payments in the future.

On September 21, 2005, Judge Holzer Hersher entered judgment for CalSTRS, agreeing with its argument that the law obligating the state to make the contribution is “clear and unambiguous.” The judge ordered the state to repay CalSTRS the $500 million immediately. On September 23, the Department of Finance filed an appeal with the Third District Court of Appeal. The filing of an appeal stays enforcement of the judgment until the Court of Appeal decides the case. Typically, cases before the Third District Court of Appeals take approximately one year for a decision to be issued.

“We thank Assemblyman Mullin, who authored and shepherded AB 55 through the legislative process, for his perseverance over the last few years in attempting to address this issue. Despite our set back with his bill, we’ll continue our endeavors to recover the missed payment,” said CalSTRS board chair Carolyn Widener. “The veto is a disappointment but not the end of the issue. Our case is strong and I’m sure we’ll prevail in court. One way or the other, we will not fail to recover these funds for the retired educators who have spent a lifetime serving the public good.”