Ask Jack: Who gets guaranteed benefit adjustments? Why?

Ask Jack Jack Ehnes

Q: Prior to the adoption of AB 1469, was the annual benefit adjustment a contractually guaranteed benefit?

Prior to the adoption of Chapter 47, Statues of 2014 (Assembly Bill 1469–Bonta), the annual benefit adjustment was not contractually guaranteed. The Legislature explicitly reserved the right to reduce or eliminate the Annual Benefit Adjustment, should economic conditions dictate.

However, in exchange for member contribution rate increases under the AB 1469, the 2 percent annual benefit adjustment cannot be reduced for members who retire on or after January 1, 2014. For members who retired before January 1, 2014, the annual benefit adjustment is not guaranteed and the Legislature retains the right to reduce or eliminate the amount of the annual benefit adjustment should economic conditions dictate. To date no suggestions to reduce or eliminate this benefit have been made and this right has never been exercised.

The 2 percent annual benefit adjustment, also known as the 2 percent improvement factor, is based on Education Code section 22140, which provides for an annual benefit increase of 2 percent after retirement. Annual benefit adjustments are calculated at 2 percent of a member’s initial benefit and are not compounded or tied to changes in the cost of living.