How might district-required furlough days affect someone’s retirement?

Ask Jack Jack Ehnes

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.

CalSTRS bases retirement benefits on a formula that consists of your age, years of service credit and final compensation. For members who have less than 25 years of service credit, compensation is based on the highest average annual full-time salary rate for three consecutive years. For those with more than 25 years, or who are subject to a special agreement between their employer and their exclusive representative, the period is one year. The CalSTRS system looks for the highest three consecutive years of compensation and uses those years, or single year, where applicable in your benefit calculation.

In addition, if salary reduction including furloughs is due to a decrease in state funding, CalSTRS is allowed to use the average of three non-consecutive years for those members who have less than 25 years of service, and are not covered by a special agreement for highest single year compensation between their employer and exclusive representative, rather than three consecutive years.

If an employer shortens the school year and correspondingly reduces the full-time salary rate, members can still receive a full year of service credit but at a lower salary rate. In this circumstance the final compensation amount may be lower than it otherwise would have been. However, members not approaching retirement in this circumstance have the opportunity to earn a higher salary rate throughout their career, and that potential amount would be used to calculate the final compensation portion of their retirement benefit.