How’s the health of the purchasing power protection of CalSTRS pensions and the account that funds those payments?

Ask Jack Jack Ehnes

The purchasing power protection program is a supplemental benefit paid quarterly if the value of the initial pension amount falls below 85 percent of value, as measured by the California Consumer Price Index once the 2 percent annual benefit adjustment is added to the member’s pension. The purchasing power protection program is funded almost entirely from a state General Fund contribution to a special account, called the Supplemental Benefit Maintenance Account (SBMA).That contribution requirement is a contractual obligation of the state, and was enforced earlier this decade by the courts when the state attempted to reduce the contribution in one year.

To the extent that there are sufficient funds in the SBMA to pay the supplemental purchasing power protection benefit, the benefit recipient is contractually guaranteed to be paid that payment. However, if there were not sufficient funds in the purchasing power program account to restore the entire 85 percent purchasing power, the benefit recipient would be paid whatever amount could be paid with the available funds.

Because payment of the purchasing power benefit is dependent on the availability of funding, the Teachers’ Retirement Board carefully monitors the health of that account, and is allowed to make minor changes to the benefit as necessary in order to sustain the benefit for the long term. The Board can adjust the supplemental benefit between a range of 80 and 85 percent of purchasing power in order to maintain that specific level of purchasing power protection through 2089.