Ask Jack Jack Ehnes

If I plan on retiring in June 2015, how will the increases in contributions affect my retirement and benefits?

In addition to the increase in your contribution rates over the next three fiscal years ending July 1, 2016, Assembly Bill 1469 provides those members who pay the higher contribution rate a guarantee of the 2 percent annual benefit adjustment or improvement factor upon retirement.

Your retirement benefit is still otherwise based on a formula set by law that uses your years of service credit, your age at retirement and your final compensation to calculate your benefit.

The CalSTRS funding plan adopted in Assembly Bill 1469 states that the 2 percent annual benefit adjustment, or improvement factor, cannot be reduced or eliminated for members who performed creditable service on or after January 1, 2014.

This legislative provision is provided as a comparable offsetting advantage consistent with what is known as the vested rights doctrine. Under existing case law, the general principle is that where the employee’s contribution rate is a fixed element of the pension system, the rate may not be increased unless the employee receives comparable new advantages for the increased contributions.

Prior to enactment of the CalSTRS funding plan in AB 1469, the improvement factor was not a contractually guaranteed right for CalSTRS members and retirees because the Legislature explicitly reserved the right to reduce or eliminate this benefit should economic conditions dictate.

At no time, however, were any suggestions made to reduce or eliminate this benefit. It should be noted that the Legislature still maintains this right for CalSTRS members who retired prior to July 1, 2014. 

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