CalSTRS Announces Retirement Incentive Programs
A new law provides retirement incentives that increase monthly benefits for members of the CalSTRS Defined Benefit (DB) Program retiring from school districts that agree to offer the benefit. These two retirement incentive programs would increase either one or two of the elements used in calculating your CalSTRS service retirement benefit.
The law, Chapter 313, Statutes of 2003 (AB 1207—Corbett), allows an eligible member employed by a participating district to receive either:
- Two additional years of service credit added to the member’s benefit calculation;
- An additional two years of service credit and an additional two years of age added to increase the age factor, which is used in determining the member’s retirement benefit. This has been referred to as the 2+2.
School districts, county offices of education or community college districts may participate in the CalSTRS retirement incentive programs if they are able to pay the full cost of the benefit and demonstrate that providing it will result in a net savings. It is not necessary that the employer realize a cost savings for each individual employee; the net savings may be realized through the retirement of all its employees who retire under the incentive. CalSTRS has provided information to your employer on the cost and restrictions for these new programs, and will provide additional information in December on the specific steps each must take to participate.
In order to receive the benefit, you must already be eligible to retire, and do so within the window period specified by your employer. A DB Program member is eligible to retire at:
- Age 55 with at least five years of service credit,
- Age 50 with at least 30 years of service credit (excluding unused sick leave or service credit granted under either retirement incentive), or
- Age 55 with fewer than five years of service credit but eligible for concurrent retirement with another California public retirement system such as the California Public Employees’ Retirement System (CalPERS).
The additional two years of service credit granted under either retirement incentive program doesn’t count towards eligibility for benefit enhancements such as one-year final compensation, career factor or the longevity bonus, or towards qualifying for a retirement benefit. Employers, including charter schools, may choose to offer one or both of the retirement incentives, but may not combine or use a portion of either incentive. In addition, you cannot receive both retirement incentives or pay the cost of the benefit in lieu of your employer, and CalSTRS will not grant partial benefits, unless you receive the 2+2 incentive and would reach the maximum age factor.
TWO-YEAR SERVICE CREDIT RETIREMENT INCENTIVE
The two years of service credit retirement incentive program is reopened and becomes permanent effective January 1, 2004. Employers may decide to offer the benefit at any point in the future as the legislative authorization to grant two years of service credit does not expire.
The governing board of a participating employer must take formal action by adopting a resolution to offer the benefit to all its employees who are DB Program members and eligible to retire. You must retire during the “window period” of 60 to 120 days, as specified in the formal action. The window period must begin after the adoption of the board resolution.
2+2 RETIREMENT INCENTIVE
The provisions of the two years of service credit and two years of age incentive program 2+2 become effective January 3, 2004 and expire on December 31, 2004. Unfortunately, Chapter 313 is not clear whether a district can, prior to January 1, 2005, offer the retirement incentive for those members who plan to retire beyond December 31, 2004. CalSTRS is currently evaluating the appropriate interpretation of this provision and expects that a decision on this matter will be included in the employer directive. In the meantime, it is clear that employers may designate window periods for the 2+2 retirement incentive from January 3 to December 31, 2004.
An employer that grants the 2+2 benefit to employees who are DB Program members and eligible to retire must either: 1) provide the benefit pursuant to a memorandum of understanding between the employer and a representative employee organization, or 2) in order to grant the benefit to members who are not represented by an employee organization, have its governing board take formal action to offer the benefit to all eligible members of the DB Program.
The maximum age factor you can receive continues to be 2.4 percent, including the career factor and/or retirement incentive. For members needing fewer than two additional years to reach the maximum age factor, only the number of years necessary to reach the maximum age factor will be added. Employers are only required to pay for the actual increase in the benefit amount. For those members ages 63 and older, or ages 61.5 and older with 30 or more years of service, no additional years will be added to their age factor calculation, and will not be used to calculate employer’s cost because those members are already at the maximum age factor.
IMPACT ON YOUR RETIREMENT BENEFIT
Every member’s situation is different. However, depending on your age and years of credited service, these incentives can represent a substantial boost to your retirement benefit. Please see the following examples for a member earning $60,000 per year
*Includes applicable career factor and longevity bonus.
** For members age 63 or older or 61.5 with 30 years of service credit, age/career factor is already at the maximum.
RESTRICTIONS ON POST-RETIREMENT EMPLOYMENT
If you are able to retire with either the two-year service credit or 2+2 incentive, a number of restrictions on post-retirement employment affect your ability to keep the benefit, even if you receive an exemption to the post-retirement earnings limit. Members who retire and receive either of the retirement incentives and then return to work would forfeit the benefit increase received through either of the incentives. This includes:
- A retired member reinstates to active CalSTRS member status. The additional incentive benefit is forfeited as of your reinstatement date and will not be included in future retirement benefit calculations.
- A member continues to receive his or her retirement benefit and returns to work in any job for any California public school district within one year of his or her retirement date. The law does not provide any exemption from this restriction, unlike exemptions from post-retirement earnings limits that currently exist for those members who retire without receiving a retirement incentive. Your benefit increase is forfeited effective on the first day of the month in which you return to work. You would thereafter begin to receive a retirement benefit based on the reduced level of service credit you had earned prior to retirement and being granted the retirement incentive.
- A member continues to receive his or her retirement benefit and returns to work in any job with the school district that granted him or her the retirement incentive within five years of retirement. The law also does not provide for any exemption from this restriction. Your benefit increase is forfeited effective on the first day of the month in which you return to work. You would thereafter begin to receive a retirement benefit based on the reduced level of service credit you had earned prior to retirement and being granted the retirement incentive.
In addition, if you receive unemployment insurance payments within a year of your retirement date, you will forfeit the benefit increase received through either incentive. Please note that retired CalSTRS members are prohibited from performing any classified service, even if they do not receive a retirement incentive.
FOR ADDITIONAL INFORMATION
If your employer offers either of these incentive programs, we encourage you to contact your local CalSTRS Benefits Counseling office to schedule an appointment for a pre-retirement interview in person or by telephone, or attend a benefit workshop. A Benefits Counselor may provide you with an estimate based on an additional two years of service credit and a conservative estimate based on two years of service credit and two years of age. Beginning in January, they will be able to provide you with automated estimates on the amount of increase to your retirement benefits either of these incentives may provide.
More information on the incentive programs, including online calculators that can help you figure the potential boost to your retirement benefit will soon be on the CalSTRS Web site, www.calstrs.com. You can also check out the Frequently Asked Questions on the retirement incentive programs or contact CalSTRS toll-free at 800-228-5453.