CalSTRS Corrects District Reporting Error Accounting for $844,000 in Pension Overpayments
Yuba Community College District beneficiaries scheduled to receive adjusted benefit amounts
WEST SACRAMENTO, CA – The California State Teachers’ Retirement System (CalSTRS) announced today its determination that the Yuba Community College District incorrectly reported compensation to CalSTRS that resulted in $844,000 in pension overpayments, otherwise known as pension spiking, to 44 benefit recipients. Pension spiking is defined as the inflation of pay during the final compensation period for the purpose of increasing the pension benefit.
CalSTRS discovered the Yuba Community College District has been incorrectly reporting a retirement incentive dating back to 2003-2004. The retirement incentive was incorrectly allocated to the pension recipients’ defined benefit accounts — the core pension the fund administers. However, the retirement incentive can only be credited to the defined benefit supplement account. The Defined Benefit Supplement Program began in 2001 and created a hybrid plan structure, allowing CalSTRS to ensure that contributions made on extra compensation for summer school or other extra-pay assignments, including retirement incentives, are credited to a cash balance account that acts like a 401(k) and do not figure into final compensation, a factor in setting pension benefits.
The District’s retirement incentive, offered as part of a reduced workload program, represented roughly 10 percent of the members’ final compensation. The reporting error caused the defined benefit retirement formula to be calculated incorrectly by overstating the final compensation factor. The benefit overpayments totaled $844,193.66.
“CalSTRS takes pension spiking very seriously. We adhere to thorough and comprehensive processes while reviewing any suspected spiking cases prior to changing a member’s pension payment in a manner consistent with the law,” said CalSTRS Chief Executive Officer Jack Ehnes. “This particular case is a prime example of the effort CalSTRS takes to ensure retirement benefits earned by hard-working educators will be paid according to their correct creditable compensation and other factors according to the plan design formula.”
California Education Codes 24616 through 24617 require that CalSTRS collect the benefit overpayments from the 44 recipients (43 members and one beneficiary). In mid-September, CalSTRS sent a letter to those affected explaining how their benefit will change, the amount of the overpayment, the collection procedure, and information on how to request an appeal hearing. The recipients’ payments have subsequently been reduced to correct the monthly pension benefit amount. In addition, starting October 1, 2011, in accordance with the maximum percentage allowable by law, five percent is being deducted from the monthly pension payments to collect the overpayment amounts.
In addition to its hybrid structure, CalSTRS has a robust system in place to prevent, detect and correct instances of pension spiking, including:
- Pension Abuse Reporting Hotline – available by phone toll-free at (855) 844-2468 or online at www.calstrs.com – which allows anyone to anonymously report cases of suspected pension abuse.
- Compensation Review Unit which focuses on compensation changes that may signal pension spiking and conducts a deliberate and exhaustive review of all suspected cases.
- An automated salary review that flags annual salary bumps exceeding allowable limits so they can be reviewed more closely.
- A robust, risk-based school district audit program that in 2009-10 identified $1.7 million in monthly overpayments that are now being recovered.
Moreover, CalSTRS plan design provides an inherent defense against spiking because compensation for the vast majority of CalSTRS members adheres to a strict salary schedule established through collective bargaining. Last year, the average CalSTRS member retired near age 62 after more than 25 years of service with a pension that replaced about 60 percent of her salary. Members receive no Social Security benefits for CalSTRS-covered employment and generally do not receive employer-paid health care benefits after age 65. Of the more than 200,000 retirees who receive CalSTRS pensions, only about 2 percent exceed $100,000.
The California State Teachers’ Retirement System, with a portfolio valued at $146.6 billion as of August 31, 2011, is the largest teacher pension fund and second largest public pension fund in the United States. CalSTRS administers a hybrid retirement system, consisting of a traditional defined benefit, cash balance and defined contribution plan, as well as disability and survivor benefits. CalSTRS serves California’s 852,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.