Court Overturns State Raid on Teachers’ Pension Fund

News release

 SACRAMENTO, CA  – The Third District Court of Appeal in Sacramento issued a decision today that will require the State of California to pay the California State Teachers’ Retirement System (CalSTRS) $500 million plus interest stemming from a withheld payment for fiscal year 2003-2004.The three-member panel unanimously held that the state violated its contractual obligation to California’s retired educators when it withheld itscontribution to CalSTRS’ inflation-protection program, the Supplemental Benefit Maintenance Account. CalSTRS estimates total interest could exceed $200 million.

“The court spoke loud and clear today. The state cannot interfere with promised benefits to teachers. We entered into litigation and also sought to work with the administration for a remedy,” said Dana Dillon, Chair, Teachers’ Retirement Board. “Our most vulnerable members, those who are longest retired and most dependent on these benefits, are the true winners in this ruling.”

In 2003, Governor Gray Davis signed Senate Bill 20, which withheld a $500 million payment to the Supplemental Benefit Maintenance Account that year. The SBMA currently funds quarterly payments to approximately 63,000 retired educators and their survivors when inflation erodes their monthly benefit below 80 percent of its original consumer purchasing power.

“There is nothing ambiguous about today’s ruling. The state’s payments are a vested contractual right and necessary to fund this benefit for our members. CalSTRS current retirees receive only 55 percent of their replacement salary, no Social Security on their teaching earnings and frequently, no employer-provided healthcare benefits after retirement,” said Jack Ehnes, CalSTRS Chief Executive Officer. “This ruling should permanently put to rest pension raids and allow us to refocus on strengthening retirement security for all.”

The Court of Appeal decision supports a ruling by the Sacramento County Superior Court in May 2005 that ordered the state to repay CalSTRS. The Department of Finance filed an appeal in September 2005.

CalSTRS legal counsel on the case was Olson, Hagel and Fishburn of Sacramento.

With a $169 billion investment portfolio, the California State Teachers’ Retirement System is the second-largest public pension fund in the U.S. It administers retirement, disability and survivor benefits for California’s 795,000 public school educators and their families from the state’s 1,400 school districts, county offices of education and community college districts.

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