Spring Audio Town Hall: Your Questions Answered
CalSTRS members had the opportunity to call and ask questions during CalSTRS second annual audio town hall meeting on June 10.
The hour-long event included a presentation by CalSTRS CEO Jack Ehnes and Deputy Chief Executive Officer Peggy Plett that focused on sorting fact from fiction surrounding the status of CalSTRS retirement benefits.
Is the CalSTRS fund available for the state to borrow from to shore up the General Fund? Hasn’t that happened before? Did we get the money back?
The State of California cannot borrow from the Teachers’ Retirement Fund. There have been attempts in the past to use some of our legislated funding to help balance the state’s budget, but the Teachers’ Retirement Board has aggressively protected the fund’s independence. In 1992, voters passed Proposition 162 to provide protection against such actions.
More recently, in 2003, the board successfully brought a lawsuit against the state to reverse its withholding of $500 million from the Supplemental Benefit Maintenance Account, which is used for supplemental payments that help retirement benefits retain a consistent standard of living. CalSTRS claimed the state had a contractual obligation to pay the full amount, and the court agreed.
The state was ordered to pay the past-due amount, plus interest. This decision was upheld in appellate court. On September 10, 2007, the state made a $500 million payment. CalSTRS estimates that accrued interest could exceed $200 million, which requires a legislative appropriation to pay.
Is the method to increase contributions at CalSTRS the same as the method used at CalPERS?
No. It is ultimately up to the legislature and the governor to increase CalSTRS contributions, while CalPERS has the ability to set its own employer contribution rates.
As long as I am receiving my CalSTRS retirement, I can’t receive my spouse’s social security if he is deceased. Why?
Federal law includes offset provisions that reduce or eliminate the benefits of all people who receive a government pension for employment not covered by Social Security. The provisions eliminate the perceived advantage these people have because they appear to be low income workers when they are not. California educators are affected.
The Windfall Elimination Provision (WEP) reduces the Social Security benefit one earns due to his or her own employment. The Government Pension Offset (GPO) reduces or eliminates the spouse’s, widow’s or widower’s Social Security benefit. CalSTRS benefits are not affected by these offsets.
|Windfall Elimination Provision||Government Pension Offset|
|May reduce a member’s Social Security benefit from non-CalSTRS employment.||May completely eliminate a member’s spousal and widow/widower Social Security benefits.|
|Reduces first part of the three-tiered Social Security formula.||Reduces Social Security benefit by up to two-thirds of CalSTRS retirement benefit|
|For example, a 62 year old CalSTRS member retiring in 2010 may expect up to a $381 reduction in Social Security benefits.||For example, at age 62, a retired CalSTRS member receives a $1,500 CalSTRS benefit and expects a $750 Social Security benefit from a spouse who died. The two-thirds reduction will completely eliminate the member’s entire Social Security benefit.|
In the 2009 Summary Report to Members, the fund was 87 percent funded on an 8 percent investment assumption. Is 8 percent a realistic figure to base future funding given the current state of the stock market?
The Teachers’ Retirement Board is considering whether or not to lower the assumed rate of return from the current 8 percent. They will discuss this topic further during their November board meeting. We will keep you informed of their decision in future issues of Retired Educator and here on CalSTRS.com.
What about the beneficiary option I took at retirement for my daughter? Will she still be getting that with the funding shortfall?
Yes, your daughter will continue to receive her benefit upon your death. CalSTRS retirement, disability and survivor benefits are protected by the California and U.S. constitutions.
I notice an enormous number of teachers being laid off. What effect will the large layoffs have on funding?
There are contributions to the Teacher’s Retirement Fund from the state’s General Fund that are based on the annual statewide payroll, but layoffs have a minor impact on overall funding.
Fewer members earning creditable compensation means fewer contributions paid to CalSTRS. However, members do not earn service credit if they are not earning creditable compensation and contributing to CalSTRS.
Fewer years of service credit at retirement means lower monthly retirement benefit amounts paid from the Teachers’ Retirement Fund.
When will supplemental payments be resumed at the previous level?
When the value of your monthly retirement benefit drops below 85 percent of its original purchasing power due to inflation, you will receive a quarterly supplemental payment. The supplemental payment is intended to provide you with a consistent standard of living when prices are rising.
When there is no or low inflation, as there has been in recent years, your retirement benefit retains all or most of its economic value. Therefore, your quarterly supplemental payment may be the same or decrease—or you may no longer receive a supplemental payment.
The purchasing power of your retirement benefit is determined each year by the change in the All Urban California Consumer Price Index. This is not a guaranteed benefit and the program may end if funding is not available.
In the late 1990s, CalSTRS increased the benefits for teachers substantially but there was no increase in contributions from teachers. Why were teachers not asked to pay more money into contributions to receive a higher benefit?
In March 1998, the CalSTRS actuary completed its assessment of the Teachers’ Retirement Fund and determined that the fund’s assets represented 97 percent of its liabilities. By 2000, the fund’s assets reached a value of 110 percent.
Following an analysis of existing CalSTRS benefits and the benefits available under other retirement systems, an opportunity existed to improve member benefits without having to increase contributions paid by members or their employers. These improvements were designed to recruit and retain educators to accommodate California’s increased demand for teachers.
Not only were future benefits increased, but an ad hoc benefit increase for educators already retired was granted, as well as a minimum benefit level for long-retired members.