Funding Your Defined Benefit Supplement Account
If you made retirement contributions to CalSTRS on or after January 1, 2001, and before December 31, 2010, you have a Defined Benefit Supplement account which provides additional income for retirement.
Defined Benefit Program Contributions
From January 1, 2001 through December 31, 2010, all Defined Benefit Program members contributed 8 percent of their CalSTRS-covered salary toward retirement. Of this contribution:
- 25 percent (2 percent of salary) went to your Defined Benefit Supplement account.
- 75 percent (6 percent of salary) went to your Defined Benefit account.
Beginning January 1, 2011, your entire contribution is now credited to your Defined Benefit account.
In addition, Defined Benefit Supplement accounts receive funds from two sources:
- Earnings in excess of one year of service credit: Since July 1, 2002, if you earn more than one year of service credit in a school year, your contributions and 8 percent of your employers’ contributions from your earnings in excess of one year are credited to your Defined Benefit Supplement account.
- Special limited-term payments or retirement incentives: Since July 1, 2002, for members under the CalSTRS 2% at 60 benefit structure, your contributions and 8 percent of your employers’ contributions on these payments are credited to your Defined Benefit Supplement account.
You can build your Defined Benefit Supplement account by taking on extra-pay duties such as summer school or intersession, yearbook editor or band director.
An amount equal to your Defined Benefit Supplement account balance is vested at the time contributions are initially credited to your account.
Guaranteed Interest Rate
Your Defined Benefit Supplement account earns interest at a rate set at the beginning of each plan year, July 1 through June 30, by the Teachers’ Retirement Board, based on the average 30-year Treasury rate. The rate cannot be less than the rate for your Defined Benefit account. The rate for 2016–17 is 2.88 percent.
If the actual earnings exceed the board-set interest rate at the end of the year, the board may declare an additional earnings credit.
The Defined Benefit Supplement Program:
- Is a separate benefit structure within the Teachers’ Retirement Plan.
- Invests contributions in internally pooled portfolios.
- Portfolios reflect market fluctuations on a daily basis.
Starting July 2014, if you earn more than one year of service credit in a school year, you are eligible for a return of your member contributions made in excess of the 8 percent contribution rate on Defined Benefit Supplement compensation. CalSTRS will return excess contributions to employers once a year, in October. Your employer then is responsible for returning your excess contributions to you. CalSTRS will process the transactions in October, but it may take 30 days or longer for the funds to be transferred to employers. The amount and timing of any funds returned to you by your employer will vary. Please contact your employer if you have questions.
If you work for more than one employer in the school year, each employer is responsible for returning any excess contributions earned under that employer to you. Your excess contributions will be provided on your annual Retirement Progress Report.
Gain and Loss Reserve
During years when the rate of return is less than the guaranteed interest rate, funds accumulated in a Gain and Loss Reserve account are used to credit interest to your account.
The Gain and Loss Reserve also ensures adequate funds are available in the Annuitant Reserve for monthly annuity payments.
Additional Earnings Credit
The Teachers’ Retirement Board may grant an additional earnings credit to your Defined Benefit Supplement account at the end of the year.
The board will consider whether the Defined Benefit Supplement investment earnings exceed the amount required to meet the following liabilities:
- The amount required for the year to credit interest on your nominal accounts at the minimum interest rate.
- The amount of the Defined Benefit Supplement Program administrative expenses.
- Any additions needed for the Gain and Loss Reserve.
For any year that the board declares an additional earnings credit, the board will specify the amount to be added to your account as a percentage increase.
The additional earnings credit will:
- Be applied on the date specified by the board and to the balance of credits in each member’s nominal account as of the last day of the plan year.
- Not be added to the balance of credits transferred from a member’s Defined Benefit Supplement account to the Annuitant Reserve.
Additional Annuity Credit
Beginning with the plan year ending June 30, 2014, by policy, the board will not be declaring an additional annuity credit for members receiving an annuity.
Both federal and California state tax codes provide for tax penalties for certain early withdrawals. A 10 percent federal and 2.5 percent state tax penalty that is subject to change may be assessed for early withdrawals.