Funding Your Defined Benefit Supplement Account
As a Defined Benefit member, you have a Defined Benefit Supplement account that provides additional savings for your retirement.
Defined Benefit Supplement Program Contributions
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: 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.
The Defined Benefit Supplement Program contribution rates for members vary slightly depending on your benefit structure:
- CalSTRS 2% at 60 members: Your contribution rate is 8 percent of earnings in excess of one year of service or special limited-term payments.
From January 1, 2001 through December 31, 2010, one-fourth of your 8 percent member contribution to the Defined Benefit Program was redirected to your Defined Benefit Supplement account. The redirection did not affect your CalSTRS retirement benefit.
- CalSTRS 2% at 62 members: For 2018-19, your contribution rate is 9 percent of earnings in excess of one year of service.
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 for 2018-19 is 2.89 percent.
If the actual investment earnings exceed the board-set interest rate at the end of the year and program assets sufficiently exceed the amount needed to meet liabilities, the board may declare an additional earnings credit, which will be awarded to your account.
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.
If you make contributions on earnings in excess of one year of service, you are eligible for a return of your member contributions that exceed the contribution rate for Defined Benefit Supplement compensation – 8 percent for CalSTRS 2% at 60 members and 9 percent for CalSTRS 2% at 62 members.
CalSTRS will return excess contributions to your employer in late September. Your employer is responsible for returning your excess member contributions to you, less any authorized adjustments or tax withholding.
Keep in mind it may take 30 or more days for the excess member contributions to be transferred from CalSTRS to your employer. The timing of the return of your excess member contributions 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. Any excess member contributions you made during the school year are reported on your 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
After the end of the plan year, when the total investment earnings for the immediately preceding plan year are known, the board may declare an additional earnings credit to your Defined Benefit Supplement account.
Under board policy, an additional earnings credit could be declared if:
- The funded ratio of the of the Defined Benefit Supplement Program is greater than 100 percent by an amount exceeding one standard deviation of the expected long-term investment return.
- The amount of the credit shall not result in a funded status less than 100 percent plus one standard deviation of the expected long-term investment return.
Any additional earnings credit is applied to the balance of each member’s account as of the last day of the plan year; however, the date upon which the additional earnings credit is applied to members’ account is specified by the board.
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 impose tax penalties for certain early withdrawals. A 10 percent federal and, for California residents, a 2.5 percent state tax penalty will be assessed for early withdrawals, in addition to the normal tax liability.