CalSTRS Statement on the Adoption of Creditable Compensation Regulations
Clarifies what can and cannot be credited to the defined benefit pension for hires before January 1, 2013

Statement Ricardo Duran

WEST SACRAMENTO, Calif. – The Teachers’ Retirement Board Thursday adopted regulations clarifying what forms of pay can and cannot be credited to California State Teachers’ Retirement System (CalSTRS) members’ defined benefit pension accounts. The regulations apply to members who were hired before the January 1, 2013 effective date of the California Public Employees’ Pension Reform Act. CalSTRS Deputy Chief Executive Officer Ed Derman issued the following statement:

“The regulations give employers and CalSTRS staff clear guidelines to ensure all members are being credited properly, consistently and fairly for their service. The regulations will also help CalSTRS identify, evaluate and determine instances of pension spiking – the boosting of pay at the end of a career to increase a pension benefit.

“These regulations are expected to reduce employer and state contribution costs. Our consulting actuary estimated maximum savings of $56 million annually for employers and $22 million annually for the state.

“The development of creditable compensation regulations was carried out for the benefit of our system’s employers because they are responsible for accurately reporting member compensation to CalSTRS. The regulations were developed with our employers’ input and underwent four stages of public comments to ensure they were comprehensive, legally-based and workable for our members and employers.

“Among the types of income that are not creditable to CalSTRS are cash in lieu of fringe benefits, such as health benefits. Also, any reimbursable item or business expense that might routinely be paid for by the employer; for example, an automobile or housing allowance, sometimes paid to superintendents, is not creditable.

“Among the types of compensation that may be credited to CalSTRS are those linked to the possession or attainment of a certificate, license or special credential, or to an advanced degree.

“Pay for assignments performed in addition to regular full-time employment, such as coaching, summer school or for extracurricular activities, goes to the Defined Benefit Supplement Program (DBS). DBS is a separate retirement program, which helps curb spiking because the benefit is linked to member and employer contributions, plus the interest the account earns, and is not linked to the standard pension.

“Similarly, compensation that is paid for a specified time period or that represents an inconsistent late-career increase in income would be credited to DBS and not counted toward the standard pension.

CalSTRS takes pension spiking seriously. Our Compensation Review Unit analyzes possible cases of spiking by conducting regular account reviews and following up on information relayed via a secure and anonymous toll-free pension abuse reporting hotline. Over the past two years, CalSTRS has also increased its internal and external auditing resources to ensure high-risk employers are reporting earnings accurately.”

The California State Teachers’ Retirement System, with a portfolio valued at $186.6 billion as of July 31, 2014, is the largest educator-only pension fund in the world. CalSTRS administers a hybrid retirement system, consisting of traditional defined benefit, cash balance and voluntary defined contribution plans. CalSTRS also provides disability and survivor benefits. CalSTRS serves California’s 868,000 public school educators and their families from the state’s 1,600 school districts, county offices of education and community college districts.