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CalSTRS to Analyze Legislative Bill Language on Public Employee Pension Reform

Governor Brown has announced an agreement with the Legislature on changes to public employee pensions. CalSTRS is in the process of analyzing the impacts any new reform measures will have on current members, new members and retirees. CalSTRS anticipates completing its analysis by the end of this week, at which time it will be made available on this and the CalSTRSbenefits.us websites.

Based on the proposed agreement announced on August 28, the benefit for members hired on or after January 1, 2013 will include:

  • A formula based on 2 percent of final compensation per year of service at age 62, whereas the current formula is 2 percent at age 60.
  • A limit of 120 percent of Social Security wages on compensation that is considered creditable for the Defined Benefit Program. Based on the existing Social Security Wage Base of $110,100, the initial limit applicable to new CalSTRS members would be $132,120. The limit on compensation that is counted toward calculating a member’s pension will further enhance existing CalSTRS safeguards against pension spiking prevention.

For existing members, the proposed changes would:

  • Eliminate the ability to purchase additional service credit known as air time.
  • Require the forfeiture of benefits if a felony is committed in the course of performing official duties.
  • Impose additional limitations on employment after retirement.

CalSTRS most significant issue is a $64.5 billion funding shortfall. On August 28, the California Senate adopted Senate Concurrent Resolution 105 (SCR 105) which states its intent to take action in the 2013-14 legislative session to address CalSTRS long-term funding needs. The resolution establishes a framework to develop a funding solution for adoption by the Legislature. CalSTRS will immediately work with affected stakeholders to develop alternative plans as requested in the resolution. The plans will consider gradual, incremental increases in contributions to address the long-term funding needs of the Defined Benefit Program. Once completed, CalSTRS will submit the plans to the Legislature early next year as outlined in the resolution.

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