CalSTRS Proposed Rate Increase & Pension Reform
On Tuesday, February 19, in Doyle 4226, Ed Derman of CalSTRS spoke about the provisions of last year's pension reform bill, AB 340, which became law on January 1, 2013. He was especially concerned to clear up questions about the new 180-day post-retirement earnings limit. He emphasized that the 180-day earnings limit is not, strictly speaking, a prohibition on work. CalSTRS Defined Benefit Plan (DB) retirees (contract and adjunct) may return to work at CalSTRS-creditable activities, but their earnings will be deducted from their retirement payments, dollar for dollar, up to the full amount of their pension benefit paid during the 180 days. Here at SRJC, under the provisions of Article 16 in our contract, hourly like loads up to 20% will be preserved for DB retirees who sit out the 180-day period. DB retirees who have a higher hourly like load and who wish to preserve it would be able to work that higher like load during the 180-day period, subject to the earnings limit described above. In effect, any DB retiree who makes that choice will defer for 180 days the amount of their pension benefit that is subject to the earnings limit. Income from work outside the CalSTRS system, including CSU or UC, is not subject to the earnings limit. It is worth noting that there is also an annual earnings limit of $40k for DB retirees working at CalSTRS-creditable activities. CalSTRS earnings during the first 180 days will count towards the annual limit, and the total amount above the annual limit will also be deducted from the retiree's benefit, up to the full amount of the benefit.
The 180-day earnings limit applies to anyone who retires within CalSTRS after January 1, 2013, regardless of age. Most of the other important provisions of the pension reform law, in contrast, distinguish between employees hired before and after that date, creating a two-tiered system. The new "2% at 62" system (so called for the age factor used to calculate retirement benefits) applies to all employees who are hired to begin service that could be covered under CalSTRS on or after January 1, 2013. Under the new system, employees will reach the maximum age factor of 2.4% at age 65. Employees hired before that date will be covered by pre-existing provisions of the "2% at 60" system, reaching the maximum age factor of 2.4% at age 63. For a list of pension reform FAQs, a more detailed summary of what has and has not changed in the new two-tiered system, and other CalSTRS materials on pension reform, go to: http://www.calstrs.com/whats-new/pension-reform-impacts-calstrs.
Ed Derman closed his presentation by noting that these reforms do not fully eliminate the ongoing anticipated pension funding shortfall in the CalSTRS system. The state is contractually obligated to pay the full amount of retirement benefits, even should the CalSTRS pension fund be exhausted. Realistically, according to Derman, closing the gap between full coverage and whatever shortfall may occur in the future will require increased contributions to the pension fund, either by CalSTRS members, their employers, the Legislature (that is to say, the taxpayers), or some combination of those three stakeholders. How this sorts out, Derman concluded, will be determined by future legislation. Watch for news, and be ready to contact your representatives and make your views known.