California Teachers Association

March 2017

Issue link: http://educator.cta.org/i/795366

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New Member Retirement Benefits The California Public Employees' Pension Reform Act (PEPRA) of 2013 sets a cap on the amount of compensation used to calculate a retirement benefit for those first hired on or after Jan. 1, 2013, and applies to almost every public retirement system in California, including CalSTRS. These "new members" (who have never belonged to public retirement systems before) are required to pay at least 50 percent of the "normal cost" of their retirement benefits, or the current contribution rate of similarly situated employees, whichever is greater. Normal cost means the amount that it will cost to pay for future benefits. It is measured as a percentage of an employee's salary. The formula for calculating the retirement benefit is: Age Factor × Service Credit × Final Compensation = Member-Only Retirement Benefit. New members' age factor is 2 percent at 62 (versus 2 percent at 60 for other members). This means that at age 62 new members would receive 2 percent of their final compensation as a retirement benefit for every year of service credit. The age factor of 2 percent decreases to 1.16 per- cent at age 55 if they retire before age 62, and increases to a maximum 2.4 percent at age 65 if they retire after age 62. Other differences for new members: • No career factor is considered in cal- culating the benefit. • Final compensation is based on the highest average annual compen- sation earnable for 36 consecutive months, regardless of years of ser- vice credit. • Retirement is at age 55 with at least five years of service credit. CalSTRS estimates that the median benefit paid to new members when they retire will be about 47 percent of their final compensation, assuming their age and years of service at retirement are the same as for recently retired members, whose median benefit is 54 percent of final compensation. CTA's website has more information about CalSTRS and members' retirement. See ctainvest.org; for specific new member details, bit.ly/2kHqyVV. Newer members may face higher contributions By Dina Martin A move by CalSTRS to reduce its assumed rate of return on long-term invest- ments is likely to result in an increased contribution by the state to the retirement fund. The February vote by the CalSTRS Board to decrease the investment return assumption from 7.5 to 7.0 percent by 2018 was reached after discussion of interest rates and projected inflation, and after review of the CalSTRS Experience Analysis, a five-year study of actuarial data. " The decision to reduce the assumed rate of return will result in the state increasing its contributions to CalSTRS, and educators who were hired after 2013 increasing their contribution by $20 to $40 per month," says CalSTRS Board mem- ber Harry Keiley, chair of the investment committee and president of the Santa Monica-Malibu Classroom Teachers Association. Educators first hired on or after Jan. 1, 2013, are impacted by the California Public Employees' Pension Reform Act (PEPRA), which sets a cap on the amount of compensation that is used to calculate a retirement benefit. (See sidebar at right.) With the decrease in the assumed rate of return on investments, the state would be required to increase its contribution by 0.5 percent for the next 10 to 12 years. 47 March 2017 Changes to Educators' Pension System Continued on page 48

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