Approximately 55,000 retired teachers would get additional pension payments under a bill now being debated in the California State Legislature.
Senate Bill 868 would offer quarterly compensation to teachers who retired before to 1999 in an effort to counteract inflation. According to a summary given by the California State Teachers’ Retirement System, the plan would result in pension increases ranging from 5 to 15 percent, depending on the year of retirement, with those who departed before to 1980 receiving the largest increases.
In the beginning of this year, the CalSTRS board approved the idea. The state Senate passed the proposal last week. It needs Assembly and Governor Gavin Newsom approval to become law.
According to CalSTRS, the cost of the additional benefit would be around $592 million. The funds would come from a fund created in 1989 to assist retiring teachers deal with inflation. The account, which is distinct from the system’s $318 billion investment fund, is maintained by the state’s general budget, earnings from leased school property, and payments associated with federal land grants to California schools. The idea, which was presented by Senator Dave Cortese, D-San Jose, would offer extra payouts on top of two existing inflation-based CalSTRS benefits. Every year, retirees and beneficiaries get a 2% raise from the retirement system. There is no compounding effect. As a result, pensioners’ annual payouts are increased by 2% of the amount they got when they retired.
The system also keeps track of the inflationary impact on pensions for retirees. Additional payments are available to retirees and beneficiaries of CalSTRS when inflation reduces the “purchasing power” of their pensions below a certain level, currently set at 80 to 85 percent.
Between 80% and 85% of the previous buying power may be restored with these supplements. With Cortese’s proposal, teachers who retired before to 1999 would get extra payments from the same account, putting their buying power even closer to 100 percent.
Starting on July 1, 2023, retirees will begin receiving quarterly payments that will enhance their benefits by an average of $1,860 per year to $3,768 per year.
The Supplemental Benefit Maintenance Account is the account that would provide the funding for the payments. CalSTRS anticipates that it will be able to provide supplementary benefits until 2089, and that it has $11.9 billion more in reserve than expected. According to Cortese’s plan, the excess would be reduced to around $11.3 billion.
The excess is attributable to lower-than-anticipated inflation in recent years, according to an email from CalSTRS spokesperson Rebecca Forée.
Retirees are not promised any further benefits. According to CalSTRS, the fund might run out of money early if inflation rises over the estimated annual rate of 2.75% for a long period of time. According to CalSTRS, inflation grew by 4.4% in the fiscal year that ended on June 30, 2021, and is on track to rise beyond 4% for the year that ends later this month as well.