Copyright© 2006 by School Services of California, Inc.

                                      Volume 19                   For Publication Date: December 1, 2006             No. 25

Revision to Postretirement Earnings Limits 

Education Code Section 24216.5 contains provisions that pertain to compensation earned by certain retirees and conditions under which exemptions from the earnings limitations may apply. State Teachers’ Retirement System (STRS) members who retire from service and subsequently perform activities requiring membership in STRS are subject to an earnings limit of $27,060 for fiscal year 2006-07. Also, a retired member is exempted from the earnings limit if he or she has not returned to STRS-covered employment for any 12 consecutive month period after retirement. Approximately 32% of retired members who have returned to work are employed under an earnings limit exemption. 

The STRS Board will sponsor legislation in the 2007 legislative session that is intended to accomplish the following for all STRS members: 

• Extend current postretirement earnings limit exemptions only until June 30, 2008, whereupon they are replaced with the changes listed below, including the one permanent exemption for remedial education.
• Provide for retired members who are under age 60 or who turn age 60 during a school year an earning limit equal to 50% of the average member’s salary rate, unless the retired member qualifies for an exemption by earning no creditable compensation for at least 12 months after retirement.
• Eliminate, for members who turn age 60 in the prior school year or who are at least 61, any limitations on postretirement earnings.
• Impose contributions on employers for the compensation earned by any retired member, at the rate imposed on employers for other service.

STRS estimates that the increased benefit costs will be offset by increased employer contributions, resulting in a net gain of $144 million over 30 years. Imposing employer contributions for postretirement employment is one of the components of STRS’s strategy for addressing the unfunded actuarial obligation of the Defined Benefit Program. 

On the positive side, STRS believes that this proposal will simplify return-to-work rules, streamline school district and STRS administrative practices, and improve the funded status of the Teachers Retirement Fund. On the negative side, the proposal imposes additional retirement contribution cost for employers and reduces the ability of retired members under age 60 to return immediately to work on more that than a part-time basis. 

—Arnold Bray and Sheila Vickers