Retired Teachers Obtain Increase in Purchasing Power Benefit
On September 30, 2008, the Governor signed AB 1389 (Chapter 751/2008), a Budget trailer bill that, among other things, revises the payments and calculations used by the State Teachers’ Retirement System (STRS) for the Supplemental Benefits Maintenance Account (SBMA). Among the other things that this bill enacts, it allows for an increase in the purchasing power of STRS’ retirees from 80% to 85%.
The SBMA provides supplemental payments, on a quarterly basis, to retired teachers whose purchasing power has fallen below 80%—now up to 85%—of the purchasing power of their initial allowance. The state sought to reduce its contribution to the SBMA, but was required to provide this increase in the benefit in exchange for doing so.
The amendments to the SBMA contributions and benefits differ somewhat from what had been approved by the Budget Conference Committee in June (see the article in the June 20, 2008, edition of the Community College Update). AB 1389 does the following:
1. Increases the targeted purchasing power benefit from 80% to 85%, but gives the STRS Board the authority to adjust that target between 80% and 85% based on long-term actuarial valuations
2. Maintains a state contribution of 2.5% of total creditable compensation for the 2007-08 fiscal year ending in the immediately preceding calendar year, but then reduces that contribution by $66 million in 2008-09, increasing to $72 million in savings in 2011-12 and thereafter
3. Appropriates an additional $56,979,949 annually for four years starting in fiscal 2009-10 for transfer into the SBMA in payment of the interest owed on STRS’ successful litigation challenging the state’s 2003 failure to make a full SBMA contribution
The STRS Board will adopt regulations to implement its new authority regarding the SBMA. The issues to be considered in developing the regulations—such as the length of time the Board targets for the benefit to be sustainable and how frequently the actuarial projections should be done—will be discussed at the November Board meeting. Draft regulations are expected to be provided for public comment at the February 2009 STRS Board meeting.
Meanwhile, eligible members will receive a check next month that reflects the 5% increase (members who received a check this month based on 80% purchasing power will receive a second check for the 5% increase.) Starting in January 2009, members’ quarterly checks will reflect the new 85% purchasing power payment. The increased payment will undoubtedly be welcome. The 80% purchasing power benefit typically went to an 83-year-old widow, and we would expect the increase in purchasing power to reduce the average age of benefit recipients only slightly.
—Deborah Harmon