Frequently Asked Questions
What is the budget proposal made by the administration?
- change the purchasing power program to guarantee Defined Benefit monthly payments
are at least 80 percent of consumer purchasing power regardless of the availability
of funds in the program's account
- reduce the state's contribution to the program by three-tenths of a percent
(.3 percent) of payroll
Will the proposal affect current recipients of purchasing power program payments?
No. The proposal will not change any purchasing power program benefits now being paid nor
would the proposal change those benefits for future recipients under the current benefit structure.
What is the current purchasing power program?
What would change?
Current:
- CalSTRS pays quarterly, supplemental benefits from the Supplemental Benefit Maintenance
Account to approximately 60,000 retirees and beneficiaries when inflation erodes their
monthly benefits below 80 percent of the original consumer purchasing power.
- These payments are guaranteed as long as there are funds in the Supplemental Benefit
Maintenance Account to pay the benefits at that 80 percent level.
- If there are insufficient funds in the account to maintain 80 percent purchasing power,
the Teachers' Retirement Board is authorized to take a variety of actions, including reducing
the purchasing power benefit to a level that can be supported with available funds.
Proposed:
- The purchasing power program would be unconditionally guaranteed at 80 percent of purchasing
power, regardless of the availability of funds in the account. If there were insufficient funds,
the state General Fund (tax receipts) would make up the difference.
- Because the purchasing power is guaranteed at 80 percent level, it would require additional
legislation to increase the percentage in the future.
What is the current state contribution and what would change?
Current:
- The state contributes 2.5 percent of the CalSTRS payroll into a special account,
the Supplemental Benefit Maintenance Account.
Proposed:
- In return for guaranteeing the 80 percent level of purchasing power, the state's contribution
to the Supplemental Benefit Maintenance Account would be reduced from 2.5 percent to
2.2 percent of CalSTRS payroll.
- This reduction would provide an annual savings of about $75 million to the General Fund.
Are there currently sufficient funds in the program account for 80 percent purchasing power protection?
Yes. The account has sufficient funds to supplement benefit payments at the 80 percent level indefinitely,
using current economic assumptions.
What must happen for the proposal to become law?
- The proposal must go through the legislative process, which includes hearings and votes by the
Legislature, before the Governor can sign the budget into law.
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