1) SUPPLEMENTAL PAYMENTS
FISCAL YEAR 2015-16
CALCULATION
AND
FUNDING INFORMATION
Revised 8/2015
LPRD-104
2) California State Teachers' Retirement System
Supplemental Payments
Contents
Purchasing Power ........................................................................................................................................... 3
2% Benefit Improvement Factor .................................................................................................................... 3
Schools Lands Revenue ................................................................................................................................. 3
Supplemental Benefit Maintenance Account ................................................................................................. 4
Estimation of Supplemental Payments........................................................................................................... 4
Purchasing Power Percentage of the Current Allowance .............................................................................. 4
Total Quarterly Supplemental Payment ......................................................................................................... 5
Attachments:
Purchasing Power Factors for 2015-2016 - Attachment A
Estimation Worksheet - Quarterly Payments
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3) California State Teachers' Retirement System
Supplemental Payments
to remember that these payments are not guaranteed
and will continue only as long as funds are available.
Periods of low inflation can also occur and lower the
quarterly supplemental payment amount.
Purchasing Power
Inflation can significantly deteriorate a person’s ability
to maintain a consistent standard of living after
retirement. Inflation is generally measured by changes in
the average prices of selected goods and services. As
inflation rises, the value of money decreases because it
purchases fewer goods and services. A decline in the
purchasing power of money is another way to define
inflation.
School Lands Revenue (Education Code Sections
24412 and 24413)
Since 1983, it had been the intent of the Legislature
and the Teachers’ Retirement Board to maintain the
level of purchasing power of CalSTRS allowances to a
minimum of 75 percent of the purchasing power of the
initial allowance. To fulfill this intention, revenue
generated from the use of State School Lands (land
granted to California by the federal government to
support schools) and Lieu Lands (properties purchased
with the proceeds from the sale of school lands) during
the prior year is transferred to CalSTRS each year for
the purpose of providing annual supplemental
payments in quarterly installments. Chapter 840,
Statutes of 2001 increased the payment to provide for
up to 80 percent purchasing power. The School Lands
revenue only covers payments that maintain up to 80
percent purchasing power. Payments to maintain
higher than 80 percent purchasing power comes from
the SBMA.
The higher the rate of inflation, the greater the drop in
the purchasing power of money. For example, if wages
remain the same but prices double, the current
purchasing power of wages is only 50 percent of the
purchasing power of those same wages prior to the price
increases. In this situation, wages must double to
maintain the same purchasing power.
The California State Teachers’ Retirement System
(CalSTRS) measures the purchasing power level of
allowances by the change in the All Urban California
Consumer Price Index (CCPI) published by the
Department of Industrial Relations, Bureau of Labor
Statistics. The cumulative change in the CCPI from
each year in which benefits have become effective since
1955 is displayed in Attachment A.
This revenue is distributed on a pro-rata basis to all
benefit recipients whose initial allowances have fallen
below the 80 percent purchasing power level. Because
the revenue from School Lands does not generate
enough income to bring the purchasing power of all
CalSTRS allowances to at least 80 percent, the
available revenue is distributed on a proportional basis
to all eligible benefit recipients. The amount of the
School Lands payment for each benefit recipient
depends on the: (1) amount of money available from
School Lands that year; (2) number of benefit
recipients whose allowance purchasing power is below
80 percent; and (3) increase in the CCPI.
2 Percent Simple Benefit Adjustment (Education
Code Sections 22140, 22141 and 24402)
The CalSTRS Defined Benefit Program provides an
automatic 2 percent simple benefit adjustment to
allowances payable to all benefit recipients to provide
some protection against the effects of inflation. This
annual “benefit improvement factor” is applied
September 1 of each year following the first anniversary
of the effective date of the benefit.
Supplemental Payments
There are two other sources of funds that provide
additional purchasing power protection for CalSTRS
benefit recipients through “supplemental payments”.
They are 1) School Lands Revenue and 2) the
Supplemental Benefit Maintenance Account (SBMA).
Supplemental payments begin automatically once your
allowance qualifies and are issued from these funds on
October 1, January 1, April 1 and July 1. It is important
For example, if School Lands revenue is only
sufficient to provide 5 percent of the amount needed to
bring all allowances up to a minimum of 80 percent of
the purchasing power of the initial allowance, each
eligible benefit recipient will receive from School
Lands revenue 5 percent of the amount needed to
restore their purchasing power to 80 percent.
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4) California State Teachers' Retirement System
Supplemental Payments
In 2015-2016, School Lands revenue is providing only
4.67 percent of the amount needed to restore the
purchasing power of allowances payable to all benefit
recipients to a minimum of 80 percent. Therefore, each
eligible benefit recipient receives a supplemental
payment paid from School Lands revenue equal to 4.67
percent of the amount necessary to raise the purchasing
power of the allowance to 80 percent.
Since School Lands revenue for 2015-2016 is not
sufficient to raise the purchasing power of each
CalSTRS allowance to a minimum of 85 percent of the
purchasing power of the initial allowance, the SBMA is
used to make up the difference.
Both the School Lands revenue and SBMA provide
authority to make supplemental payments sufficient to
bring purchasing power up to 85 percent of the
purchasing power of the original allowance. Since
2001, funding from the General Fund has been a
contractually enforceable obligation of the state.
However, Chapter 6, Statues of 2003 reduced the
General Fund contribution for 2003-2004 by $500
million. The TRB successfully pursued litigation to
compel payment of the $500 million plus interest. A
$500 million payment consisting of the interest owed
to date and partial payment of the principal was
received September 6, 2007. Chapter 751, Statutes of
2008 also appropriated $56,979,949 to pay the
remaining principal and interest of the original $500
million, to be contributed to the Supplemental Benefit
Maintenance Account in the Teachers’ Retirement
Fund on or after July 1 in each fiscal year starting with
fiscal year 2009-2010 and ending with fiscal year
2012-2013. The 85 percent level of supplemental
payments, however, is not vested. This means that if
the combined funding from both sources is not
sufficient to bring purchasing power up to the 85
percent level, supplemental payments may have to be
paid at a lower level. However, based upon our
assumptions, the funding for an 85 percent
supplemental payment is sufficient for well in excess
of 30 years.
Supplemental Benefit Maintenance Account
Chapter 751, Statutes of 2008 increased the
Supplemental Benefit Maintenance Account to up to
85% of the purchasing power of the initial monthly
allowance. It authorized the Teachers’ Retirement
Board (TRB) to adjust the purchasing power protection
payments between no less than 80% and no more than
85%, based on actuarial projections.
An amount equal to 2.5 percent of the fiscal year
covered CalSTRS’ member payroll (ending in the
immediately preceding calendar year) is contributed
each year from the State of California General Fund to
the Supplemental Benefit Maintenance Account
(SBMA) in the Teachers’ Retirement Fund on July 1 of
each fiscal year. Beginning with the 2008-2009 fiscal
year, the appropriation would be reduced in accordance
with the schedule below. The contributions are made on
October 15 and April 15 of each fiscal year, with each
contribution equal to one half of the amount
appropriated.
The amount of the supplemental payment from SBMA
for each benefit recipient depends on: 1) the extent to
which the benefit recipient’s allowance has fallen
below 85 percent of the purchasing power of the initial
allowance; and (2) the amount of the supplemental
payment provided from School Lands Revenue.
Estimation of Supplemental Payments
2008-09 ……………………………… $66,386,000
2009-10 ……………………………… $70,000,000
2010-11 ……………………………… $71,000,000
2011-12 and each fiscal year thereafter …..$72,000,000
A benefit recipient can estimate his or her
supplemental payments. It is first necessary to
calculate the purchasing power of the current CalSTRS
allowance. This is accomplished by using the
following information:
The SBMA provides annual supplemental payments in
quarterly installments to all benefit recipients whose
purchasing power has fallen below 85 percent of the
purchasing power of the initial allowance, after
application of the School Lands monies, as long as funds
are available.
Benefit Effective Date (identified by “Initial
Date/Allow” on the Direct Deposit Advice/Check stub
just below the Client ID)
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5) California State Teachers' Retirement System
Supplemental Payments
Initial Allowance
(identified
by
“Initial
Date/Allow” on the Direct Deposit Advice/Check stub
just below the Client ID)
amount would be if it had been adjusted to
keep pace with inflation since the Benefit
Effective Date.
Current Allowance (the sum of your Normal Allow
and COLA on the Direct Deposit Advice/Check stub*),
and
$1,000 x 2.058 = $2,058.00
C.
Change in the California Consumer Price Index
(CCPI) is determined by dividing the CCPI for June of
2015 by the CCPI for June of the calendar year of
retirement.
Attachment A provides the result
(Purchasing Power Factor) of this division for each
calendar year of retirement.
Divide the Current Allowance by the Fully
Adjusted Allowance to calculate the Current
Purchasing Power Percentage.
$1,540.00 / $2,058.00 = 74.83%
Note: If the Current Purchasing Power Allowance
percentage is greater than 85 percent, no
supplemental payments will be paid.
* Due to legislative constraints, not all cost-of-living and minimum
guarantee increases are used when determining the current allowance
to be used in calculating the supplemental benefit. The current
allowance shown on your warrant stub/deposit advice is for
estimation purposes only.
Total Quarterly Supplemental Payment
Purchasing Power Percentage of the Current
Allowance - Example
A.
The total supplemental payment is determined as
follows:
The example will use the following data to calculate the
current purchasing power percentage:
Multiply the fully Adjusted Allowance by
0.85 to determine the 85 percent Purchasing
Power Amount.
$2,058.00 x 0.85 = $1,749.30
Initial Allowance:
$1,000
Benefit Effective Date:
July 1, 1988
Current Allowance:
$1,540
Purchasing Power Factor:
2.058
B.
In this example, the benefit effective year is 1988, and
the corresponding Purchasing Power Factor is 2.058.
(Change in CCPI is determined by dividing the CCPI for
June of 2015 by the CCPI for June of the calendar year
of retirement, in this example, 1988.)
Subtract the Current Allowance from the 85
percent Purchasing Power Amount to
determine the Supplemental Payment
Monthly Amount, the monthly payment
amount that would be needed to restore the
purchasing power allowance to the 85 percent
level.
$1,749.30 - $1,540.00 = $209.30
C.
The purchasing power of the current allowance is
determined as follows:
Multiply Supplemental Payment Monthly
Amount by three (3) months to determine the
Total Quarterly Supplemental Payment.
$209.30 x 3 = $627.90
A.
B.
Obtain the Purchasing Power Factor for the
benefit effective year: 2.058
For this example, $627.90 would be the
Quarterly Supplemental payment that would
be paid on October 1, 2015, January 1, 2016
April 1, 2016 and July 1, 2016.
Multiply the initial allowance by the Purchasing
Power Factor to obtain the Fully Adjusted
Allowance. This is what the current allowance
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6) California State Teachers' Retirement System
Supplemental Payments
Factors for Calculating 2015-2016 Purchasing Power
All Urban CA Consumer Price Index
Attachment A
Year
June CCPI
Purchasing Power Factor*
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
25.7
26.2
27.1
28.1
28.5
29.1
29.5
30.0
30.2
30.8
31.6
32.1
32.9
34.3
36.0
37.9
39.4
40.5
42.7
47.1
52.0
55.2
59.5
64.6
71.0
83.3
90.1
98.5
99.1
103.6
108.4
112.2
116.3
121.7
128.2
134.3
9.743
9.557
9.240
8.911
8.786
8.605
8.488
8.347
8.292
8.130
7.924
7.801
7.611
7.300
6.956
6.607
6.355
6.183
5.864
5.316
4.815
4.536
4.208
3.876
3.527
3.006
2.779
2.542
2.527
2.417
2.310
2.232
2.153
2.058
1.953
1.865
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7) California State Teachers' Retirement System
Supplemental Payments
Year
June CCPI
Purchasing Power Factor*
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
140.1
145.2
148.9
150.7
154.2
156.6
160.0
163.6
167.8
174.0
183.2
185.9
189.9
195.8
201.3
210.9
217.4
228.324
224.994
227.113
233.285
237.781
241.926
247.228
250.404
1.787
1.725
1.682
1.662
1.624
1.599
1.565
1.531
1.492
1.439
1.367
1.347
1.319
1.279
1.244
1.187
1.152
1.097
1.113
1.103
1.073
1.053
1.035
1.013
1.000
*The Purchasing Power Factor is obtained by dividing the CCPI for June of 2015 by the CCPI for June of
the calendar year of retirement.
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8) California State Teachers' Retirement System
Supplemental Payments
Estimation Worksheet - Quarterly Payments
Current Allowance Purchasing Power Percentage
1.
x
Initial Allowance
Monthly Amount
2.
1.
_____________________
Fully Adjusted
Allowance (a)
=
______________________
Current Purchasing
Power Percentage (Must be less than 85% to proceed)
=
/
Current Allowance
Monthly Amount
ï®
=
______________
Purchasing Power Factor for
the Benefit Effective Year
Fully Adjusted Allowance (a)
Total Supplemental Payment
__________
x
Fully Adjusted
Allowance (a)
2.
0.85
Purchasing Power
Percentage
85% Purchasing Power
Amount (b)
85% Purchasing
Power Amount
3.
x
Supplemental Payment
Monthly Amount(c)
=
___________________
Supplemental Payment
Monthly Amount (c)
=
___________________
Total Quarterly
Supplemental Payment
Current Allowance
Monthly Amount
3
Number of months
in a quarter of a year
8
