Agreement Reached:
It appears that the State Teachers' Retirement System (STRS) and the Davis administration have reached an agreement that would guarantee the repayment of $500 million in state contributions to the retirement system. Lawmakers and the Governor have deferred the 2003-04 payment as part of their efforts to bridge the projected $38.2 billion budget gap.
The agreement is expected to be amended into CTA-sponsored AB 265, by Assembly Member Gene Mullin (D-South San Francisco) and Assembly Member Gloria Negrete McLeod (D-Chino). The measure was recently approved overwhelmingly by the Assembly and is headed for its next consideration in the Senate Public Employment and Retirement Committee.
The agreement can save the state an additional $58 million, STRS officials report, if AB 265 is enacted prior to July 1.
The tentative agreement would call for repayments to begin next year. Early payments would be "interest only," but eventually STRS would be made whole for the entire amount.
The issue is an important one for STRS members. The funds that have been deferred represent the state's 2003-2004 contribution to the Supplemental Benefits Maintenance Account (SBMA). This account is used to underwrite the costs of the purchasing power guarantee that adjusts retirees' pensions so that their payments maintain at least 80% of their original value, after inflation adjustments.
STRS representatives have said that the deferral of the contribution will not jeopardize these purchasing power adjustments in the short run, but in the long run they could make it more difficult to increase the purchasing power floor above the current 80% level.
CTA and STRS have been working hard to secure a guarantee of repayment of the deferred funds. The deferral was authorized by the enactment of SB 20x, and many lawmakers thought that measure contained a guarantee that STRS would be repaid, with interest, for the deferred funds.
Both CTA and STRS representatives pointed out the original bill did not contain language requiring the state to repay the $500 million and pushed for the passage of a bill that would contain a written agreement.
CTA Members:
Contact your State Senator and urge her/him to vote for AB 265 (Mullin/Negrete).