Retirement & Benefits Planning

Pension

403B/457B

Health Insurance

Other Benefits

Retirement Plan Types

• Defined Benefit Plan
• Also known as a “pension”
• Promises a set monthly benefit at retirement
• Employer controls the investment and bears the risk
• Defined Contribution Plan
• 401K/403B/457B
• A set contribution while employed, but not a specific monthly payment at retirement
• Employee controls the investment and bears the risk

CalSTRS Pension

• Lifetime benefit that never runs out (like Social Security)
• You pay 10.25% of every month (district pays 19.1%)
• Your contributions pay for the first few years of benefits in retirement
• State pool of benefits pays the remainder through retirement
• Can start pension when you retire or can delay
• Inflation Protection
• 2% of your initial benefit added annually (simple interest)
• Quarterly purchasing power protection supplemental benefit payments

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CalSTRS Pension Structures

• 2% at 62 (hired after Jan 1, 2013)
• Age factor = 2% at age 62, increasing to 2.4% by age 65
• Can retire as early as at age 55 with five years of service
• Final compensation = highest average of 36 consecutive months
• 2% at 60 (hired before on or before Dec 31, 2012)
• Age factor = 2% at age 60, increasing to 2.4% by age 63
• 0.2% added to age factor after 30 years of service
• Can retire as early as age 50 with at least 30 years of service
• Final Compensation
• Highest average of 36 consecutive months
• Highest average of 12 consecutive months after 25 years of service

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Retirement Benefit Equation

• Service Credit x Age Factor x Final Compensation = Benefit

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• Example
• Assuming the “2% at 60” plan
• Retire at age 60 with 25 years of service and final compensation = 10,000/mo

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25 years x 2% age factor x 10,000/mo = 5,000/mo

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Pension Increase by Age

Converting Unused Sick Days

• Unused Sick Leave / 186 = Added Service Credit
• For 2% at 60 members, up to two-tenths of one year of unused sick leave may be used to qualify for:
• Age factor for 30 or more years of service
• 25-year threshold for one-year final compensation

Purchasing Service Credits

• Redepositing Service Credits
• Redepositing an earlier refund from CalSTRS
• Based on growth since refund at plan assumed rate (currently 7%)
• Permissive Service Credits
• Based on current salary
• From teaching outside of CalSTRS, approved leave of absence, employer-approved maternity or paternity leave, up to 24 months, etc.
• Always purchase with payroll deferrals

Disability Benefits

• The Coverage B disability benefit is 50 percent of your final compensation
• Must have five or more years of credited service

Survivor Benefits

• Can name a beneficiary to continue receiving all or a portion of your pension benefit
• Think of it like buying a life insurance policy without any medical underwriting
• Reduces your monthly benefit (determined by age of beneficiary)
• Options: 50%, 75%, or 100% survivorship
• Any of your remaining contributions will be distributed on your death
• If your beneficiary dies before you, your benefit will rise to the member-only benefit

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What about my Social Security?

• CalSTRS is an “uncovered” pension, meaning you don’t pay into Social Security
• Windfall Elimination Provision (WEP)
• Impacts your own SS benefits
• Changes first “bend point” from 90% to 40%
• Starts to phase back in after 20 years of substantial earnings (fully phased in after 30)
• Reduces but doesn't eliminate your benefit
• Government Pension Offset (GPO)
• Impacts Spousal or Survivor SS benefits
• Reduces Benefits by 2/3 of the pension you receive
• Can fully offset your potential benefits

Defined Benefit Supplement

• Cash balance plan that works like a Defined Contribution Plan
• Funds come from compensation earned from service greater than one service credit
• Department chair stipend
• Teaching 1.2
• Emergency subbing
• Guaranteed minimum interest rate based on 30-yr U.S. Treasury bonds
• Distribution options at retirement
• Lump sum distribution
• Roll to IRA
• Annuitize

Defined Contribution Plan

• 403B/457B
• Can contribute pre-tax (Traditional) or after-tax (Roth)
• Max deferral in 2024 = 23K plus 7,500 catchup contribution if age 50+
• Multiple plan providers available
• Not all plans are created equal
• Investment options are not limited to annuities
• Distribution options at retirement
• Leave in plan (normally if greater than 5K)
• Lump sum distribution
• Roll to IRA
• Annuitize

Why Fund a 403B/457B?

• Aspirational goals (“fun money”)
• Contingency for the unexpected
• Healthcare
• Family needs
• Safety margin
• CalSTRS funding level
• Challenges to the “California Rule”
• Legal opinion requiring government workers to receive the pension benefits that were in place on the day they were hired
• As opposed to pension benefits earned thus far

Potential Growth of Investing $100/mo

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How to Choose a Good 403B/457B

• Know your options
• Read “Your Union wants you to know about Supplemental Pension Plans”
• Use 403bCompare.com to evaluate plans (provided by CalSTRS)
• Don’t assume all providers are the same quality and cost
• Don’t assume you have to buy annuities
• Don’t assume all marketing emails are from the District/Union/CalSTRS
• Keep your investment costs low
• Cost is one of the better predicters of performance
• Annuities are poor growth investment vehicles because of their high fee structure
• Ask how providers get paid. If they won’t tell you or say you don’t pay them anything, it’s a sign to move on

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Sample Marketing Email

Employee  _____, ��As an employee of Terra Linda High School, you’re entitled to a complimentary appointment with a licensed representative* ” ��On this consultation we’ll cover: ��• Your potential monthly estimate from CalSTRS of California ��• Learn if you can possibly retire early. ��• You’ll receive guidance on your 403(b)/457. ��Book your appointment on the link below �

Traditional or Roth?

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Other Important Benefits

• Flexible Savings Account (FSA)
• “Use it or lose it” deferral
• Healthcare FSA ($3,200 in 2024)
• Dependent Care FSA ($5,000 in 2024)
• Short-Term Disability Insurance
• Life Insurance
• Future Health Savings Account (HSA)?

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Retirement Healthcare Before Medicare (65)

• Continue existing coverage at your own cost
• High School District Benefits
• If retire between 55 and 64
• Paid for 5 years or until age 65
• Benefit Amount
• 10 consecutive FTE years in HS district = $306.43/mo (30% Kaiser single payer)
• 15 consecutive FTE years in HS district = $510.72/mo (50% Kaiser single payer)
• 20 consecutive FTE years in HS district = $1,021.44/mo (100% Kaiser single payer)
• Applied to single or two-party coverage for health and/or dental insurances
• CoveredCA Healthcare Exchange

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Medicare (65+)

• Traditional Medicare
• Part A – Hospital Insurance (free)
• Part B – Medical Insurance (monthly premium)
• Part D – Prescription Drug Coverage (monthly premium)
• Includes deductibles and co-insurance
• Combined with Supplement Policy or “Medigap” Policy (monthly premium) to cover gaps
• Higher premiums and lower out of pocket costs
• Medicare Advantage (Part C)
• Medicare contracts with providers to offer coverage (monthly premium)
• Often includes dental and vision
• Limited network
• Lower premiums and higher out of pocket costs
• Be careful to follow enrollment periods!

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Key Takeaways

• Start planning now
• Know your options
• Read “Your Union wants you to know about Supplemental Pension Plans” (Morgan Agnew)
• Follow the CalSTRS retirement checklist
• Take advantage of all your benefits
• Start funding a 403B

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