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AB 2700

AB 2700 Notice
Important Notice for CalSTRS Members

Effective July I, 2002, changes in the definition of creditable compensation as a result of Assembly Bil12700 (AB 2700) will occur that may affect your take-home pay.

Why might my take home salary be reduced? The provisions of AB 2700 will enhance your benefits by expanding the types of service and compensation that are creditable to CalSTRS for retirement purposes. Compensation for summer school and intersession, along with stipends for the performance of extra duties, will now become creditable and require both member and employer contributions. Member contributions are 8 percent of the reported compensation. Therefore. you will have 8 percent of your CalSTRS-covered pay deducted for your CalSTRS benefit.

What are the enhanced benefits from AB 2700?
The expanded definition of creditable compensation permits a member to earn additional service credit for such additional activities as summer school service and extra duties. Member and employer contributions (8 percent each) on compensation earned for service in excess of one year will be credited to the member 's Defined Benefit Supplement account. These additional contributions will increase the member IS DBS account without reducing the benefit payable under the Defined Benefit program, which is the CalSTRS primary benefit program.

What if I have less than a full year of service credit from my normal assignment?
Starting July 1, 2002. the newly" creditable ,. additional duties will generate additional service credit. This will permit the member to earn up to one year of service credit during the school year. Currently, these duties cannot be used to bring a member up to one year of service credit.

Will all additional compensation generate service credit?
No, some compensation, such as a lottery bonus, will increase a member's "compensation earnable". Compensation earnable is a factor used to compute "final compensation" when a member is eligible for a retirement benefit. Additionally, contributions on compensation paid for the principal purpose of enhancing a member's DE retirement benefits will be credited to member's DES account.

It is impossible to briefly summarize all the changes resulting from AB 2700. However, to capture a flavor of the change would be to state that almost all compensation will become creditable to CalSTRS and will require contributions. For more information on the changes to creditable compensation, you are encouraged to visit the CalSTRS website at http://www.calstrs.ca.gov.

AB 2700 FAQs - Frequently Asked Questions

Creditable Compensation
(AB 2700) Frequently Asked Questions

How will the service and compensation crediting changes under Assembly Bill (AB) 2700 affect members of the CalSTRS Defined Benefit (DB) Program?
The provisions of AB 2700 will enhance members' benefits by expanding the types of service and compensation that are creditable to CalSTRS for retirement purposes. Once AB 2700 is implemented in July 2002, compensation for summer school and intersession along with stipends for extra duties performed will become creditable.

In addition, contributions by the member and the employer on compensation earned for service in excess of one year will be credited to the member's Defined Benefit Supplement (DBS) account at the end of the fiscal year. Certain other special compensation will also be credited to DBS. These additional contributions will increase the member's DBS account and provide a supplemental benefit without reducing the benefit payable under the Defined Benefit (DB) Program.

When will AB 2700 go into effect?
The legislation affecting creditable compensation will become operational July 1, 2002.

Please explain what you mean by summer school being creditable to CalSTRS.
Beginning with service performed July 1, 2002 and later, members will have 8% employee and 8.25% employer contributions reported by their employer to CalSTRS on summer school earnings. For example, if a member earns $2,500 for summer school in July 2003, the employer will deduct $200 (8% x $2,500 = $200) in employee contributions from the July paycheck and contribute $206.25 (8.25% x $2,500 = $206.25) in employer contributions. These contributions will be sent to CalSTRS. Whether these retirement contributions are credited to DB or DBS depends on what other service the member performs during that school year and the rates of compensation.

I would like to retire in June 2003, but I will have 29.900 years of service at that point. I need 30.000 years of service credit to receive the $200 longevity bonus. If I teach summer school in August 2002 can I use that service to earn more than one year of service credit in the 2002-03 school year?
No, the summer school will be creditable service, but you can still earn only one year of service credit during each July-June school year. For example, if you teach summer school in July and August 2002 and have a full-time assignment in 2002-03, your service credit will exceed one year. CalSTRS will adjust your service credit at the end of the July-June school year. Contributions on compensation in excess of one year will be credited to your DBS account at that time, and the DB account will be credited for one year of service.

However, in this situation, you could teach summer school after June 2003, which is in the next school year, accrue the .100 year of service credit to qualify for the longevity bonus and retire at the completion of the summer school.

How do I calculate the number of days I need to teach summer school in order to receive .100 additional service credit?
In order to determine service credit for hourly or daily service, you need to know the full-time base day/hour requirement for the position in the district in which you are employed. This information normally appears in your employment contract or collective bargaining agreement. You should contact your employer if you do not have this information.

For teachers in K-12, full time is normally between 180 and 185 days at six hours per day. For example, assume your district has base days or hours of 183 days or 1,098 hours based on a six-hour day:
Service Credit for 1 Day: 1/183 days = .0054 service credit
Service Credit for 1 Hour: 1/1098 hours = .0009 service credit

In this situation, in order to earn .100 service credit you would need to work:

.100 service credit/ .0009 service credit/hour = 111.1 hours 111.1 hours/ 6 hours/day = 18.5 or 19 days (/rounded up)

If I teach summer school and then retire, can my earnings at the summer school pay rate affect my retirement benefit if that compensation is a lower pay rate than my other compensation?
Yes. CalSTRS automatically uses the most recent compensation in calculating a service retirement allowance unless the member designates another period on the Service Retirement Application. Therefore, your lower pay rate just before retirement can lower your retirement benefit if you do not designate a period when your pay rate was higher.

I perform many extra duties that are paid with stipends. Will these affect my retirement in the future?
Yes, stipends for extra duties will be creditable but whether the specific stipend is credited to your DB or DBS account depends on individual circumstances of your service and the nature of the stipend. CalSTRS will be communicating specific information on this issue to the employers and members prior to July 1, 2002.

What if I'm on unpaid leave during the year? Can I make up the service credit by teaching summer school the following year?
It depends on the timing of the additional service relative to your unpaid leave. CalSTRS looks at service credit over the July - June school year. If you were on unpaid leave in April 2003, any additional service to replace lost April service credit would need to be performed in the May-June 2003 service period in order to count towards your 2002-03 service credit. So teaching summer school in July 2003 would not make up your loss in service credit in the 2002-03 school year. If you had taught summer school in July 2002, however, you could have made up your loss in service credit, because it is in a school year in which you otherwise accrue less than 1.000 year of credited service.

I work for multiple employers. In the past some of my contributions were returned because my service exceeded one year. Will I still have contributions returned?
No, after AB 2700 goes into effect, contributions from you and your employer for service in excess of one year will be credited to your DBS account. Specifically, your 8 percent contributions and 8 percent from your employer's percent contributions for service in excess of one year will be credited to your DBS account. Your employer also contributes another 0.25% which remains in the DB Program.

I'm a high school teacher during the year but in the summer I'm a middle school summer school principal. Since summer school will now be creditable, will my administrator's salary be used in determining my final compensation?
The impact that multiple rates of pay will have on your final compensation will depend on your individual circumstances. Variables such as your total service credit and the pay rates for each type of service will have a bearing on final compensation. CalSTRS will be communicating specific information on this issue to the employers and members prior to July 1, 2002.

Under AB 2700, if you have multiple pay rates during the year and earn at least .900 of a year of service credit at the highest pay rate, your final compensation will be determined as if all service credited for that year was earned at the highest pay rate.

AB 2700 Question Form

Please send all AB 2700 questions to ab2700responseteam@calstrs.ca.gov or use the form below to submit your questions. We will respond to your request as soon as possible. Thank you.