CalSTRS Corrects Pension Spiking

October 12, 2011 ( - The California State Teachers’ Retirement System (CalSTRS) announced its determination that the Yuba Community College District incorrectly reported compensation to CalSTRS that resulted in $844,000 in pension overpayments.

Otherwise known as pension spiking, CalSTRS found 44 benefit recipients received overpayments.

CalSTRS discovered the Yuba Community College District has been incorrectly reporting a retirement incentive dating back to 2003-2004. The retirement incentive was incorrectly allocated to the pension recipients’ defined benefit accounts — the core pension the fund administers. However, the retirement incentive can only be credited to the defined benefit supplement account.

The Defined Benefit Supplement Program began in 2001 and created a hybrid plan structure, allowing CalSTRS to ensure that contributions made on extra compensation for summer school or other extra-pay assignments, including retirement incentives, are credited to a cash balance account that acts like a 401(k) and do not figure into final compensation, a factor in setting pension benefits.

The District’s retirement incentive, offered as part of a reduced workload program, represented roughly 10% of the members’ final compensation. The reporting error caused the defined benefit retirement formula to be calculated incorrectly by overstating the final compensation factor. The benefit overpayments totaled $844,193.66.

“CalSTRS takes pension spiking very seriously. We adhere to thorough and comprehensive processes while reviewing any suspected spiking cases prior to changing a member’s pension payment in a manner consistent with the law,” said CalSTRS Chief Executive Officer Jack Ehnes, in a news release. “This particular case is a prime example of the effort CalSTRS takes to ensure retirement benefits earned by hard-working educators will be paid according to their correct creditable compensation and other factors according to the plan design formula.”

California Education Codes 24616 through 24617 require that CalSTRS collect the benefit overpayments from the 44 recipients (43 members and one beneficiary). In mid-September, CalSTRS sent a letter to those affected explaining how their benefit will change, the amount of the overpayment, the collection procedure, and information on how to request an appeal hearing. The recipients’ payments have subsequently been reduced to correct the monthly pension benefit amount. In addition, starting October 1, 2011, in accordance with the maximum percentage allowable by law, 5% is being deducted from the monthly pension payments to collect the overpayment amounts.