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Cash Balance Benefit Program

The Cash Balance Benefit Program, an Internal Revenue Code 401(a) defined benefit plan, is an optional program designed specifically for part-time educators and adjunct faculty.

Additional Annuity and Earnings Credits

Program description 

The Cash Balance Benefit Program is a hybrid retirement program that can be an alternative to the CalSTRS Defined Benefit Program, Social Security and other retirement plans. It accumulates funds based on dollars contributed by the employee and the employer plus interest, similar to a defined contribution program.

Like a defined benefit program, it offers a guaranteed benefit—as a lump sum, or in monthly annuity payments if the balance is at least $3,500.

Eligibility for benefits 

Eligibility is determined on the basis of employment, part-time or temporary, not on the actual hours worked. Generally, employees and employers each contribute 4 percent of the employee’s gross salary.

You are eligible for the Cash Balance Benefit Program if you are a:

  • PreK–12 part-time teacher who:Is employed for less than 50 percent of each full-time position.Signed a district contract for less than a 50-percent commitment.
  • Community college employee who:Is a part-time or temporary instructor or adult education instructor.Is an adjunct or hourly faculty member hired semester to semester to work 67 percent or less of the weekly hours required for a full-time assignment. If an annual district contract is signed, it must be for no more than a 67-percent time commitment for each full-time position.
  • Individual who serves as trustee for an employer that offers the Cash Balance Benefit Program.

Your district must decide formally if it will offer the Cash Balance Benefit Program as an alternative program. Cash Balance may be offered exclusively or along with other retirement programs or Social Security. Eligibility depends on your basis of employment, not the actual hours you work.

Election of Coverage

If the governing board elects to provide coverage under Social Security or an alternative plan, you can choose not to participate in the Cash Balance Benefit Program.

If you initially chose alternative coverage, you can participate in the Cash Balance Benefit Program at a later date. However, the program must be provided by your employer and you must be eligible to participate.

Discontinued Eligibility

Your Cash Balance Benefit Program eligibility ends when:

  • You accept a position via written contract or employment agreement on the basis of:A 50 percent or more time commitment of a full-time equivalent position with a K–12 school district.More than a 67-percent time commitment of a full-time equivalent position with a community college district.
  • You work in a full-time position performing creditable service for your employer.
  • You elect the Defined Benefit Program with your employer.

Retirement Eligibility

You may retire as early as age 55. You must terminate all CalSTRS creditable service to apply for a retirement benefit. You must take a distribution of your retirement benefit by age 70 ½, unless you are still working.

Contributions 

With the Cash Balance Benefit Program, your employer generally matches your contribution dollar for dollar. Typically, you contribute 4 percent of your salary and so does your district. This combined contribution usually will total 8 percent.

Alternative rates may be set, depending on your collective bargaining agreement, but for contracts entered into or changed on or after January 1, 2014, you must contribute at least 4 percent, and the combined contribution must total at least 8 percent.  You cannot contribute less than your employer.

Your contributions are made on a pre-tax basis, reducing the amount of your taxable income.

Immediate Vesting

You are immediately eligible for a benefit equal to the sum of the balance of contributions, including compound interest earned on your and your employer’s accounts.

Guaranteed Interest Rate

The interest rate is set annually by the Teachers’ Retirement Board based on the average 30-year Treasury rate. The current rate through June 30, 2018 is 2.89 percent.

Secure Investments

The Cash Balance Benefit Program is a separate benefit structure managed by CalSTRS. Contributions to the program are invested at the direction of the Teachers’ Retirement Board.

Gain and Loss Reserve

During years when the rate of return is less than the guaranteed interest rate, funds accumulated in a Gain and Loss Reserve account are used to credit interest to your account.

Additions to the Gain and Loss Reserve are determined by the board, on an annual basis. Additions are based on earnings exceeding the need to credit the guaranteed interest rate and pay administrative costs.

The Gain and Loss Reserve also ensures adequate funds are available in the Annuitant Reserve for monthly annuity payments.

Early withdrawals 

CalSTRS is required to withhold 20 percent federal income tax on all rollover-eligible payments distributed directly to you. If you choose to have state income tax withheld, CalSTRS will withhold at 10 percent of your federal withholding, or 2 percent.

You may be subject to an additional 10 percent federal and 2.5 percent state tax if you take an early withdrawal before age 59½ and do not roll over the funds to another eligible retirement plan.

Rollovers

You may transfer funds from other qualified retirement plans into the Cash Balance Benefit Program, as long as the transfers meet federal and state laws.

Annuities 

Your normal retirement benefit is a lump-sum equal to the balance of credits in your employee and employer accounts.

The entire lump-sum payment may be eligible to roll over into:

  • An IRA.
  • A defined contribution plan, such as Pension2.
  • Other eligible retirement plans that accept such a rollover.

If you have a balance of $3,500 or more, you may choose to receive your funds as one of these five annuities:

  • Participant-Only Annuity
  • 100% Beneficiary Annuity
  • 75% Beneficiary Annuity
  • 50% Beneficiary Annuity
  • Period-Certain Annuity 3-10 years
Working after retirement 

You may return to work in a CalSTRS-covered position, but you cannot make contributions to a CalSTRS plan.

Separation-From-Service Requirement

If you receive your retirement benefit as a lump-sum payment, your benefit will not be payable until 180 calendar days after the date you terminate employment. If you return to work and perform retired member activities during this waiting period, your retirement will be canceled and you will not receive your benefit.

If you receive your retirement benefit as a annuity benefit, you’ll be subject to the separation-from-service requirement. If you return to work and perform retired member activities, including substitute teaching, as an employee of a California public school system, an employee of a third party, or an independent contractor, your annuity benefit will be reduced dollar for dollar by the amount you earn during the first 180 calendar days following your most recent retirement date, up to your benefit amount payable during that period. This requirement also applies to retired Defined Benefit members. See Working After Retirement for more information.

There is a very narrow exemption if you meet all of the following:

  • You have reached normal retirement age (age 60 or age 62 for a participant subject to the California Public Employee’s Pension Reform Act of 2013.
  • Your appointment is necessary to fill a critically needed position.
  • The governing body of your employer approved your appointment by resolution at a public meeting.
  • You did not receive any financial inducement to retire.
  • Your termination of service was not the cause of the need to acquire your services.

CalSTRS must receive the exemption request and required documentation from your employer before you can begin working.

See the Exemption to the Separation-From-Service Requirement employer information circular for more information. 

Reinstatement From Retirement

Cash Balance Benefit annuitants are not required to reinstate to perform CalSTRS-covered duties.

If you return to work and perform creditable service while receiving a Cash Balance Benefit annuity, you may voluntarily terminate your annuity and make contributions to CalSTRS. Your account will be credited with the actuarial equivalent balance as of the annuity termination date. 

To terminate your Cash Balance annuity, complete the Cash Balance Benefit Program Reinstatement After Retirement form (CB-1102), and submit it to CalSTRS within 60 days of employment and no earlier than six months before your annuity’s effective date of termination. 

When you are ready to retire again, you must reapply for retirement.

Benefit payment 

Normal distribution is a lump-sum benefit. The benefit amount is equal to the balance of your contributions and your employers’ contributions plus any compounded interest and additional credits.

If you have a balance of $3,500 or more, you may choose one of the following five annuities:

  • Participant-Only Annuity
  • 100% Beneficiary Annuity
  • 75% Beneficiary Annuity
  • 50% Beneficiary Annuity
  • Period-Certain Annuity 3-10 years
Disability payment 

You may apply for disability at any time. All creditable service subject to coverage by the Cash Balance Benefit Program and Defined Benefit Program must be terminated before receiving a disability benefit. A disability benefit will become payable only if you meet all disability benefit requirements and upon determination by CalSTRS that you have a total and permanent disability.

Death benefit 

If you die before retirement, the balance of your contributions and your employers’ contributions plus any compounded interest and additional credits will be paid to your designated recipient. Normal distribution is a lump-sum benefit, or your beneficiary can choose an annuity if the balance is $3,500 or more. If you did not designate a recipient, a lump-sum payment will be paid to your estate.

Termination benefit (refunds) 

If you end all CalSTRS creditable service subject to coverage by the Cash Balance Benefit Program and the Defined Benefit Program for any reason other than death, disability or retirement, you may apply for a lump-sum termination benefit.

The benefit amount is equal to the sum of the balance of your contributions and your employers’ contributions plus any compounded interest and additional credits as of the date the benefit is paid.

Five-Year Rule

You may not apply for a termination benefit if less than five years have elapsed following the date that the most recent termination benefit was distributed to you.

Waiting Period

The termination benefit is payable after six consecutive months following the date of termination of employment. The application for the termination benefit will be automatically canceled if you perform creditable service within six months following the date of termination of employment.