Program Accounts - Defined Benefit Supplement Program - CA Education

Section § 25001

This law section deals with a special account for managing financial gains and losses within a retirement fund known as the Gain and Loss Reserve. This reserve is specifically for the Defined Benefit Supplement Program. It's used to credit interest when necessary and support monthly payments to retirees. The board in charge sets goals for how much money should be in this reserve and regularly checks to ensure it meets those goals, based on advice from financial experts, called actuaries. The board can also decide, each year, to add extra earnings or handle any financial ups and downs by adjusting this reserve, considering factors like plan earnings, administrative costs, and minimum interest rates.

(a) The board shall establish a segregated account within the retirement fund to be known as the Gain and Loss Reserve, and the board shall have sole authority over the reserve. The Gain and Loss Reserve shall be maintained for the Defined Benefit Supplement Program and may be used to credit interest at the minimum interest rate for plan years in which the board determines that the obligation cannot be met from investment earnings. The Gain and Loss Reserve may also be used to provide additions to the Annuitant Reserve for monthly annuities payable under the Defined Benefit Supplement Program.

(b) The board shall establish a goal for the balance of the Gain and Loss Reserve and periodically shall review the sufficiency of the reserve based on the recommendations of the actuary.

(c) The board may allocate excess earnings of the plan with respect to assets attributable to the Defined Benefit Supplement Program to the Gain and Loss Reserve. In addition, the board may allocate any liability gains and losses attributable to the Defined Benefit Supplement Program to the Gain and Loss Reserve. Upon the recommendation of the actuary, the board shall determine annually the amount, if any, that is to be allocated to the Gain and Loss Reserve for that plan year. That determination shall be made upon recommendation of the actuary based on the actuarial valuation undertaken following the plan year pursuant to Section 22311.5, but no later than June 30 following the end of the plan year. In determining whether to allocate excess earnings to the Gain and Loss Reserve, the board shall consider all of the following:

(1) Whether or not the plan has excess earnings attributable to the Defined Benefit Supplement Program.

(2) The sufficiency of the Gain and Loss Reserve in light of the goal established pursuant to subdivision (b).

(3) The amount required for the plan’s administrative costs with respect to the Defined Benefit Supplement Program.

(4) The amount required for crediting members’ accounts at the minimum interest rate.

(d) In determining whether to allocate liability gains and losses to the Gain and Loss Reserve, the board shall consider the matters described in paragraphs (2), (3), and (4) of subdivision (c).

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(Amended by Stats. 2016, Ch. 218, Sec. 38. (SB 1352) Effective January 1, 2017.)

Section § 25002

This law mandates that there must be a separate account called the Annuitant Reserve within the retirement fund. The board is in complete control of this account and will use it specifically to pay for annuities under a program called the Defined Benefit Supplement Program. When a member starts receiving these annuity benefits, their accumulated contributions are moved into this Annuitant Reserve.

The board shall establish and maintain a segregated account within the retirement fund to be known as the Annuitant Reserve and the board shall have sole authority over the reserve. The Annuitant Reserve shall be used for the payment of annuities under the Defined Benefit Supplement Program. The board shall transfer the balance of credits in a member’s accumulated Defined Benefit Supplement account to the reserve when a benefit is to be paid as an annuity.

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(Amended (as added by Stats. 2000, Ch. 74) by Stats. 2000, Ch. 1021, Sec. 48. Effective January 1, 2001.)

Section § 25003

The board can move money between two financial reserves—the Gain and Loss Reserve and the Annuitant Reserve—if they get advice from an actuary that it's needed.

The board may transfer amounts between the Gain and Loss Reserve and the Annuitant Reserve upon the recommendation of the actuary.

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(Added by Stats. 2000, Ch. 74, Sec. 69. Effective January 1, 2001.)

Section § 25004

This law section explains how member accounts work under the Defined Benefit Supplement Program. Each account is basically a record that tracks contributions made by both the member and their employer, along with any interest and extra earnings. The total credits in the account determine the payout amount when a member leaves their job. However, members don't own any specific assets in this program, just the credits reflected in their account balance.

Member accounts under the Defined Benefit Supplement Program shall be nominal accounts. Member contributions and employer contributions on behalf of the member that are specifically identified as creditable to the Defined Benefit Supplement Program shall be treated as credits to the member’s Defined Benefit Supplement account, together with interest credited at the minimum interest rate and additional earnings credit thereon. The balance of credits in a member’s account shall determine the amount to which the member is entitled under the Defined Benefit Supplement Program upon termination of employment subject to coverage by the plan. The member shall not have a right or claim to any specific assets of the account, program, plan, or retirement fund.

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(Added by Stats. 2000, Ch. 74, Sec. 69. Effective January 1, 2001.)

Section § 25005

Before each new plan year, a board must decide on an interest rate for the Defined Benefit Supplement Program. This rate can't be lower than the interest rate of the Defined Benefit Program and must follow federal laws. Interest is calculated daily on members' account balances. However, any transferred account balance to the Annuitant Reserve won't earn interest.

(a) Prior to July 1 of the initial plan year, and prior to the beginning of each plan year thereafter, the board shall adopt a plan amendment with respect to the Defined Benefit Supplement Program to declare the rate at which interest shall be credited to Defined Benefit Supplement accounts for the following plan year.

(b) The minimum interest rate declared annually by the board shall be in accordance with applicable federal laws and related regulations and shall not be less than the rate at which interest is credited under the Defined Benefit Program.

(c) Interest shall be credited to Defined Benefit Supplement accounts and shall be computed at the minimum interest rate on the balance of credits in a member’s account and shall be compounded daily.

(d) Credited interest shall not be applied to the balance of credits in a member’s Defined Benefit Supplement account that has been transferred to the Annuitant Reserve.

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(Added by Stats. 2000, Ch. 74, Sec. 69. Effective January 1, 2001.)

Section § 25006

This section allows the board to declare an additional earnings credit for certain retirement accounts if there's extra investment profit after expenses and required interest are covered. Before doing so, they need to ensure there's enough money for liabilities and administrative costs. If declared, the earnings credit is applied as a percentage increase to members' accounts, but not to those transferred to the annuitant reserve. The board must make this decision as part of a plan amendment recommended by an actuary after reviewing the year's financial status.

(a) The board may declare an additional earnings credit to be applied to Defined Benefit Supplement accounts for a plan year. Prior to declaring an additional earnings credit, the board shall consider all of the following:

(1) Whether the plan’s investment earnings with respect to the Defined Benefit Supplement Program for the plan year exceed the amount required to meet the liabilities identified in paragraphs (2), (3), and (4).

(2) The amount required for the plan year to credit interest on members’ nominal accounts at the minimum interest rate.

(3) The amount of the plan’s administrative expenses with respect to the Defined Benefit Supplement Program for the plan year.

(4) The sufficiency of the Gain and Loss Reserve and whether any additions must be made to that reserve.

(b) For any plan year that the board declares an additional earnings credit, the board shall specify the amount to be added to members’ accounts as a percentage increase. The additional earnings credit shall be applied to the balance of credits in each member’s nominal account as of the last day of the plan year and shall be applied as of the date specified by the board. The additional earnings credit shall not be added to the balance of credits transferred from a member’s Defined Benefit Supplement account to the Annuitant Reserve.

(c) The declaration of an additional earnings credit shall be made as a plan amendment adopted by the board with respect to the Defined Benefit Supplement Program upon recommendation of the actuary based on the actuarial valuation undertaken following the plan year pursuant to Section 22311.5, but no later than June 30 following the end of the plan year.

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(Amended by Stats. 2016, Ch. 218, Sec. 39. (SB 1352) Effective January 1, 2017.)

Section § 25007

This section allows a board to give extra annuity benefits in a planned lump sum if they declare additional earnings for a plan year. Before doing this, they must consider the cost needed to give these extra earnings to members who don't yet get an annuity and any other financial responsibilities of the plan. This ensures everyone gets their fair share based on their situation.

When the board declares an additional earnings credit for a plan year, the board also may declare by plan amendment an additional annuity credit, for members and annuity beneficiaries who are receiving an annuity as of the date specified by the board pursuant to Section 25006, based on the annuity of the member and annuity beneficiaries for the plan year. The additional annuity credit shall be paid in a lump sum to the members and annuity beneficiaries on the date specified by the board. In addition to the considerations specified in Section 25006, prior to declaring an additional earnings credit, the board shall consider both of the following:

(a) The amount required for the plan year to apply the additional earnings credit to the Defined Benefit Supplement accounts of members who are not receiving an annuity under the Defined Benefit Supplement Program for the plan year.

(b) Any other obligations incurred by the plan with respect to the Defined Benefit Supplement Program.

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(Amended by Stats. 2009, Ch. 304, Sec. 26. (SB 634) Effective January 1, 2010.)

Section § 25008

Once contributions are first added to a member's Defined Benefit Supplement account, the member has a guaranteed right to whatever amount is in that account.

A member’s right to an amount equal to the member’s Defined Benefit Supplement account balance shall be vested at the time contributions are initially credited to the member’s account.

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(Amended (as added by Stats. 2000, Ch. 74) by Stats. 2000, Ch. 1021, Sec. 50. Effective January 1, 2001.)

Section § 25008.5

If you were supposed to receive certain retirement benefits before 2010 but didn’t apply for distribution of your Defined Benefit Supplement account, this law requires that the balance of your account should have been paid to you in a single, lump-sum payment by March 31, 2010.

Notwithstanding any other law, if (a) a member or beneficiary whose effective date for a benefit received pursuant to any other chapter of this part was prior to January 1, 2010, (b) the member or beneficiary was required to receive a distribution of the balance of credits from the member’s Defined Benefit Supplement account pursuant to this chapter, and (c) the member or beneficiary failed to submit an application for the distribution of the member’s Defined Benefit Supplement account prior to January 1, 2010, the system shall distribute the balance of credits in the member’s Defined Benefit Supplement account in a lump-sum payment to the member or beneficiary, as applicable, by March 31, 2010.

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(Added by Stats. 2009, Ch. 304, Sec. 27. (SB 634) Effective January 1, 2010.)