CalSTRS details AB 1997 changes to creditable compensation, plans regulations and employer training

At the Jan. 9 meeting of the California State Teachers' Retirement System Benefits and Services Committee, staff outlined legislative and implementation details for AB 1997, a bill the presentation described as simplifying rules for reporting creditable compensation.

Jeff Zimmer, director of employer services, and Joycelyn Martinez Wade described the bill's goal as reducing complexity for employers and protecting member benefits. Zimmer said the legislation “address[es] the complexity around creditable compensation reporting” and that the design was vetted with actuaries to avoid harming the plan's intent.

Under the proposal as described to the committee, all creditable compensation will be classified into three categories: salary (ongoing base pay), special pay (examples cited: pay for education, master stipends, longevity), and supplemental pay (limited or one-time payments). Zimmer said salary and special pay will determine compensation earnable and final compensation used in defined-benefit calculations; supplemental pay can create service credit but generally will not increase final compensation. He said the change is intended to maintain actuarial soundness and remain consistent with the Public Employees' Pension Reform Act (PEPRA).

Zimmer said the rules will significantly reduce employer complexity — from “nearly 20 decision points” under the current rules to “5” — and gave an implementation timeline: system and regulatory work is already underway, and staff aim to have rules effective July 1, 2027. He told the committee that developers and Pension Solution were engaged to create a readiness environment so employers can test reporting under the new rules before the effective date. “July 1, 2027 is when it will be effective. No sooner than that,” the transcript quotes.

Staff described training and outreach plans that will begin with a core pilot group of employer stakeholders and then scale to large employers (for example, Los Angeles County of Education, San Diego, Riverside, Sacramento County) and charter schools. Zimmer said the organization will coordinate with unions and employer representatives so negotiated contracts and employer payroll practices align with the new reporting categories.

The committee was told the board has authorized staff to pursue regulations to clarify some aspects of the new rules; staff said they were targeting presentation of proposed regulations at the March meeting, subject to stakeholder feedback. No formal vote on regulatory text or an implementation budget was recorded in the transcript of this meeting. There was no public comment on the AB 1997 presentation at the Jan. 9 session.

Committee members asked about training pilots and rollout; staff said they will use employer stakeholders who engaged during the legislative process as pilot reviewers and will develop intensive in-person training and updated curriculum for employers and unions.

The presentation included discussion of the Defined Benefit Supplement (DBS) program as a potential recipient of excess contributions and called DBS “a great program” with historically competitive returns. Staff said employers will still receive excess contributions where applicable and that administrative burdens for employers distributing small sums to members would be reduced under the new reporting framework.