The state of California is required to repay $500 million withheld from the California State Teachers Retirement System, the Third District Court of Appeal in Sacramento has ruled.

Not only is the state required to repay the $500 million withheld from CalSTRS in the 2003-04 fiscal year, it will also be required to repay interest lost over the years. CalSTRS estimates this interest could exceed $200 million.

The three-member panel unanimously held that the state violated its contractual obligation to California’s retired educators when it withheld its contribution to CalSTRS’ Supplemental Benefit Maintenance Account, which ensures purchasing power protection to retired educators.

“The court spoke loud and clear today,” said CalSTRS Board Chair Dana Dillon of the Aug. 30 ruling. “The state cannot interfere with promised benefits to teachers. We entered into litigation and also sought to work with the administration for a remedy. Our most vulnerable members, those who are longest retired and most dependent on these benefits, are the true winners in this ruling.”

The case began in 2003, when then-Gov. Gray Davis signed Senate Bill 20, which withheld a $500 million payment to the SBMA in the hopes of balancing the state budget. The SBMA currently funds quarterly payments to approximately 63,000 retired educators and their survivors when inflation erodes their monthly benefit below 80 percent of its original consumer purchasing power.

“There is nothing ambiguous about today’s ruling,” said Jack Ehnes, CalSTRS chief executive officer. “The state’s payments are a vested contractual right and necessary to fund this benefit for our members. CalSTRS’ current retirees receive only 55 percent of their replacement salary, no Social Security on their teaching earnings and frequently, no employer-provided healthcare benefits after retirement. This ruling should permanently put to rest pension raids and allow us to refocus on strengthening retirement security for all.”

The recent decision supports a ruling by the Sacramento County Superior Court in May 2005 that ordered the state to repay CalSTRS. The Department of Finance filed the appeal in September of 2005.

It is unknown whether the Department of Finance will appeal the recent decision.