The state General Fund makes annual payments to the California State Teachers' Retirement System (CalSTRS) in order to reduce the retirement contribution burden on members and school districts.

Effective July 1, 2003, the annual General Fund contribution to the CalSTRS is based on 2.017 percent of the members' creditable earnings of the fiscal year ending in the immediately preceding calendar year. Current law also provides for an additional state contribution when the State Teachers' Retirement Fund has a normal cost deficit or unfunded obligation for benefits in place on July 1, 1990. This contribution is 0.524 percent of the members' creditable earnings of the fiscal year ending in the immediately preceding calendar year. If the unfunded obligation continues, the 0.524 percent factor may be adjusted upwards annually in increments of no more than 0.25 percent and is capped at 1.505 percent of members' creditable earnings of the fiscal year ending in the immediately preceding calendar year. No state contribution is required for this purpose in 2008-09. The state contributions are not appropriated through the annual Budget Act.

The Supplemental Benefit Maintenance Account (SBMA) was established in 1989 to maintain purchasing power of retired members. In 2001, the purchasing power threshold was increased from 75 percent to 80 percent of the value of the original benefit. The state General Fund provides a statutory transfer to the CalSTRS of an amount equal to 2.5 percent of the members' creditable earnings of the fiscal year ending in the immediately preceding calendar year to be deposited in the SBMA. If, at anytime the funds in the SBMA are insufficient to support 80 percent purchasing power, the Teachers' Retirement Board can: (1) transfer funds from the Teachers' Retirement Fund if no CalSTRS unfunded obligation exists; (2) increase employer contributions; or (3) reduce the SBMA benefit payment. A recent actuarial analysis performed at the direction of the Department of Finance concluded that the currently required state contributions are more than sufficient to maintain purchasing power at 80 percent, based on current economic assumptions. The state's basic contributions (2.5 percent of members' creditable earnings of the fiscal year ending in the immediately preceding calendar year) for purchasing power protection are not appropriated through the annual Budget Act. Any increase in employer contributions must be approved through the Budget Act.