A recent payroll issue at a Southern California community college has highlighted an essential but often overlooked aspect of CalSTRS contributions that could affect faculty members statewide, particularly those hired after January 1, 2013.

The Issue: Compensation Caps and Over-Deductions

Faculty members who started contributing to CalSTRS after January 1, 2013, are subject to IRS earnings limits under IRC Section 401(a)(17). For the 2025-2026 fiscal year, this cap is $187,369 for total creditable compensation, including base pay and overload/intersession work. Once faculty members exceed this threshold, CalSTRS deductions should no longer be withheld from their paychecks for the remainder of that fiscal year.

However, some colleges have continued to deduct the standard 10.205% contribution rate even after faculty members exceed the compensation cap. This means some faculty are having thousands of dollars unnecessarily withheld from their paychecks each year.

Who Is Affected?

This issue primarily impacts high-earning faculty in the 2% at 62 structure, which is the CalSTRS defined-benefit retirement plan for faculty who became members of CalSTRS on or after January 1, 2013. Those most likely to be affected are those with substantial overload assignments, intersession teaching, or 11- or 12-month contracts. Faculty in the older 2% at 60 benefit structure have a much higher compensation limit of $350,000 and are less likely to be affected.

What Should Happen vs. What Sometimes Goes Wrong

When a faculty member's earnings approach or exceed the compensation limit, the college payroll department should stop CalSTRS deductions - or notify their county office of education or payroll processor to do so. Any earnings beyond the limit should not be subject to CalSTRS deductions, even if they are earned as overloads or intersession pay. 

Unfortunately, communication breakdowns between colleges and payroll processors can result in continued deductions even after the cap is reached. Additionally, payroll departments may not always accurately track which faculty members are approaching these limits or may confuse 2% at 60 and 2% at 62 members.

Action Steps for Faculty

Faculty who believe they may be affected should take the following steps:

1. Review your pay stubs to identify whether your earnings may have reached or exceeded the CalSTRS compensation cap. Remember, CalSTRS starts counting earnings from July 1, the beginning of the fiscal year.

2. Compare your paycheck deductions with your annual CalSTRS member statement to confirm whether deductions continued on earnings that went beyond the cap.

3. Immediately report any discrepancies to your college payroll department.

4. Request a refund. Affected faculty members are entitled to refunds for over-deductions, potentially going back several years.

Institutional Responsibilities

Colleges and districts must proactively identify faculty members approaching compensation limits and work with their payroll processors to ensure that deductions are handled appropriately. This requires ongoing communication and updated software systems to automatically flag potential issues.

Looking Forward

While upcoming CalSTRS creditable compensation rule changes in July 2027 will bring additional considerations, the current IRS earnings limits remain an immediate concern. Faculty unions and senates should work with their administrations to ensure proper procedures are in place and that all affected faculty receive appropriate refunds for any over-deductions.

This issue underscores the importance of understanding your benefits structure and regularly reviewing your pay statements. If you're a high-earning faculty member in the 2%@62 benefit structure, don't assume your deductions are being handled correctly; verify them yourself and advocate for proper procedures at your institution.

For more information on CalSTRS contribution limits and creditable compensation, faculty should consult their local payroll department or contact CalSTRS directly.