BILL ANALYSIS
AB 506
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Date of Hearing: April 22, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 506 (Furutani) - As Amended: March 18, 2009
Policy Committee: P.E.R. &
S.S.Vote: 6-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill makes changes relating to the California Teachers
Retirement System (CalSTRS) post-retirement earnings
limitations. Specifically, the bill:
1)Prohibits retirees under age 60 from working in any
CalSTRS-related services for the first six months after they
retire.
2)Extends current-law exemptions from the CalSTRS
post-retirement earnings limit for two years - from June 30,
2010 to June 30, 2012.
3)Clarifies that the current earnings exemption for vacant
administrative positions (extended by this bill to June 30,
2012) cannot be applied to a retiree whose retirement is the
basis for the vacancy.
4)Makes the exemptions beginning after June 30, 2010 available
to teachers and various support staff who retired prior to
January 1, 2009.
FISCAL EFFECT
CalSTRS indicates that the bill will have no actuarial impact on
the retirement system, and any administrative costs would be
minor and absorbable.
COMMENTS
AB 506
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1)Background - 6 month earnings prohibition. In May 2007, the
IRS issued final regulations which, among other things, stated
that pension plans may not distribute payments to a worker
prior to normal retirement age (60 years for CalSTRS
employees) solely on the basis of a reduction in the number of
hours worked by the employee. According to CalSTRS, these
regulations raise the concern that, without a break in
service, retirees under aged 60 that immediately return to
work in a post-retirement capacity will not be considered
"retired" in the eyes of the IRS. As such, they would be
receiving a prohibited in-service retirement distribution.
2)Background - exemption from CalSTRS post retirement earnings
limit . Under current law, a retired member of CalSTRS who
returns to work has an earnings limitation (equal to $29,700
in 2008-09), above which retirement benefits are reduced on a
dollar-for-dollar basis. The earnings limitation is adjusted
annually for inflation. Current law provides several
exemptions to the earnings limit to assist the education
community in meeting certain classroom and teacher programs.
These include direct K-12 classroom instruction, as well as
support or instruction for teacher assessment and teaching
programs, English learner programs, and special education
programs. Most of the exemptions require that the teacher be
retired on or before January 1, 2007. The exemptions are
scheduled to sunset on June 30, 2010.
Current law also exempts from the earnings limit an individual
who is appointed as a trustee or administrator by a
superintendent of public instruction, or who fills an
administrative position left vacant due to emergency for up to
one-half of the full-time position.
3)Rationale . The bill is intended to: (a) address concerns
raised by the recent IRS regulation by requiring a six-month
break between when a school employee retires and when he or
she starts post retirement in CalSTRS; (b) further the
efforts to recruit retirees to meet the ongoing demand for
experienced educators and administrative staff; and (c) to
address a potential abuse related to the current exemption for
retirees filling administrative positions on an emergency
basis.
4)Related legislation . The current exemption from the
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post-retirement earnings limit has been in effect for over a
decade. The exemption was most recently extended from June 30,
2009 to June 30, 2010 by AB 2390 (Pavley), Chapter 494/2008.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081