BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 506
Lou Correa, Chair Hearing date: June 22, 2009
AB 506 (Furutani) as amended 3/18/09 FISCAL: YES
STRS: POST-RETIREMENT EARNINGS LIMITATIONS: SPECIFIED
PROGRAM MODIFICATIONS AND EXTENSION TO JUNE 30, 2012
HISTORY :
Sponsor: California State Teachers Retirement System
(STRS)
Prior legislation: see Comments below
ASSEMBLY VOTES :
PER & SS 6-0 4/01/09
Appropriations 16-0 4/22/09
Assembly Floor 79-0 5/04/09
SUMMARY :
Would:
a) prohibit, as of July 1, 2010, STRS members who retire
below age 60 from working in any STRS-related service for
the first six months after they retire,
b) extend the sunset date of the existing STRS
post-retirement earnings limit exemptions from June 30,
2010, to June 30, 2012, and
c) expand eligibility, where applicable, by one year to
STRS members who retired on or before January 1, 2009.
David Felderstein
Date: 5/28/09 Page 1
BACKGROUND AND ANALYSIS :
1) Existing STRS law and regulation contain no specific
break in service requirement for members retiring below age
60 to return to work; while PERS requires a 60 day break
under specified conditions
Existing STRS law and regulations are silent on the matter of
a required break in service for members that retire below
"normal retirement age" (age 60 in STRS) who desire to return
to teaching as a retired annuitant. The only requirement is
that they cannot earn more than $29,700 per year (earnings
limit adjusted for inflation).
Existing PERS regulation , section 586.2, states, in pertinent
part:
"For purposes of working for a CalPERS-covered employer
after retirement?..a member who has not attained normal
retirement age shall have a bona fide separation in
service. A bona fide separation in service is defined as:
(1) no predetermined agreement between the employer and
the member prior to retirement to return to work for the
employer after retirements; and
(2) a separation in service of at least 60 calendar days
between the date of the member's retirement and the first
day of work for the employer as a retired person. The 60
days shall comment on the day after retirement."
2) Existing STRS law limits the amount retirees can earn if
they return to teaching after retirement
Existing STRS law :
a) limits the amount of post-retirement income that may be
earned in teaching employment by a retired STRS member,
b) provides that when a member of STRS retires and returns
to teaching in a STRS-covered position, the member is
subject to an annual post-retirement earnings limit
David Felderstein
Date: 5/28/09 Page 2
($29,700 in 2008-09), and
c) provides that STRS members who earn in excess of this
limit experience a dollar-for-dollar reduction in their
monthly STRS retirement allowances.
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Date: 5/28/09 Page 3
3) Existing STRS law contains exemptions to the
post-retirement earnings limit under certain circumstances
Existing STRS law provides specific exemptions to the
earnings limit for K-12 service, until June 30, 2010, for
members who retired on or before January 1, 2007, and who
meet any of the following criteria:
a) provide direct remedial instruction in a classroom for
grades 2-12,
b) provide direct K-12 classroom instruction,
c) support the Beginning Teacher Support and Assessment
Program,
d) support student teachers, the Pre-Internship Teaching
Program, and alternative certification program or the
School Paraprofessional Teacher Training Program,
e) provide instruction or pupil services in a special
education program, or
f) provide instruction in an English language learner
program.
Existing STRS law also exempts from the earnings limit STRS
retirees who:
g) abstain from performing STRS-covered employment for a
period of at least 12 months after retiring (currently
scheduled to sunset June 30, 2010, but would be extended
until June 30, 2012 by this bill ), or
h) are appointed as a trustee or administrator by a
superintendent of public instruction, or who fill an
administrative position left vacant due to emergency for up
to one-half of the full-time position (currently scheduled
to sunset June 30, 2010, but would be extended until June
30, 2012 by this bill ).
4) This bill :
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Date: 5/28/09 Page 4
a) prohibits STRS members who retire below "normal
retirement age" (age 60) from working in any STRS-related
service for the first six calendar months after they
retire ; and after this break in service, they would be able
to return to work under the existing earnings limit,
b) extends the sunset dates of the existing STRS
post-retirement earnings limit exemptions by two years, to
June 30, 2012, and moves forward the eligibility date for
some exemptions to encompass those members retired for
service as of January 1, 2009, and
c) clarifies that the vacant administrative position
emergency exemption cannot be applied to a retiree whose
retirement is the basis for the vacancy.
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Date: 5/28/09 Page 5
FISCAL EFFECT :
According to the Assembly Appropriations analysis:
"CalSTRS indicates that the bill will have no actuarial
impact on the retirement system, and any administrative
costs would be minor and absorbable."
COMMENTS :
1) Arguments in support
According to the sponsor, STRS:
"The primary purpose of the bill is to extend existing
exemptions to the earnings limitation for an additional two
years, and bring the program into compliance with current
IRS regulations.
The new provision of the bill requiring a break in service
do not take effect until July 1, 2010. Therefore, the
provision would have no impact on the upcoming school year.
In addition, while some have suggested that this provision
be delayed until the implementation of federal regulations,
the break in service provision is not to comply with
upcoming federal regulations. Instead, the purpose of the
specific language in the regulation stating that retirement
does not include a mere reduction in hours was to reiterate
and further clarify existing regulations, case law and IRS
rulings defining retirement.
Consequently, CalSTRS feels it is necessary for the six
month break-in-service requirement to take effect at the
beginning of the school year after the effective date of
the bill to ensure compliance with current federal tax law.
Finally, there is nothing in the bill that limits the
ability of a school district to offer an early retirement
incentive. The only restriction imposed is that the person
cannot return to work for six months, if the teacher is
under age of 60 (in contrast, teachers who receive a
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Date: 5/28/09 Page 6
retirement incentive through CalSTRS are prohibited under
current law from working for that same district for 5
years, regardless of the age of retirement).
Of the 26,000 retired teachers who are working after
retirement, only 11% of them were under age 60 and returned
to work within six months of retirement. This provision,
therefore, would not affect the overwhelming majority of
retirees who might want to return to work.
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Date: 5/28/09 Page 7
The author states that this bill :
"?works to limit the potential abuse that could occur if an
individual creates an emergency administrative vacancy by
retiring and then returns to work in the same position
under the related exemption. AB 506 would state that the
vacant administrative exemption shall not apply to a
retiree whose retirement is the basis for the vacant
administrator position."
2) Prior legislation :
a) Chapter 494 of 2008 (AB 2390 - Karnette ), extended the
sunset date of the existing post-retirement earnings limit
exemptions by one year to June 30, 2010, and expanded
eligibility for the exemptions, where applicable, by one
year to members who retired on or before January 1, 2007,
b) Chapter 353 of 2007 (SB 901 - Padilla ), extended the
sunset date of the post-retirement earnings limit
exemptions by 18 months to June 30, 2009, and made
conforming eligibility changes,
c) Chapter 934 of 2004 (AB 2554 - Pavley ), extended the
sunset date on the existing K-12 service-specific exemption
to January 1, 2008 and extended the date a member must
retire by to qualify for this exemption to January 1, 2004;
expands the K-12 exemption to include members providing
instruction in special education and English language
learner programs; provided a two-year limit on the
emergency administrator or trustee exemption,
d) Chapter 22 of 2000 (AB 141 - Knox ), extended the
current exemption from the earnings limitation for retired
members who are employed to fill an administrative position
vacated due to circumstances beyond the control of the
employer,
e) Chapter 70 of 2000 (SB 1666 - Alarcon ), expanded the
K-12 direct classroom instruction exemption to the
post-retirement earnings limit to include supporting
teachers participating in a teacher preparation program;
required members to retire on or before January 1, 2000;
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Date: 5/28/09 Page 8
extended the exemption to July 1, 2005,
f) Chapter 351 of 2000 (AB 1736 - Ducheny ), exempted from
the earnings limit members who retired before July 1, 2000
and return to service to provide direct remedial
instruction in grades 2-12, inclusive,
g) Chapter 896 of 2000 (AB 1733 - Wildman ), temporarily
eliminated the earnings limit exemption for members who
return to work more than one year after retirement and
increased the limitation for other retired members,
h) Chapter 40 of 1999 (AB 335 - Mazzoni ), extended the
existing earnings limitation exemption for retired teachers
who returned to the classroom as a result of the K-3 Class
Size Reduction Program to include the recently authorized
Grade 9 class size reduction program and future expansions
of the class size reduction programs authorized by Part 28
of the Education Code,
i) Chapter 965 of 1998 (AB 2765 - PER&SS Committee ),
extended the exemption for class size reduction to members
who retired on or before July 1, 1998 and extended the
sunset date to July 1, 2002,
j) Chapter 1 of 1997 (AB 18 - Mazzoni ), retroactively made
operative the provisions of Chapter 948 of 1996 . These
bills exempted from the earnings limit members who retired
on or before July 1, 1996 and were subsequently hired to
alleviate the teacher shortage caused by the passage of the
Class Size Reduction Program in Grades K-3,
k) Chapter 948 of 1996 (AB 1068 - Mazzoni ), created an
exemption to the post-retirement earnings limit for a
member who retires on or before July 1, 1996, and returns
to work to provide direct instruction to pupils in K-12;
effective July 1, 1996 through July 1, 1999, and
l) Chapter 394 of 1995 (AB 948 - Gallegos ), created an
exemption to the post-retirement earnings limit for a
retired member appointed as a trustee or administrator by
the superintendent of public instruction or who fills an
administrative position left vacant due to emergency;
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Date: 5/28/09 Page 9
effective July 1, 1995 through July 1, 2000.
3) SUPPORT :
Association of California School Administrators (ACSA)
California Association of School Business Officials
(CASBO), support if amended
California Federation of Teachers (CFT)
California Teachers Association (CTA)
Los Angeles County Office of Education
Los Angeles Unified School District (LAUSD)
4) OPPOSITION :
None to date
#####
David Felderstein
Date: 5/28/09 Page 10