BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
506 (Furutani)
Hearing Date: 7/13/2009 Amended: 6/25/2009
Consultant: Maureen Ortiz Policy Vote: PE&R 7-0
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BILL SUMMARY: AB 506 extends the sunset date of the CalSTRS
post-retirement earnings limit exemptions from June 30, 2010 to
June 30, 2012 and makes other related changes.
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Fiscal Impact (in thousands)
Major Provisions 2009-10 2010-11 2011-12 Fund
Earnings limit exemption ----------minor loss of
savings-------------- Special*
*Teachers' Retirement Fund
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STAFF COMMENTS:
Administrative expenses to CalSTRS will be minor and absorbable.
The actual loss of savings to the Teachers' Retirement Fund
(TRF) will be based on the number of teachers currently working
under the exemptions, and who would, without the extension of
the sunset, continue to work and earn more than the limitations,
which would result in a corresponding reduction in their
retirement allowance and a savings in that amount to the TRF.
Although no data exists as to how many members would continue to
work if their retirement allowance was reduced dollar for
dollar, it is anticipated to be very few.
Under current law, a retired member of the CalSTRS Defined
Benefit Program who returns to work has an earnings limitation
of $29,700 for FY 2008-09 before any retirement benefits are
reduced. The limitation was established in 1998-99 to
approximate one-half of the average active member's full time
salary, and is adjusted annually. A member who returns to work
while retired does not reinstate to active service, or pay
additional retirement contributions (nor does the employer), and
that member does not receive an increase in benefits due to the
increase in service. A member who earns more than the limit is
subject to a dollar-to-dollar reduction in their retirement
allowance.
Current law also provides numerous exemptions to the
post-retirement earnings limit that were established to assist
the education community in meeting certain classroom and
teaching program requirements. For example, any member who has
a 12-month break in all creditable compensation is exempt from
the limit. Additionally, there are several exemptions to
address specific needs within the California public education
system as follows: For members who retired on or before January
1, 2007:
a) to provide direct K-12 classroom instruction
b) to support and assess new teachers in certain programs
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AB 506 (Furutani)
c) to support student teachers, the pre-Internship Teaching
Program, and alternative certification program, or the school
paraprofessional Teacher Training Program,
d) to provide instruction and services to special education
students, in English language learner programs, or in direct
remedial education for grades 2-12.
Other exemptions include working as a trustee or administrator
as specified, or filling an administrative position in an
emergency situation.
AB 506 will also prohibit retirees under age 60 from working in
any CalSTRS-related service for the first six calendar months
after they retire. After this break-in-service, they would be
able to return to work under the existing earnings limit. This
provision will ensure compliance with recent IRS regulations
which state in part that "retirement" is not merely a reduction
in hours, and that there must be an actual break in service.
Lastly, AB 506 provides and clarifies that a vacant
administrative position emergency exemption shall not apply to a
retiree whose retirement is the basis for that same vacant
administrator position. This is intended to eliminate 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.