BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 506|
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THIRD READING
Bill No: AB 506
Author: Furutani (D)
Amended: 6/25/09 in Senate
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 7-0, 6/22/09
AYES: Correa, Ashburn, Benoit, Ducheny, Liu, Padilla,
Wiggins
SENATE APPROPRIATIONS COMMITTEE : 11-0, 7/13/09
AYES: Kehoe, Cox, Corbett, Denham, Leno, Price, Runner,
Walters, Wolk, Wyland, Yee
NO VOTE RECORDED: Hancock, Oropeza
ASSEMBLY FLOOR : 79-0, 5/4/09 - See last page for vote
SUBJECT : State teachers retirement: postretirement
earnings
SOURCE : California State Teachers Retirement System
DIGEST : This bill (1) prohibits, as of July 1, 2010, the
California State Teachers Retirement System (STRS) members
who retire below age 60 from working in any STRS-related
service for the first six months after they retire, (2)
extends the sunset date of the existing STRS
post-retirement earnings limit exemptions from June 30,
2010 to June 30, 2012; and (3) expands eligibility, where
applicable, by one year to STRS members who retired on or
before January 1, 2009.
CONTINUED
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ANALYSIS : CalSTRS members return to work after
retirement for various reasons, such as a desire to stay
active in education, a need to earn extra income to pay for
health care costs and other expenses, or a request by a
former employer.
Currently, CalSTRS allows members to retire and return to
work the very next day as long as they do not make more
than the earnings limit, which is $29,700 in 2008-09.
There are several exemptions that can allow members to earn
above the limit.
The CalSTRS' earnings limit is based on approximately 50
percent of the average full-time compensation of all its
members.
There are ten exemptions to the earnings limit, including
performing no creditable service for 12 consecutive months
after retirement; being appointed as an administrator in an
economically distressed school district; and, providing
direct classroom instruction, special education, English
language learner programs, or support for new educators.
Members who exceed the earnings limit are assessed a
benefit penalty equal to the amount of excess earnings.
At the federal level, Internal Revenue Service (IRS)
regulations state that "retirement" is not merely a
reduction in hours. There also must be a
"break-in-service" coupled with an earnings limit for
retirees under the normal retirement age of 60.
This bill addresses the IRS regulations for retirees under
the normal retirement age of 60. This bill also extends
the sunset dates for the earnings limit exemptions to
address the workforce needs of employers.
As of July 1, 2010, this bill requires retirees under age
60 to be subject to a zero dollar earnings limit for the
first six calendar months after they retire. After this
break-in-service, they will be able to return to work under
the existing earnings limit. This bill extends the sunset
dates for the earnings limit exemptions until 2012. In
addition, it states that the vacant administrative position
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emergency exemption shall not apply to a retiree whose
retirement is the basis for the vacant administrator
position. No employer contributions will be required when
hiring a retiree.
NOTE: See Senate Public Employment and Retirement
Committee analysis for listing of prior legislation.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee analysis,
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.
SUPPORT : (Verified 7/14/09)
California State Teachers Retirement System (source)
Association of CA School Administrators
California Federation of Teachers
California Teachers Association
Los Angeles County Office of Education
Los Angeles Unified School District
ARGUMENTS IN SUPPORT : According to the STRS, the sponsor
of this bill states,
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.
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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 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.
According to the author's office, 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."
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ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Eng, Evans, Feuer, Fletcher,
Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani,
Garrick, Gilmore, Hagman, Hall, Harkey, Hayashi,
Hernandez, Hill, Huber, Jeffries, Jones, Knight,
Krekorian, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza,
Miller, Monning, Nava, Nestande, Niello, Nielsen, John A.
Perez, V. Manuel Perez, Portantino, Price, Ruskin, Salas,
Saldana, Silva, Skinner, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Tran,
Villines, Yamada, Bass
NO VOTE RECORDED: Huffman
DLW:do 7/15/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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