BILL ANALYSIS Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair 280 (Calderon) Hearing Date: 5/18/2009 Amended: 5/07/2009 Consultant: Maureen Ortiz Policy Vote: PE&R 5-2 _________________________________________________________________ ____ BILL SUMMARY: SB 280 authorizes teachers who have returned to service during the 5 year prohibited period after receiving a Defined Benefit Program Retirement Incentive (golden handshake), to have previously forfeited benefits reinstated, upon terminating their current employment. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2009-10 2010-11 2011-12 Fund Reinstating benefit --one time payment of $107------ Special* Reinstating benefit --unknown, significant ongoing costs----- Special* Employer costs ---------unknown------------ General** *Teachers' Retirement Fund **Counts toward meeting the Prop. 98 minimum funding guarantee _________________________________________________________________ __ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense file. There will be a one time cost of $106,761 to pay benefits retroactive to the time the member initially retired with the retirement enhancement, and additional ongoing costs for each member to retain that benefit (which would have otherwise been forfeited without this bill) for the duration of his or her lifetime. However, it should be noted that the funds would come out of the Teachers' Retirement Fund which has already received the full actuarial amount of the cost of the benefit from each school employer when the member was initially provided with the golden handshake. Therefore, there will be no new costs to employers as a result of reinstating the forfeited benefit. However, school employers may realize some costs if, after January 1, 2010, members violate the provisions of the retirement incentive, and the employer is required to pay CalSTRS the costs of forfeited benefits, plus administrative expenses. Those costs are unknown and will depend on the extent to which the provisions of the retirement incentive program are violated. SB 280 will allow a member who received benefits from the retirement incentive program between January 1, 2004 and December 31, 2009, and then returned to work during the prohibited time period to have the benefit fully reinstated, and shall have all money paid to the system as a result of losing the service credit reimbursed, providing the following occur: 1) the member has ceased employment with the employer that provided the service credit within 30 days of becoming notified by CalSTRS that the employment is in violation of receiving the benefit, and 2) the member agrees in writing Page 2 SB 280 (Calderon) that he or she will not return to the employer that granted the service credit until five years have elapsed since receiving the credit. Therefore, if the member does all of the above, he or she will not forfeit any benefits arising from the additional service credit, and CalSTRS will not be allowed to recover any payments made in this connection. Additionally, SB 280 provides that any member who has already been forced to forfeit any additional benefit due to returning to service within the prohibited timeframe as specified will be able to have his or her benefit retroactively restored. SB 280 further provides that beginning January 1, 2010, any employer that grants a golden handshake shall provide to CalSTRS a written statement indicating that the retiring member has read and understands the terms of the retirement incentive program and will not return to work with the same employer until five years have elapsed. If the member subsequently returns to work with the same employer, that member shall permanently forfeit the service credit and benefit resulting from the retirement enhancement, but will be allowed to keep any benefit already received. The bill further provides that on or after January 1, 2010, any employer that grants a retirement incentive shall provide to CalSTRS a written statement that the employer has read and understands the terms of the incentive program. If the employer does rehire a member during the prohibited period, that employer shall reimburse CalSTRS all the costs associated with that member's golden handshake, plus any associated administrative expenses. Essentially, SB 280 will place the burden and responsibility on the school employers when teachers return to work in violation of the provisions of receiving a golden handshake. Current law authorizes school districts, community college districts, or county offices of education to offer a retirement incentive equal to two additional years of service credit to eligible members providing that the retirement will result in a net savings to the employer. The employer is required to transfer to CalSTRS the actuarial equivalent of the benefit enhancement and administrative costs, and is allowed to pay the sum over an eight year period. The additional service credit does not count toward eligibility for other STRS benefit enhancements such as one-year final compensation, career factor and longevity bonus. Known as the Golden Handshake Program, it currently provides that the member will lose the benefit increase if the members do any of the following: 1)Terminate their retirement benefit and reinstate to active STRS-covered employment, 2)Within 5 years, return to STRS-covered employment with the school district that granted the benefit, 3)Return within 1 year of retirement, to STRS-covered employed with any other school district, or 4)File for unemployment with a year of retirement. Page 3 SB 280 (Calderon) Since the inception of the retirement incentive program, approximately 1,900 members of CalSTRS have retired with the benefit enhancement. However, it has become known that 19 of those employees returned to work with the same district during the five year prohibited period, and have subsequently had to forfeit their Golden Handshake benefit. SB 280 will allow those teachers to keep the benefit enhancement. According to CalSTRS, districts and members are educated through several publications regarding the retirement incentive program and restrictions on post-retirement earnings, including Golden Handshake programs, and further, members who retire with a Golden Handshake are required to sign a form which includes information on the post-retirement employment restrictions.