BILL ANALYSIS Ó SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 178 Gloria Negrete McLeod, Chair HEARING DATE: June 25, 2012 AB 178 (Gorell) as amended 6/19/12 FISCAL: YES STATE TEACHERS' RETIREMENT SYSTEM: WORKING AFTER RETIREMENT HISTORY : Sponsor: Author Other legislation: AB 506 (Furutani), Chapter 306, Statutes of 2009 AB 2390 (Karnette), Chapter 494, Statutes of 2008 ASSEMBLY VOTES : Not relevant - new bill with, May 31, 2012, amendments SUMMARY : 1)AB 178 changes and clarifies rules for retired workers in the California State Teachers' Retirement System (CalSTRS). Specifically, AB 178: a) increases the earnings limitation under which retired members of CalSTRS may work for CalSTRS employers. b) exempts certain appointees to financially endangered school districts from the earnings limitation. c) clarifies that certain employees of third parties are not considered to be retired workers with regard to the earnings limitation. d) is an URGENCY bill. BACKGROUND AND ANALYSIS : 1)Existing law : a) establishes CalSTRS, which provides retirement and Pamela Schneider Date: 6/19/12 Page 1 death benefits for California's teachers and school administrators. b) limits the amount of compensation that can be earned as a retired member in employment with a CalSTRS-covered employer to approximately $31,020 annually. The earnings limit may increase each year based on the percentage increase to the average compensation of active members of the system. c) requires that once a retired worker has earned up to the earnings limitation amount, the retired worker will have his or her retirement reduced, dollar for dollar, by the amount of earnings in excess of the earnings limitation that the retired worker earned in that fiscal year. d) defines the types of employment performed by a retired worker that will be subject to the earnings limitation, including work for a CalSTRS-covered employer as an employee, a contractor, or an employee of a third party. e) has exempted, for approximately the past 12 years, certain retired educators and administrators from the earnings limitation until June 30, 2012, allowing them to earn a full salary and a full retirement allowance without limitation. f) provides that the Superintendent of Public Instruction, Board of Governors of the Community Colleges, or a county superintendent of schools may appoint a trustee, administrator, or fiscal advisor to address academic or financial weaknesses in a school district, pursuant to specified requirements. g) requires that a retiree must wait 12 months before he or she may reinstate to active employment with a CalSTRS-covered employer. 1)This bill : a) changes the basis of the earnings limitation to Pamela Schneider Date: 6/19/12 Page 2 one-half of the median final compensation earnable in the system, as determined annually. (That amount is currently slightly over $40,000, according to CalSTRS.) b) specifies that a trustee, administrator, or fiscal advisor appointed to address academic or financial weaknesses in a school district, pursuant to specified requirements, shall be exempt from the earnings limitation under the following conditions: i. The appointing authority advertised the position and attempted to fill the position with a non-retired individual and was unable to do so; ii. The appointing authority next tried to fill the position with a retired worker who would reinstate from retirement at the same salary as offered originally and was unable to do so; iii. The appointing authority, unable to fill the position with a non-retired or reinstated worker, then filled the job with the retired worker at a salary no greater than the salary offered to current active members for the appointed position; iv. The appointment will end no later than June 30, 2013; and v. The Superintendent of Public Instruction, Board of Governors of the Community Colleges, or county superintendent of schools certifies, prior to the appointment, to CalSTRS that it is in compliance with these requirements. a) clarifies that a retired worker is not considered to be an employee of a third party, for purposes of the earnings limitation, if the following is true: i. The worker does not fill a position that would normally be filled by a school or district employee; ii. The worker performs work of a limited duration; and Pamela Schneider Date: 6/19/12 Page 3 iii. The third-party employer does not participate in a public retirement system. a) allows a retiree to reinstate from retirement after being retired for less than a full year, but specifies that he or she may not select a different option beneficiary upon re-retiring. b) is an Urgency statute. COMMENTS : 1)Compliance with the Conference Committee on Public Employee Pensions The Conference Committee on Public Employee Pensions, consistent with the Governor's recommendations for pension reform in his 12-point plan, has worked with the author to ensure that provisions of the bill are consistent with recommendations to limit post-retirement employment in public jobs and to not conflict with the Conference Committee report. This bill forms a bridge until the Conference Report could become effective on January 1, 2013. 2)Expiration of Earnings Limitation Exemptions For approximately 12 years, a number of exemptions from the earnings limitation have allowed many retirees to work fulltime without a reduction in benefits. AB 178, in eliminating the exemptions, does not prohibit a retiree from working after retirement. Instead, enforcement of the earnings limitation removes one incentive for active workers to retire early. It also brings the retired worker program back to a part-time program, as it was originally intended to be. This bill increases the earnings limitation to be a closer approximation of a half-time salary, consistent with the retired worker program in CalPERS, which limits the amount of time a retiree can work to slightly less than 6 months. 3)Arguments in Support Pamela Schneider Date: 6/19/12 Page 4 As stated by the author: "Due to the urgency of the upcoming sunset date, AB 178 will extend the sunset for one year with the expectation that the Pension Conference Committee will address this issue in their report and will go into effect next year. To be as consistent as possible with the pending conference committee report and the desires of the Governor, AB 178 will narrow the scope of this exemption so that only school districts that are either financially and/or academically distressed will qualify." According to the Riverside County Superintendents' Association: "Under specific and narrow conditions, AB 178 would extend for an additional year the existing STRS post-retirement earnings limit exemptions. The need for these exemptions has increased due to the state's fiscal challenges and the fact that many specialized providers are leaving the field. Allowing retired employees to work for school districts experiencing fiscal or academic distress without financial penalty offers a larger pool of qualified educators who can temporarily step in to fill critical needs while the school searches for a long-time hire." 4)SUPPORT : Association of California School Administrators (ACSA) California Association of School Business Officials (CASBO) California Charter Schools Association Advocates California County Superintendents Educational Services Association (CCSESA) California Teachers Association (CTA) Los Angeles County Superintendents of Schools Riverside County School Superintendents' Association (RCSSA) Support for March 22, 2012 amended version: Accrediting Commission for Community and Junior Colleges (ACCJC) California Speech-Language Hearing Association (CSHA) Pamela Schneider Date: 6/19/12 Page 5 City College of San Francisco Humboldt County Office of Education Inyo County Office of Education Orange County Department of Education San Mateo County Board of Education Small School District Association (SSDA) Western Association of Schools and Colleges (WASC) 5)OPPOSITION : Lake County Office of Education, Oppose Unless Amended ##### Pamela Schneider Date: 6/19/12 Page 6