BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 178 (Gorell/Ma) - CalSTRS Postretirement Employment
Amended: June 19, 2012 Policy Vote: PE&R 4-0
Urgency: Yes Mandate: No
Hearing Date: June 28, 2012
Consultant: Maureen Ortiz
This bill may meet the criteria for referral to the Suspense
File.
Bill Summary: AB 178 extends a post retirement earnings
limitation exemption for retired members of CalSTRS who return
to work under a limited-term appointment, changes how the
earnings limit is calculated, clarifies that the limit does not
apply to third-party employees, and allows retired members to
re-retire within a year of reinstating, as specified.
Fiscal Impact: Unknown, potentially in excess of $150,000
(Special).
Administrative expenses to CalSTRS are unknown at this time, but
will involve one-time costs for information technology system
changes, as well as updating staff training and communications
materials. Additional ongoing costs will result from processing
potential increases in reinstatement and re-retirement
applications, and for the determination of third party
activities.
Continuing the limited-term appointment exemption will have no
actuarial impact on the system because the valuation of the
Defined Benefit Program currently does not assume that any
member will work in excess of the limit.
Background: Existing law establishes a postretirement earnings
limitation which is adjusted annually by the Teachers'
Retirement Board based on the percentage change in the average
compensation earnable of active members. The current
postretirement earnings limit is $31,020. The limit is the
amount under which a retired member of CalSTRS may return to
work and earn in a fiscal year without having to reinstate or
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without losing any of his or her retirement allowance. 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. If a member
exceeds the earning limitation, his or her retirement allowance
is reduced by the amount of the excess compensation.
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. These exemptions allow a retired
member to return to work without the salary constraint of the
post-retirement earnings limit. 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: a) to provide direct K-12 classroom
instruction, b) to support and assess new teachers in certain
programs,
c) to support student teachers, the pre-Internship Teaching
Program, and alternative, certification program, or the school
paraprofessional Teacher Training Program, and
d) to provide instruction and services to special education
students, in English language learner programs, or in direct
remedial education for grades 2-12.
All of these exemptions will expire on June 30, 2012.
Also set to expire on June 30, 2012 is an exemption for
limited-term appointments by the State Superintendent of Public
Instruction or a county superintendent of schools to assist
schools that are either in specific financial or academic
distress.
Retired members are currently allowed to terminate their
retirement benefit and reinstate to active membership at any
time after they retire, however, if they do so, those members
must wait one year to re-retire.
Proposed Law: AB 178 contains the following provisions:
- Changes the calculation method of the post retirement
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earnings limitation from what currently totals $31,020 annually,
to one-half of the median final compensation of all members who
retired for service during the previous fiscal year which would
result in an increase in the limit to just over $40,000.
- Eliminates the provision in current law that requires a
member who reinstates to wait one year before re-retiring, but
requires those members to keep the same option and beneficiary
or beneficiaries that were in effect before reinstatement, or to
retain their unmodified status.
- Excludes an employee of a third party that does not
participate in a California public pension system from the
postretirement employment requirements.
- Extends an exemption from the post retirement earnings
limitation for any member who has retired for service and has
returned to work as a trustee, administrator, or fiscal adviser
approved by the Superintendent of Public Instruction, or a
county superintendent of schools to address academic or
financial weaknesses in a school district. The bill also
includes members who are appointed by the Board of Governors of
the California Community Colleges.
In order to use the limited-term appointment exemption, the
employer must submit documentation that includes certification
of all of the following: a) that the employer advertised the
position to active or inactive members and was not able to find
a qualified person, b) that the employer made a good faith
effort to hire a retired member who reinstated, c) that the
salary being paid does not exceed what was advertised or is
currently paid for that position, and d) that the appointment
terminates no later than June 30, 2013.
Related Legislation: AB 758 (Wieckowski) would have extended the
sunset dates for the postretirement earnings limit exemptions to
June 30, 2014. That bill was held in the Assembly Public
Employees, Retirement and Social Security Committee in 2011.
Staff Comments: It is anticipated that the Pension Reform
Conference Committee Report will include language similar to
that in this bill. However, since any pension reform provisions
will not become effective until January 1, 2013, AB 178 is
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intended to provide a bridge in the post retirement earnings
limitation between the date of its enactment and January 1,
2013.