BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 349
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          Date of Hearing:   June 22, 2011

            ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL 
                                      SECURITY
                              Warren T. Furutani, Chair
                 SB 349 (Negrete McLeod) - As Amended:  May 26, 2011

           SENATE VOTE  :   35-0
           
          SUBJECT  :   State Teachers' Retirement Plan.

           SUMMARY  :   Makes technical, clarifying and non-controversial 
          changes to various sections of the Education Code administered 
          by the California State Teachers' Retirement System (CalSTRS) to 
          improve, and continue effective administration of the System.  
          Specifically,  this bill  :   

          1)Amends the Education Code to comply with the requirements of 
            the federal Heroes Earnings Assistance and Relief Tax (HEART) 
            Act of 2008.

          2)Provides additional options to CalSTRS members by allowing 
            them to submit CalSTRS forms and documents to designated 
            CalSTRS representatives during counseling office hours or in 
            the course of receiving counseling services, regardless of 
            whether the counseling takes place in a counseling office.

          3)Broadens the language in the Education Code to include "other" 
            payments and collection of overpayments that would be subject 
            to the $10 threshold.

          4)Clarifies the funding of the Medicare Premium Payment Program 
            (MPP Program) to ensure that the MPP Program may only be 
            extended to the extent that surplus employer contributions of 
            the Defined Benefit (DB) Program are available.

          5)Allows a member to terminate a retirement or disability 
            benefit and be eligible for a refund of the remaining 
            contributions and interest when properly executed on a CalSTRS 
            form.

          6)Removes the $500 late reporting penalty for the DB and Cash 
            Balance Benefit (CB) programs, leaving the regular interest 
            penalty, and make the penalties consistent for both the DB and 
            CB programs, among other related changes, as specified.








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          7)Clarifies that the beneficiary and option beneficiary 
            designations are invalidated when a member completes a refund 
            of his or her accumulated retirement contributions.

          8)Clarifies that an amount equal to the refund that is returned 
            to CalSTRS, would be treated the same as if the actual refund 
            warrant had been returned.

          9)Clarifies that the basis for eligibility of Family Allowance 
            and Survivor benefits lies with the member, and not with the 
            member's beneficiaries.

          10)Clarifies that a member may not apply for a disability 
            benefit if the basis for the disability is an impairment that 
            began prior to the member's membership in CalSTRS.

          11)Clarifies CalSTRS' authority to order a review of medical 
            documentation in lieu of a physical examination.

          12)Clarifies provisions allowing members to specify when their 
            retirement benefits start, following termination of 
            employment.

          13)Makes technical, non-controversial changes to provide 
            consistency and ease of administration of the Early Retirement 
            Limited Term Reduction Program (ERLTRP).

          14)Specifies that retired DB members are not allowed to make 
            contributions to the CB Program, to provide consistency among 
            the two programs.

          15)Specifies that the zero-dollar earnings limit applies to a 
            member's age at the most recent retirement.

          16)Makes conforming changes to reconcile the differences between 
            the DB and the CB post-retirement employment limitations; 
            provide consistency in the post-retirement limitations that 
            are imposed on educators who retire under CalSTRS, and also 
            removes citations to provisions related to two obsolete 
            programs.

          17)Aligns provisions, as specified, to allow an option election 
            to be made as part of the retirement application process, or 
            by the end of the month in which the retirement takes effect.








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          18)Allows payment of a portion of disability retirement to the 
            member's dependent child, as specified.

          19)Makes other minor, technical changes to the Teachers' 
            Retirement Law.

           EXISTING FEDERAL LAW  :

          Establishes the HEART Act which requires, among other 
          provisions, that public pension systems treat participants who 
          die on or after January 1, 2007 while performing qualified 
          military service, as being reemployed and then dying while 
          employed for purposes of survivor and death benefits.

           EXISTING STATE LAW  :

          1)Allows CalSTRS to designate one or more of its contracted 
            field counseling offices as an official recipient of member 
            benefit applications and other documents from members, spouses 
            and beneficiaries, and allows CalSTRS members to submit 
            documents to CalSTRS through benefits counselors.

          2)Allows the Teachers' Retirement Board to establish a $10 
            minimum threshold for the processing of benefit payments or 
            the collection of overpayments to a member.

          3)Allows, under the MPP Program, CalSTRS to pay the Medicare 
            Part A premiums for eligible retired members of the DB 
            Program, effective July 1, 2001.  The Teachers' Retirement 
            Board is authorized to extend this eligibility date.  To 
            qualify for CalSTRS payment of the premium, the member must be 
            at least 65 years of age, enrolled in Medicare Parts A and B 
            at the age of 65 or on July 1, 2001, whichever is later, and 
            not eligible for Medicare Part A without payment of a premium. 
             CalSTRS also pays the Medicare Parts A and B late enrollment 
            surcharges for DB members who retired prior to January 1, 
            2001, provided they enrolled in Medicare by July 1, 2001.  To 
            fund this program, CalSTRS established a special trust fund 
            known as the Teachers' Health Benefits Fund (THBF), into which 
            an amount from employer contributions that otherwise would be 
            credited to the DB Program would instead pay the premium of 
            Medicare Part A.

          4)Establishes the DB Program and the CB Program administered by 








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            CalSTRS as separate benefit programs for full-time public 
            school administrators and instructors, and part-time or 
            seasonal instructors who are not eligible for the DB Program, 
            respectively.

          5)Requires CalSTRS to assess penalties and interest on late 
            remittances of contributions for both the DB Program and the 
            CB Program in accordance with regulations established by the 
            CalSTRS Board.

          6)Allows a member to designate a beneficiary to receive the 
            member's benefits upon death of the member; allows a member to 
            make a preretirement election, change or cancellation of an 
            option, as specified, that designates a beneficiary to receive 
            a lifetime monthly benefit upon the death of the member, and 
            provides that upon death of a member, beneficiaries or 
            survivors may receive specified benefits depending on the 
            coverage that the member was under, and eligibility of the 
            member.

          7)Allows a member to transfer all or a specified portion of his 
            or her contributions eligible for a direct trustee-to-trustee 
            transfer to another qualified plan under Section 402 of the 
            Internal Revenue Code of 1986; to cancel the transfer, and to 
            refund the system with the withdrawn funds.

          8)Provides that upon proper application, a vested member can 
            receive disability benefits while the member is either 
            employed, on compensated leave of absence, physically or 
            mentally incapacitated, or on leave of absence without 
            compensation, as specified, and for CalSTRS members who became 
            members after October 16, 1992, allows a portion of the 
            benefit to be paid to a dependent child until the age of 21.

          9)Requires a member to provide medical documentation to 
            substantiate an impairment qualifying the member for a 
            disability allowance, and allows CalSTRS to order a medical 
            examination of a member to determine whether the member is 
            incapacitated for performance of service.

          10)Provides that a member may retire, as specified, change, or 
            modify the effective date of retirement from CalSTRS if the 
            application for retirement is appropriately filed with 
            CalSTRS.









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          11)Allows a member to who retires between the ages of 55 and 60 
            under the Early Retirement Limited Term Reduction Program 
            (ERLTRP), to elect to receive half of the amount of his or her 
            monthly retirement benefit for a limited time and then revert 
            to the full retirement allowance for normal retirement age.

          12)Provides specified postretirement earnings limitations on 
            members who return to CalSTRS-covered employment after 
            retirement, including a limited time for members who retire 
            under normal retirement age; prohibits a retired member in the 
            DB Program from making contributions to the program, and 
            provides for different limitations on retired DB members and 
            CB Program participants who return to work in CalSTRS-covered 
            service.  

           FISCAL EFFECT  :   According to the Senate Appropriations 
          Committee, pursuant to Senate Rule 28.8, negligible state costs.

           COMMENTS  :   According to CalSTRS:

          1)Federal HEART Act Compliance:

          Currently, under the DB Program, unless a member dies within 
            four months of CalSTRS-covered service, or their survivors can 
            show that the member was continuously disabled since the last 
            day of service, their survivors are not eligible for the 
            one-time death benefit or for an ongoing survivor benefit or 
            family allowance.  In the event a member dies prior to 
            retirement, CalSTRS provides a distribution of the member's 
            remaining contributions and interest in their DB, CB, or 
            Defined Benefit Supplement (DBS) account upon notification of 
            death.  These distributions are made in all cases as long as 
            there are funds in the respective account.

          This bill would bring CalSTRS into conformity with federal law 
            to pay survivor and death benefits for military members who 
            die while performing military service, if they would otherwise 
            have been eligible for benefits had they remained in 
            CalSTRS-covered employment.

          2)Receipt of Documents:

          Currently, the Board may designate one or more of the contracted 
            field counseling offices as an official recipient of member 
            benefit applications and other documents from members, spouses 








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            and beneficiaries, and allows CalSTRS members to submit 
            documents to CalSTRS through benefits counselors, even if the 
            counselors were not at a counseling office at the time the 
            documents were submitted.

          A counseling session with a member may take place at a location 
            other than a counseling office, such as at the member's 
            school.

          3)$10 Threshold:

          If the amount of the processing a benefit payment or collection 
            of overpayment is below the $10 minimum, CalSTRS is not 
            required to issue the payment or collect the overpayment.  
            This allows CalSTRS to avoid the expense of issuing a benefit 
            payment or collecting an overpayment when the amount of the 
            payment is relatively small.

          By including unspecified "other" payments and collections, the 
            number of payments or collections for relatively small amounts 
            would be reduced by not limiting the application of that 
            threshold amount to benefit payments or overpayment 
            collections.

          4)Medicare Premium Payment Program:

          Currently, CalSTRS pays the Medicare Part A premiums for 6,700 
            retired DB Program members, and the Medicare Part B surcharges 
            to 1,050 DB Program members.  However, the MPP Program has a 
            diminishing eligible population and finite duration, and 
            CalSTRS expect a predicted decline beginning in 2016, with a 
            peak enrollment that year of 7,700 members.

          This bill clarifies the funding of the MPP Program to reflect 
            the original intent.  When the existing language was enacted, 
            which funded the MPP Program, the amount to be spent for the 
            MPP Program, including any extensions authorized by the 
            Teachers' Retirement Board, could not exceed the amount of 
            surplus assets identified in the DB valuation and set aside in 
            the subsequent DB Program valuations.  Since that time, it 
            became apparent that more funds were set aside than needed to 
            fully fund the MPP Program, even if everyone, regardless of 
            when they retired, could be eligible for the benefit.  As a 
            result, the Teachers' Retirement Board changed its approach to 
            set aside only the amount needed to fund the program for the 








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            group that retires by the date at which the Teachers' 
            Retirement Board sets as the eligibility deadline (currently 
            7/12/12), and any extensions of the eligibility would be paid 
            from resources identified at the time of the extension that 
            exceeded the amount needed to fully fund the DB Program over 
            the board's funding period.  This measure is consistent with 
            the current approach, and maintains the original intent that 
            the MPP Program only be extended to the extent that employer 
            contributions that are surplus to a full funding plan are 
            available.

          5)Refund of Contributions After Retirement:

          Previously, CalSTRS allowed a retired member to elect to stop 
            his or her retirement benefit and collect a refund of 
            remaining contributions, until being advised that this was an 
            incorrect interpretation of the law.  Currently, a retired 
            member must terminate his or her retirement and return to work 
            for at least one day, and then separate from employment, to 
            collect a refund of his or her remaining contributions.

          This bill allows a member to terminate a retirement or 
            disability benefit and be eligible for a refund of the 
            remaining employee contributions and interest, without the 
            technicality of returning to active employment for a day.

          6)Penalties and Interest:

          Current law  requires CalSTRS to assess interest on late 
            remittances of contributions for both the DB and CB Programs, 
            and penalties on late contribution reports in accordance with 
            regulations to be established by the CalSTRS Board.  Regular 
            interest would be charged on any delinquent contributions.  
            Penalties would be assessed based on the total employer and 
            employee contributions at the regular interest rate from the 
            time the report was due to when the report is received by 
            CalSTRS, with a minimum fee of $500.

          Among other things, this bill allows for the drafting of 
            regulatory language for the CB Program late contribution 
            penalty that would parallel the DB draft penalties and 
            interest regulations that are now going through CalSTRS' 
            rulemaking process.










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          7)Beneficiary Designation Invalidation:

          Historically, if a member chose to receive a refund of his or 
            her contributions and subsequently returned to membership 
            without completing a new beneficiary designation form, the 
            beneficiary designation in effect prior to the refund would 
            continue to be in effect after returning to membership.  Under 
            recent updates to its information technology system, CalSTRS 
            maintains on record, the beneficiary designations after the 
            member's more recent membership date and deems a prior 
            designation as invalid.  However, the law does not clearly 
            state whether a member's designation is invalidated when he or 
            she terminates service and receives a refund of his or her 
            contributions.

          This bill clarifies the law so that CalSTRS may use up-to-date 
            beneficiary designations that are made after the member's most 
            recent membership date.

          8)Return of Refund:

          Under current law, a former CalSTRS member who has requested a 
            rollover to another qualified retirement plan and returns the 
            refund warrant to CalSTRS within 30 days of when the refund 
            was originally mailed by CalSTRS, may be reinstated as a 
            member of the DB program.  However, in cases where a warrant 
            is sent directly to a financial institution and is deposited, 
            the member may not be able to return the original warrant to 
            CalSTRS.  Under that circumstance, CalSTRS cannot accept the 
            member back into the DB Program.

          This bill clarifies that an amount equal to the refund that is 
            returned to CalSTRS will be treated the same as if the actual 
            refund warrant had been returned.

          9)Family Allowance and Survivor Benefits:

          Upon the death of a member, beneficiaries or survivors may 
            receive specified benefits.  The benefits received depend on 
            the coverage that the member was under, which is based on 
            whether the member started his or her membership on or after 
            October 16, 1992 (Coverage A or Coverage B).  Eligibility for 
            those benefits depends on the eligibility of the member.

          This bill clarifies that the basis for eligibility of Family 








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            Allowance and Survivor benefits lies with the member, and not 
            with the member's beneficiaries.

          10)Disability Allowance Application:

          CalSTRS members are eligible for disability benefits after they 
            are vested and meet other requirements.  Current law specifies 
            time periods in which a member can apply for a disability 
            benefit.

          This bill makes a technical change in the code, and clarifies an 
            existing provision that states that a member may not apply for 
            a disability benefit if the basis for the disability is an 
            impairment that began prior to the member's membership in 
            CalSTRS.

          11)Independent Medical Examinations:

          Currently, CalSTRS can request a medical examination performed 
            by a licensed physician to determine whether a member is 
            incapacitated for performance of service to substantiate an 
            application for a disability benefit.  In most cases where a 
            medical examination is requested, CalSTRS also requests a 
            review of medical documentation to determine whether a member 
            is incapacitated for performance of service.  There are some 
            instances where CalSTRS would only request a review of medical 
            documentation and would not require the member to participate 
            in an examination.

          The majority of the costs associated with the medical 
            examination are paid directly by CalSTRS, while additional 
            costs related to travel and meals are paid by the member who 
            is subsequently reimbursed by CalSTRS.

          12)Service Retirement Benefit Effective Date:

          Currently, a member may submit an application for service 
            retirement during a period that begins six months prior to the 
            chosen retirement date and extends to the last day of the 
            month in which the retirement is to take effect.  Each year, a 
            number of members fail to submit their retirement application 
            within that period to receive a service retirement benefit 
            after their employment terminates.

          This bill allows a member to backdate his or her service 








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            retirement benefit effective date to as early as the day 
            following the date the member terminated his or her employment 
            regardless of whether the service retirement application is 
            received after the employment termination date, and specifies 
            that the value of annuities payable under the DBS program is 
            to be calculated based on the member's retirement date, in 
            conformity with the change to the service retirement benefit 
            effective date, which may be earlier than when the annuity is 
            paid, among other technical changes.

          13)Early Retirement Limited Term Reduction Program (ERLTRP):

          Due to the different calculations used to determine a member's 
            monthly benefit, CalSTRS encounters problems administering the 
            program when a member either reinstates to active service and 
            subsequently retires with a multiple-retirement calculation; 
            retires for service after terminating a disability retirement 
            or disability allowance; or retires for service after 
            reinstating to active service from a disability allowance.

          14)DB Retiree Contributions:

          Current law  is inconsistent between the DB and CB programs when 
            specifying that retired members do not make contributions for 
            CalSTRS-covered employment.  A retired member in the DB 
            program may not make contributions to the DB program.  
            However, current law does not specifically state whether or 
            not a retired DB member cannot participate in the CB program.

          This bill specifies that retired DB members are not allowed to 
            make contributions to the CB program, to provide consistency 
            among the two programs.

          15)Post Retirement Earnings Limit (Under Age 60):

          Members who retire under the normal retirement age of 60, and 
            subsequently work in any CalSTRS-related service fall under a 
            zero-dollar earnings limit for the first six calendar months 
            after they retire.  During those six calendar months, the 
            zero-dollar earnings limit reduces the member's retirement 
            benefit by the amount of compensation earned during that 
            period.  Members may retire for service, reinstate to active 
            membership and subsequently retire again.  This 
            post-retirement earnings limit, as well as other earnings 
            limits, applies to a member's most recent retirement.








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          16)Post Retirement Earnings Limit:

          Federal regulations governing tax-qualified pension programs 
            prohibit paying a pension to a person who is under the normal 
            retirement age of that pension system (i.e., age 60) unless 
            the employment that brought about the pension has been 
            terminated.  CalSTRS addresses this prohibition by limiting 
            the yearly amount of money that can be earned by DB members 
                   and CB participants after retirement from CalSTRS-covered 
            service.  The DB and CB programs have different limitations on 
            retired members and participants who return to work in 
            CalSTRS-covered service.  Under certain circumstances, 
            postretirement earnings may be exempt from the limit, as 
            specified.

          This bill reconciles differences in the DB and CB 
            post-retirement employment limitations and provides 
            consistency in the post-retirement limitations that are 
            imposed on educators who retire under CalSTRS.

          17)Option Elections:

          A CalSTRS member may elect an option that designates a 
            beneficiary to receive a lifetime monthly benefit upon the 
            death of the member.  If a preretirement election of an option 
            is changed or cancelled, or the option beneficiary dies before 
            the member retires, the member's retirement benefit may be 
            permanently reduced.

          This bill aligns the provisions to allow the election to be made 
            as part of the retirement application process, or by the end 
            of the month in which the retirement takes effect.

          18)Child's Portion of Disability Retirement or Survivor Benefit:

          The disability retirement allowance for CalSTRS members who 
            became members on or after October 16, 1992, includes a 
            portion of the benefit that is paid to a dependent child until 
            the age of 21.  Under the provisions of law at the time, 
            CalSTRS paid the dependent child portion of the benefit even 
            if the member died while receiving the disability retirement 
            allowance.  The law governing payment of a disability 
            retirement benefit to a dependent child was incorrectly 
            amended in 1997, and since then, has not allowed payment of a 








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            child benefit after the disabled member dies.  This change was 
            unintentional and no basis for the change can be found.

          This bill will correct that error.







           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          California State Teachers' Retirement System (Sponsor)
          California Federation of Teachers
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916) 
          319-3957