BILL ANALYSIS                                                                                                                                                                                                    






          SENATE PUBLIC EMPLOYMENT & RETIREMENT   BILL NO:  AB 1379
          Jim Beall, Chair             HEARING DATE:  June 24, 2013
          AB 1379 (Asm. PER&SS Comm)    as amended   6/13/13        
          FISCAL:  YES

           CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM:  ANNUAL  
          HOUSEKEEPING BILL
           
           HISTORY  :

            Sponsor:  California State Teachers' Retirement System  
            (CalSTRS)

            Other legislation:  AB 2663 (Assembly PER&SS Committee),
                          Chapter 864, Statutes of 2012
                        SB 349 (Negrete McLeod),
                          Chapter 703, Statutes of 2011

           ASSEMBLY VOTES  :

            PER & SS                 7-0       4/10/13
            Appropriations           17-0      4/17/13
            Assembly Floor           76-0      4/25/13
           
          SUMMARY  :

          AB 1379 is CalSTRS' annual housekeeping bill intended to make  
          technical and non-controversial changes to the Teachers'  
          Retirement Law (TRL).

           BACKGROUND AND ANALYSIS  :
          
           1)Registered Domestic Partner  

             Existing law  generally allows a member's registered  
            domestic partner to receive the same treatment from CalSTRS  
            as a member's spouse, except as prohibited by federal law.

             This bill  revises and updates the references to sections of  
            the TRL that conflict with federal law in their treatment  
            of registered domestic partners.

            Section affected:  EC 22007.5
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          2)2+2 Retirement Incentive Program
           
             Existing law  formerly established the "2+2" retirement  
            incentive program (i.e., "golden handshake"), operative  
            from January 1, 2004 through December 31, 2004, which  
            provided an additional two years of service credit and two  
            additional years of age, for purposes of the age factor  
            used to calculate retirement benefits, to retiring members  
            of the Defined Benefit (DB) Program whose employers elected  
            to participate.  The statute authorizing this program was  
            repealed on January 1, 2005, and subsequently removed from  
            statute.

             This bill  removes statutory references to the "2+2" program  
            (i.e., Education Code Section 22714.5).

            Sections affected:  EC 22134.5, 24203.5, 24203.6, 24209,  
            24209.3, 24211, 24212, 24213

           3)Nonmember Spouse:  Final Compensation  

             Existing law  generally limits final compensation for the  
            purpose of calculating a defined benefit to the highest  
            average annual compensation earnable for any period of  
            three consecutive schools years.  However, final  
            compensation may be the highest average annual compensation  
            earnable during any period of 12 consecutive months, if a  
            2% at 60 member has 25 or more years of service credit or  
            it is part of a written collective bargaining agreement and  
            associated costs are paid to CalSTRS.

             This bill  corrects a reference to the provision of law  
            relating to final compensation for a nonmember spouse.

            Section affected:  EC 22135

           4)Working after Retirement  

              a)   Existing law  :

               i)  sets employment and earnings limitations on working  
                 for a CalSTRS employer following retirement and  
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                 excludes from these limitations activities performed  
                 by an employee in a limited-term assignment for a  
                 third party employer that does not participate in a  
                 California public pension system, and the activities  
                 performed are not normally performed for an employer,  
                 as specified.

               ii)  defines "retired member activities" and  
                 incorporates the third-party exclusion in the  
                 definition, but does not clearly define "limited  
                 term."

                This bill  clarifies the exclusion of third-party  
               employee activities from the definition of "retired  
               member activities" by specifying that assignments must  
               be 24 months or less.

              b)   Existing law  states that retired members are subject  
               to a zero-dollar earnings limit for the first 180  
               calendar days after their most recent retirement.   
               Education Code section 24214.5 inconsistently references  
               this period of time, referring to it as both "180 days"  
               and "six consecutive months."

                This bill  ensures consistent interpretation of the  
               length of the zero-dollar limit period by consistently  
               using "180 calendar days" as the timeframe.

               Sections affected:  EC 22164.5, 24214.5


           5)CalSTRS Headquarters  

             Existing law  authorizes CalSTRS to select, purchase, or  
            acquire in the name of the Teachers' Retirement Plan, an  
            office building in the greater metropolitan Sacramento area  
            for the purposes of establishing a permanent headquarters  
            facility for the system, but does not specifically define  
            the term "system's headquarters office."

             This bill  defines the term "system's headquarters office"  
            to mean the office building established as the permanent  
            headquarters facility for CalSTRS in 2009, and removes  
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            various redundant references to Education Code Section  
            22375, which defined CalSTRS authority prior to completion  
            of the system headquarters office.

            Sections affected:  EC 22175, 22303, 22662, 22663, 22664,  
            22801, 22829, 23001, 23104, 23202, 23300, 24005, 24105,  
            24201.5, 24204, 24208, 24300.2, 24306.5, 24306.7, 24307,  
            24309, 24311, 24312, 24312.1, 24613, 25011.5, 25018.2

          6)2-Year Retirement Incentive Program

            Existing law  :

             a)   allows school districts to offer the CalSTRS  
               Retirement Incentive Program, in which a member can  
               receive two additional years of service credit to  
               encourage retirement (i.e., "golden handshake").

             b)   requires that members lose the increase in their  
               benefit provided by the Retirement Incentive Program if  
               they return to work within five years with the school  
               district that granted the incentive credit.

             c)   requires employers to advise reemployed retired  
               members of earnings limitations, as well as to report  
               all postretirement earnings, but does not require  
               employers to inform retired members that postretirement  
               employment would adversely affect their incentive credit  
               if they return to work within five years.

             This bill  clarifies that employers must notify retirees of  
            the restriction on returning to work within 5 years imposed  
            by the terms of the CalSTRS Retirement Incentive Program.

            Section affected:  EC 22461

           7)Unused Sick Leave  

             Existing law  :

             a)   allows a retiring member to receive service credit  
               for unused sick leave certified by the member's last  
               employer or employers, and requires the employer to  
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               certify the number of unused sick leave days to CalSTRS  
               within 30 days following the effective date of the  
               member's service retirement.

             b)   allows a member to backdate his or her service  
               retirement benefit effective date to as early as the day  
               following the date the member terminated his or her  
               employment regardless of when the service retirement  
               application is received after the employment termination  
               date.

             This bill  allows an employer to submit the information  
            within 30 days following the effective date of the member's  
            service retirement or within 30 days of when the  
            application for retirement is received by CalSTRS.

          Sections affected:  EC 22717, 22717.5

           1)Disability Benefits  

             a)  Existing law  makes a member eligible for disability or  
              disability retirement benefits (depending on whether the  
              member has coverage A or coverage B) after he or she is  
              vested and meets other requirements; specifies time  
              periods in which a member may apply for a disability  
              benefit, including the period while the member is  
              employed; and requires that the member be continuously  
              incapacitated from the last day of actual performance of  
              service.

              The TRL specifies a "disability benefit" that converts to  
              a service retirement benefit at age 60 under coverage A  
              for members who joined CalSTRS prior to October 16, 1992,  
              or a "disability retirement benefit" that pays 50% of  
              final compensation under Coverage B for members who  
              joined on or after October 16, 1992, or who voluntarily  
              elected coverage B.

                  This bill  clarifies that in order to qualify for a  
              disability benefit under Coverage A or B, a member must  
              not only be employed, but also have performed creditable  
              service within four months prior to the date CalSTRS  
              receives his or her disability benefit application.
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              b)   Existing law  allows a member who is eligible to  
               retire to receive a service retirement benefit while  
               that member is waiting for a disability benefit  
               application to be evaluated and allows, in the event  
               that the disability benefit application is approved,  
               that the member becomes a disabled member and is paid a  
               disability retirement benefit in place of the service  
               retirement benefit.

               Different requirements apply to the service retirement  
               benefit effective date depending on whether an  
               application for "service retirement" or an application  
               for "service retirement during evaluation of disability  
               application" is submitted.

                This bill  aligns the "service retirement during  
               evaluation of a disability application" requirements  
               with the requirements for a "service retirement benefit"  
               effective date if a member's application for the  
               disability benefit is denied.

              c)   Existing law  requires CalSTRS to calculate a member's  
               final compensation for service retirement after he or  
               she has returned to work following receipt of a  
               disability 
               allowance by using compensation earnable, or projected  
               final compensation, or a combination of the two, and  
               specifies that for calculations when the member returned  
               to active service for less than three years following  
               receipt of a disability allowance, CalSTRS is to use a  
               combination of the two, not one or the other.

                This bill  specifies that a member's final compensation  
               when the member returned to active service for less than  
               three years following receipt of a disability retirement  
               allowance is calculated using compensation earnable, or  
               projected final compensation, or a combination of both.

              d)   Existing law  provides that a member may only revoke  
               or change a disability option election before the  
               disability benefit effective date or within 30 days of  
               the date of mailing of an acknowledgement notice;  
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               however, this is inconsistent with the service  
               retirement option election revocation or change process.

                This bill  :

               i)     ensures a consistent process for revoking or  
                 changing an option election by setting a deadline of  
                 30 days after the first disability retirement benefit  
                 payment.

               i)     clarifies that a member who designates an option  
                 beneficiary will do so on a form specified by CalSTRS  
                 and submitted on or before the last day of the month  
                 of a member's disability retirement.

              a)   Existing law  requires the termination of a disability  
               annuity if a participant who is receiving a disability  
               annuity under the Cash Balance (CB) benefit program  
               returns to work prior to age 60 to perform creditable  
               service subject to coverage by the CB benefit program or  
               the Defined Benefit program; however, current law does  
               not address any consequences for a participant over the  
               age of 60 receiving a disability annuity who returns to  
               work.

                This bill  ensures equal treatment for CB benefit program  
               participants receiving a disability annuity who return  
               to work, regardless of age.

          Sections affected:  EC 24002, 24102, 24105, 24201.5, 24204,  
          24211, 24105, 24301, 26911

           1)Reinstatement from Retirement  

             Existing law  :  

           a)   allows a member to submit an application for retirement  
               with any effective date, including backdating the  
               application, as long as that date meets specified  
               conditions.

          b)   requires that the effective date of retirement can be no  
               earlier than the date on which a member exercises his or  
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               her ability to terminate his or her retirement benefit  
               and reinstate to active membership after he or she  
               retires.

          c)   allows a retired member to reinstate to active  
               membership and re-retire within one year, but requires  
               that such a member keep the same benefit option election  
               and beneficiaries that were in effect during the first  
               retirement and prohibits changes to them for a period of  
               one year after reinstating.

             This bill  :  

           a)   clarifies that a member cannot have a reinstatement date  
               and a re-retirement date on the same date; that the  
               intent of the law is not to allow members to receive  
               multiple benefits for the same time period; and that a  
               member must return payments he or she receives, within  
               45 days, if the member cancels his or her retirement  
               application, and be liable for any resulting adverse tax  
               consequences.

          b)   eliminates a loophole allowing a member to reinstate for  
               one year, elect, change or cancel an option, and then  
               backdate his or her retirement date.

          c)   clarifies the reinstatement effective date requirements  
               and adds an omitted reference to a related provision of  
               law.

          d)   clarifies that a member's retirement allowance  
               calculation after he or she has previously reinstated  
               includes the amount that he or she was eligible to  
               receive immediately preceding reinstatement.

          Sections affected:  EC 24204, 24208

           1)Retirement Following Reinstatement
           
             Existing law  requires CalSTRS to review accounts for  
            accuracy and on occasion to adjust previous benefit amounts  
            when a data or calculation error is found.  CalSTRS must  
            adjust previous benefit amounts and, consequently, current  
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            benefit amounts if a change in a previous benefit impacts a  
            current benefit calculation.

             This bill  clarifies that a member's retirement allowance  
            calculation after he or she has previously reinstated  
            includes the amount that he or she was eligible to receive  
            immediately preceding reinstatement.  
           
          Sections affected:  EC 24209, 24211

           2)Beneficiary Designation
           
             Existing law  :  

           a)allows a member to choose the type of benefit he or she  
               wants upon retirement from the Defined Benefit  
               Supplement (DBS) plan, including a lump-sum, a lifetime  
               joint and survivor annuity, or a period certain annuity.

          b)allows the member to name a person or entity (such as an  
               estate, trust, corporation or charitable organization)  
               as a designated beneficiary to receive the balance of  
               the member's Defined Benefit Supplement (DBS) account  
               upon his or her death if the member chose a period  
               certain annuity; however, the law is silent regarding  
               the manner in which the beneficiary must receive the  
               balance of the DBS account, and CalSTRS administers the  
               payment of the DBS account balance differently,  
               depending on whether the designated beneficiary is a  
               person or an entity.

             This bill  specifies the manner in which a member's  
            beneficiary would receive the balance of the DBS account  
            period certain annuity:  the remainder of the period  
            certain annuity payments if the beneficiary is a person,  
            and the remaining balance of the account if the beneficiary  
            is an entity.

          Section affected:  EC 25022

           1)Supplemental Base Allowance for Disability Allowance to  
            Service Retirement  

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             Existing law  :  

             a)  establishes supplemental benefits to provide purchasing  
              power protection when a member's initial allowance no  
              longer keeps pace with inflation and specifies that the  
              inflation rate is the change in the California Consumer  
              Price Index from the year the benefit began to the year  
              for which the supplemental benefit is calculated.

            b)  requires, when a member goes from disability allowance  
              to service retirement, that the disability allowance  
              effective date is used for purposes of calculating the  
              supplemental benefit.  However, existing law is silent on  
              what is used as the initial allowance for purposes of the  
              calculation.

             This bill  clarifies that the disability allowance a member  
            was eligible to receive on the effective date of the  
            disability allowance is to be used for the purposes of  
            determining postretirement benefit increases, and makes a  
            grammatical correction to clarify that the supplemental  
            base allowance should not include applicable allowance  
            increases or enhancements.

          Sections affected:  24410, 24415

           1)Benefit Payment Information  

             Existing law  requires CalSTRS to provide electronic copies  
            of a benefit recipient's payment information, which are  
            made available on a secure web site.  A benefit recipient  
            is mailed a copy of the payment information only when there  
            is a change in the benefit amount due to an annual  
            enhancement or an adjustment to an income tax withholding  
            tax table by the IRS or FTB.  Benefit recipients may choose  
            to receive the payment information by mail for each monthly  
            payment or to not receive a mailed copy at all.

             This bill  clarifies that CalSTRS may designate electronic  
            delivery as the default method of delivery unless the  
            benefit recipient submits a written request, as specified  
            under existing law, to receive a mailed copy of the payment  
            information either monthly or only when there is a change  
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            in the benefit amount due to an annual enhancement or an  
            adjustment to income tax withholding tables by the IRS or  
            FTB.

            Section affected:  24604

           2)Deferred Compensation Contract Term  

             Existing law  allows CalSTRS to offer deferred compensation  
            programs authorized under sections 403(b) or 457(b) of the  
            federal Internal Revenue Code, which employers may choose  
            to establish and offer to employees; additionally, statue  
            that authorizes CalSTRS to offer the 457(b) program  
            specifies that the initial period of a contract between  
            CalSTRS and an employer is five years.

            Employers interpret this to require all new contracts for a  
            457(b) program with CalSTRS to be for a five-year period.

             This bill  clarifies that employers are able to negotiate  
            the contract terms, including the length of the contract,  
            without requiring a specified initial contract period.

            Section affected:  24975

           3)403(b) Vendor Registry  

             Existing law  allows CalSTRS to operate a 403(b) vendor  
            registry and information bank to enable eligible  
            participants to compare vendors' 403(b) products.  However,  
            the statue that authorize CalSTRS to operate the registry  
            references a regulatory organization that no longer exists  
            because the National Association of Securities Dealers  
            (NASD) merged with the enforcement arm of the New York  
            Stock Exchange to form a successor organization known as  
            the Financial Industry Regulatory Authority (FINRA).

             This bill  corrects the name of the regulatory organization  
            to the Financial Industry Regulatory Authority.

            Sections affected:  25101, 25103, 25106

           4)Medicare Premium Payment Program (EC 25940)
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            Existing law  establishes the Medicare Premium Payment  
            Program (MPPP) to provide retired members the benefit of a  
            CalSTRS paid Medicare Part A premium if they meet certain  
            eligibility requirements, including the requirement that  
            the member must retire by a date specified by the Teachers'  
            Retirement Board (board).  The board currently sets that  
            date to June 30, 2012.  Unless the board extends the MPPP  
            sunset date, members who reinstate and subsequently retire  
            after June 30, 2012, are ineligible for the MPPP.

             This bill  clarifies that CalSTRS will use the most recent  
            retirement date if it uses a retirement date to determine  
            eligibility for the MPPP.

            Section affected:  EC 25940
           FISCAL  :

          The Assembly Appropriations Committee found "negligible  
          fiscal impact on the CalSTRS retirement program and possible  
          minor administrative cost savings to CalSTRS."
           
          COMMENTS  :

           1)Argument in Support  :

          According to CalSTRS, "AB 1379 makes various technical and  
          conforming changes to the Teachers' Retirement Law to  
          facilitate efficient administration of the State Teachers'  
          Retirement Plan (Plan), which includes the Defined Benefit  
          (DB) Program, the Defined Benefit Supplement (DBS) Program  
          and the Cash Balance (CB) Benefit Program."

           2)SUPPORT  :

            California State Teachers' Retirement System (CalSTRS),  
            Sponsor

           3)OPPOSITION  :

            None to date


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