BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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          |SENATE RULES COMMITTEE            |                       AB 1379|
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                                    THIRD READING


          Bill No:  AB 1379
          Author:   Assembly Public Employees, Retirement and Social  
          Security Committee
          Amended:  6/13/13 in Senate
          Vote:     21


           SENATE PUBLIC EMPLOY. & RETIRE. COMM.  :  5-0, 6/24/13
          AYES:  Beall, Walters, Block, Gaines, Yee

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8

           ASSEMBLY FLOOR  :  76-0, 4/25/13 (Consent) - See last page for  
            vote


           SUBJECT  :    Teachers' Retirement Law

           SOURCE  :     California State Teachers' Retirement System


           DIGEST  :    This bill is the California State Teachers'  
          Retirement System's (CalSTRS) annual housekeeping bill intended  
          to make technical and non-controversial changes to the Teachers'  
          Retirement Law (TRL).

           ANALYSIS  :    

          Existing law:
          
          1.Registered Domestic Partner

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

          2.2+2 Retirement Incentive Program
            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            authorizing this program was repealed on January 1, 2005, and  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.

          3.Nonmember Spouse:  Final Compensation

            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.

          4.Working after Retirement

             A.   Sets employment and earnings limitations on working for  
               a CalSTRS employer following retirement and 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.

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

            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."

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          1.CalSTRS Headquarters

            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."

          2.Two-Year Retirement Incentive Program

             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.

          1.Unused Sick Leave

             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 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/her service retirement  
               benefit effective date to as early as the day following the  
               date the member terminated his/her employment regardless of  
               when the service retirement application is received after  
               the employment termination date.


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          1.Disability Benefits

             A.   Makes a member eligible for disability or disability  
               retirement benefits (depending on whether the member has  
               Coverage A or Coverage B) after he/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.

             B.   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.

             C.   Requires CalSTRS to calculate a member's final  
               compensation for service retirement after he/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.

             D.   Provides that a member may only revoke or change a  

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               disability option election before the disability benefit  
               effective date or within 30 days of the date of mailing of  
               an acknowledgement notice; however, this is inconsistent  
               with the service retirement option election revocation or  
               change process.

             E.   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 DB 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.

          1.Reinstatement from Retirement

             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/her  
               ability to terminate his/her retirement benefit and  
               reinstate to active membership after he/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.

          1.Retirement Following Reinstatement

            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 benefit amounts if  
            a change in a previous benefit impacts a current benefit  
            calculation.

          2.Beneficiary Designation

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             A.   Allows a member to choose the type of benefit he/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 DBS account upon his/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.

          1.Supplemental Base Allowance for Disability Allowance to  
            Service Retirement

             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.

          1.Benefit Payment Information

            Requires CalSTRS to provide electronic copies of a benefit  
            recipient's payment information which are made available on a  
            secure Internet 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 the Franchise Tax Board (FTB).  Benefit recipients may  
            choose to receive the payment information by mail for each  

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            monthly payment or to not receive a mailed copy at all.

          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.

          3.403(b) Vendor Registry

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

          4.Medicare Premium Payment Program (EC 25940)

            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:

          1.Registered Domestic Partner

            Revises and updates the references to sections of the TRL that  

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            conflict with federal law in their treatment of registered  
            domestic partners.

          2.2+2 Retirement Incentive Program

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

          3.Nonmember Spouse:  Final Compensation

            Corrects a reference to the provision of law relating to final  
            compensation for a nonmember spouse.

          4.Working after Retirement

            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.

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

          5.CalSTRS Headquarters

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

          6.Two-Year Retirement Incentive Program

            Clarifies that employers must notify retirees of the  
            restriction on returning to work within five years imposed by  
            the terms of the CalSTRS Retirement Incentive Program.

          7.Unused Sick Leave

            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.

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          8.Disability Benefits

             A.   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/her  
               disability benefit application.

             B.   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.   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.

               (1)    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.

               (2)    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.   Ensures equal treatment for CB Benefit program  
               participants receiving a disability annuity who return to  
               work, regardless of age.
          1.Reinstatement from Retirement

             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/she receives, within 45 days, if the  
               member cancels his/her retirement application, and be  
               liable for any resulting adverse tax consequences.

             B.   Eliminates a loophole allowing a member to reinstate for  

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               one year, elect, change, or cancel an option, and then  
               backdate his/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/she has previously reinstated includes  
               the amount that he/she was eligible to receive immediately  
               preceding reinstatement.

          1.Retirement Following Reinstatement

            Clarifies that a member's retirement allowance calculation  
            after he/she has previously reinstated, includes the amount  
            that he/she was eligible to receive immediately preceding  
            reinstatement.

          2.Beneficiary Designation

            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.

          3.Supplemental Base Allowance for Disability Allowance to  
            Service Retirement

            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.

          4.Benefit Payment Information

            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 in the benefit amount  

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            due to an annual enhancement or an adjustment to income tax  
            withholding tables by the IRS or FTB.

          5.Deferred Compensation Contract Term

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

          6.403(b) Vendor Registry

            Corrects the name of the regulatory organization to the  
            Financial Industry Regulatory Authority.

          7.Medicare Premium Payment Program (EC 25940)

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

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  No

           SUPPORT  :   (Verified  8/9/13)

          California State Teachers' Retirement System (source)

           ARGUMENTS IN SUPPORT  :    According to CalSTRS, "AB 1379 makes  
          various technical and conforming changes to the TRL to  
          facilitate efficient administration of the State Teachers'  
          Retirement Plan, which includes the DB Program, the DBS Program  
          and the CB Benefit Program."

           ARGUMENTS IN OPPOSITION  :     
          
           ASSEMBLY FLOOR  :  76-0, 4/25/13
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Bigelow, Bloom,  
            Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,  
            Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,  
            Dahle, Daly, Dickinson, Donnelly, Eggman, Fong, Fox, Frazier,  
            Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell, Gray,  
            Grove, Hagman, Hall, Harkey, Roger Hernández, Holden, Jones,  
                                                                               Jones-Sawyer, Levine, Linder, Logue, Maienschein, Mansoor,  
            Medina, Melendez, Mitchell, Morrell, Mullin, Muratsuchi,  

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            Nestande, Olsen, Pan, Patterson, Perea, V. Manuel Pérez,  
            Quirk, Quirk-Silva, Rendon, Salas, Skinner, Stone, Ting,  
            Torres, Wagner, Waldron, Weber, Wieckowski, Wilk, Williams,  
            Yamada, John A. Pérez
          NO VOTE RECORDED:  Cooley, Lowenthal, Nazarian, Vacancy


          JL:ej  8/16/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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