BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 1379
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 1379 (Public Employees, Retirement and Social Security  
          Committee)
          As Amended August 22, 2013
          Majority vote
           
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          |ASSEMBLY:  |76-0 |(April 25,      |SENATE: |37-0 |(September 3,  |
          |           |     |2013)           |        |     |2013)          |
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           Original Committee Reference:    P.E., R. & S.S.  

           SUMMARY  :  Makes various technical and conforming changes to the  
          Teachers' Retirement Law (TRL) necessary for continued effective  
          administration of the California State Teachers' Retirement  
          System (CalSTRS).  Specifically,  this bill  :  

          1)Revises and updates the references to sections of the TRL that  
            conflict with federal law in their treatment of registered  
            domestic partners.

          2)Removes statutory references to the "2+2" program, which was  
            repealed on January 2005, from several sections of law because  
            this program no longer exists.

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

          4)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.

          5)Defines the term "system's headquarters office" to mean the  
            office building established as the permanent headquarters  
            facility for CalSTRS.  It also removes various references to  
            Education Code Section 22375.

          6)Clarifies that employers must notify retirees of the  
            restriction imposed by the terms of the CalSTRS Retirement  
            Incentive Program.

          7)Extends the deadline for reporting unused sick leave to  
            accommodate the ability of a member to backdate his or her  
            retirement effective date by allowing an employer to submit  








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            the information within 30 days of when the application for  
            retirement is received by CalSTRS.

          8)Clarifies that in order to qualify for a disability benefit, 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 application and  
            corrects the term "disability allowance" to read "disability  
            retirement allowance," in order to avoid confusion with the  
            use of the term.

          9)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 disability is denied.

          10)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 he or she cancels his  
            or her retirement application.

          11)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.  The measure also clarifies the  
            reinstatement effective date requirements and adds an omitted  
            reference to a related provision of law.

          12)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.

          13)Clarifies that a member's final compensation is calculated  
            using compensation earnable, projected final compensation, or  
            a combination of both.

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

          15)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.  The measure also  








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            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.

          16)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.  This provision does not apply to any  
            action filed in Superior Court before January 1, 2014.

          17)Makes a grammatical correction to clarify that the  
            supplemental base allowance, used to calculate supplemental  
            benefits, should not include applicable allowance increases or  
            enhancements.

          18)Clarifies that CalSTRS may designate electronic delivery as  
            the default method of delivery for benefit payment information  
            unless a member makes a different selection.

          19)Clarifies that employers are able to negotiate the contract  
            terms to participate in the 457(b) program offered by CalSTRS,  
            including the length of the contract, without requiring a  
            specified initial contract period.

          20)Specifies the manner in which a member's beneficiary would  
            receive the balance of a Defined Benefit Supplement (DBS)  
            account period certain annuity and adds omitted references to  
            a related provision of law.

          21)Corrects the name of the regulatory organization in the  
            sections of law authorizing CalSTRS to operate a 403(b) vendor  
            registry and information bank.

          22)Clarifies that CalSTRS will use the most recent retirement  
            date if it uses a retirement date to determine eligibility for  
            the Medicare Premium Payment Program (MPPP).

          23)Ensures equal treatment for Cash Balance (CB) Benefit Program  
            participants receiving a disability annuity who return to  
            work, regardless of age.

           The Senate amendments  :

          1)Clarify that the disability allowance a member was eligible to  








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            receive on the effective date of the disability allowance is  
            to be used for the purposes of determining postretirement  
            benefit increases.  This provision does not apply to any  
            action filed in Superior Court before January 1, 2014.  

          2)Make a grammatical correction to clarify that the supplemental  
            base allowance, used to calculate supplemental benefits,  
            should not include applicable allowance increases or  
            enhancements.

          3)Clarify that CalSTRS may designate electronic delivery as the  
            default method of delivery for benefit payment information  
            unless a member makes a different selection.

          4)Clarify that employers are able to negotiate the contract  
            terms to participate in the 457(b) program offered by CalSTRS,  
            including the length of the contract, without requiring a  
            specified initial contract period.

          5)Correct the name of the regulatory organization in the  
            sections of law authorizing CalSTRS to operate a 403(b) vendor  
            registry and information bank.
           
          6)Remove additional references to Education Code Section 22375.

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

           COMMENTS  :   According to CalSTRS:

          1)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.   
            Therefore, the law also includes specific provisions where  
            registered domestic partners are not treated the same as  
            spouses due to federal restrictions.  Education Code (EC)  
            Section 22007.5 makes several references to provisions in  
            state law that conform to the restrictions of federal law,  
            including one that does not allow a member to designate a  
            registered domestic partner as the option beneficiary for the  
            75% option and the Compound option.  However, some of the  
            references in EC Section 22007.5 to these restrictions are  
            cited incorrectly.









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          2)The "2+2" retirement incentive program, which was operative  
            from January 1, 2004, through December 31, 2004, 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 section of law (EC Section 22714.5) that authorized this  
            program was repealed on January 1, 2005, and subsequently  
            removed from statute.

          3)Final compensation is generally 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)Postretirement employment restrictions and earnings limits are  
            specified in EC Sections 24214 and 24214.5.  AB 178 (Gorell),  
            Chapter 135, Statutes of 2012, excluded from these  
            restrictions and limits 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.  In addition, a new section of law  
            enacted by AB 340 (Furutani), Chapter 296, Statutes of 2012,  
            defined "retired member activities" and incorporated the  
            third-party exclusion in the definition.  However,  
            "limited-term" remains undefined.

          5)CalSTRS has the authority to select, purchase, or acquire in  
            the name of the Teachers' Retirement Plan, an office building  
            in the greater metropolitan Sacramento area, including the  
            City of Sacramento, the County of Sacramento, and the eastern  
            part of Yolo County, for the purposes of establishing a  
            permanent headquarters facility for the system.  In 2009, when  
            construction of the current headquarters building was  
            completed, CalSTRS staff moved into the new headquarters.   
            Many sections of law continue to refer to EC Section 22375  
            that authorizes the headquarters office, and there is no  
            specifically defined meaning of "system's headquarters  
            office."

          6)Current law allows school districts to offer the CalSTRS  








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            Retirement Incentive Program, in which a member can receive  
            two additional years of service credit to encourage  
            retirement.  Members lose the ongoing increase in their  
            benefit if they return to work within five years with the  
            school district that granted the incentive credit.  Existing  
            law requires employers to advise reemployed retired members of  
            earnings limitations, as well as to report all postretirement  
            earnings. However, existing law 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.

          7)Current law allows a retiring member to receive service credit  
            for unused sick leave certified 0by the member's last employer  
            or employers.  The employer is required to certify the number  
            of unused sick leave days to CalSTRS within 30 days following  
            the effective date of the member's service retirement.   
            However, the provisions of SB 349 (Negrete McLeod), Chapter  
            703, Statutes of 2011, allowed 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.  
             If a member backdated his or her retirement benefit effective  
            date, the employer would be unable to comply with the law in a  
            timely manner.

          8)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, including the period while the member is  
            employed.  A broad interpretation of "employed" could allow an  
            on-call substitute teacher who has a contract with a school  
            district, but who has not worked in over four months, to be  
            considered employed, which would circumvent the requirement to  
            be continuously incapacitated from the last day of actual  
            performance of service.

          9)A member who is eligible to retire may receive a service  
            retirement benefit if that member is waiting for a disability  
            benefit application to be evaluated.  In the event that the  
            member receives approval of his or her disability benefit  
            application, the member becomes a disabled member and is paid  
            a disability benefit in place of a service retirement benefit.  
             Under existing law, different requirements apply to the  








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            service retirement benefit effective date depending on whether  
            a service retirement application or an application for service  
            retirement during evaluation of disability is submitted.

          10)CalSTRS members may submit an application for retirement with  
            any effective date, including backdating to as early as  
            January 1, 2012, as long as that date meets specified  
            conditions.  AB 178 (Gorell), Chapter 135, Statutes of 2012,  
            added the condition that the effective date can be no earlier  
            than the date on which a member exercises his or her ability  
            to terminate his or her retirement benefit and reinstate to  
            active membership after he or she retires.

          11)Existing law allows a retired member to reinstate to active  
            membership and re-retire within one year.  Such a member is  
            required to keep the same 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.

          12)CalSTRS continually reviews accounts for accuracy and on  
            occasion has to adjust previous benefit amounts when a data or  
            calculation error is found.  CalSTRS has a fiduciary  
            responsibility to adjust previous benefit amounts and,  
            consequently, current benefit amounts if a change in a  
            previous benefit impacts a current benefit calculation.

          13)Under current practice, CalSTRS calculates 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, projected final compensation,  
            or a combination of the two.  The law currently specifies that  
            for calculations where the member returned to active service  
            for less than three years, CalSTRS is to use a combination of  
            the two, not one or the other.

          14)Retired members are subject to a zero-dollar earnings limit  
            for the first 180 calendar days after their most recent  
            retirement.  As adopted by AB 340 (Furutani), Chapter 296,  
            Statutes of 2012, EC Section 24214.5 inconsistently references  
            this period of time, referring to it as both "180 days" and  
            "six consecutive months."

          15)Existing law provides that a member may only revoke or change  
            a disability option election before the disability retirement  
            benefit effective date or within 30 days of the date of  








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            mailing of an acknowledgement notice.  This is inconsistent  
            with the service retirement option election revocation or  
            change process.

          16)Current law allows a 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 or her death.  The law is silent  
            regarding the manner in which the beneficiary must receive the  
            balance of the DBS account.  The CalSTRS corporate database  
            was programmed to administer the payment of the DBS account  
            balance differently, depending on whether the designated  
            beneficiary is a person or an entity.  However, paying  
            different designated beneficiaries differently is not  
            specifically permitted by law.

          17)The MPPP was established to provide retired members the  
            benefit of CalSTRS paying their Medicare Part A premium if  
            they meet certain eligibility requirements.  One of those  
            requirements is 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.

          18)Existing law requires the termination of a disability annuity  
            if a participant who is receiving a disability annuity under  
            the 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.  Current law does not  
            address any consequences for a participant over the age of 60  
            receiving a disability annuity who returns to work.


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


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