BILL ANALYSIS Ó
AB 1381
Page 1
Date of Hearing: April 10, 2013
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 1381 (P.E.,R. & S.S. Committee) - As Introduced: February
26, 2013
SUBJECT : State Teachers' Retirement Law: pension reform.
SUMMARY : Makes various technical corrections and conforming
changes that align the Teachers' Retirement Law (TRL) with the
provisions of the Public Employees' Pension Reform Act of 2013
(PEPRA), as enacted in AB 340 (Furutani), Chapter 296, Statutes
of 2012. Specifically, this bill :
1)Defines PEPRA in the TRL using the legal citations.
2)Defines public employer in the TRL for both the Defined
Benefit (DB) Program and the Cash Balance (CB) Benefit Program
by referencing the definition of public employer in PEPRA.
3)Defines participant subject to PEPRA as a person who first
becomes employed to perform creditable service subject to
coverage under the CB Benefit Program on or after January 1,
2013. This definition does not include a person who was a
member of a concurrent retirement system on or before December
31, 2012, if the person performed service in the other
retirement system within the six months prior to commencing
creditable service under the CB Benefit Program.
4)Makes various changes to provisions governing age factors and
normal retirement age as follows:
a) Includes age 62 in the definition of normal retirement
and normal retirement age to accommodate 2% at 62 members
and participants.
b) Excludes nonmember spouses of 2% at 62 members from the
previous age factors and applies the age factors prescribed
by PEPRA to those nonmember spouses who are awarded a
separate account
c) Removes various references to age 60 and replaces them
with "normal retirement age" to accommodate both CalSTRS 2%
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at 60 and 2% at 62 members and participants.
d) Excludes 2% at 62 members from the previous age factors
and lower minimum retirement age and makes technical
corrections to the age factors and minimum and normal
retirement ages prescribed by PEPRA.
e) Excludes 2% at 62 members from the Reduced Benefit
Election, which allows vested members who are between age
55 and 60 to receive one-half of the monthly benefit
calculated as if they were age 60 and to continue that
benefit for the same number of months after age 60 after
which the benefit will be the total amount that would have
been received at age 60.
f) Includes the 2% at 62 age factors in the service
retirement benefit calculation after reinstatement or the
termination of a disability retirement.
5)Excludes 2% at 62 members from one-year final compensation
based on having 25 or more years of service credit or a
collective bargaining agreement.
6)Makes various changes to provisions governing the limits on
amount and types of compensation as follows:
a) Excludes 2% at 62 members from certain provisions of the
definition of compensation earnable, which is used to
determine final compensation, that apply to community
college members employed prior to July 1, 1996.
b) Makes technical and clarifying changes to the definition
of creditable compensation for 2% at 60 members and
excludes 2% at 62 members from that definition.
c) Adds detail regarding the reduced compensation limit and
various types of compensation to the definition of
creditable compensation for 2% at 62 members, reflecting
provisions of PEPRA and the prior definition.
d) Prohibits 2% at 62 members from having compensation paid
for a specified number of times or to enhance a benefit
credited to the Defined Benefit Supplement (DBS) Program.
e) Makes technical and clarifying changes to the definition
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of salary for 2% at 60 participants.
f) Adds a definition of salary that reflects PEPRA and the
prior definition for 2% at 62 participants, including a
reduced compensation limit, and extends that definition of
salary to other compensation paid for trustee service if
performed by a 2% at 62 participant.
7)Prohibits 2% at 62 members from receiving any benefits from
CalSTRS in excess of the federal limit by excluding them from
the Replacement Benefits Program.
8)Inserts these requirements and authorizations into the member
and participant contribution sections of the TRL.
9)Restricts the purchase of nonqualified service in the TRL.
10)Makes various changes to provisions governing postretirement
employment, as follows:
a) Allows CalSTRS to receive earnings information from EDD
for any member of the DB Program.
b) Corrects, in the first occurrence of Education Code
section 24214, a reference and closes a loophole used to
compensate retired members in excess of the annual
postretirement earnings limit by making payments to an
annuity, a tax-deferred retirement plan, an insurance
program or a plan that meets specified requirements in the
federal Internal Revenue Code.
c) Amends the second occurrence of Education Code section
24214 to match the first occurrence without providing the
narrow annual earnings limit exemption.
d) Adds a definition of financial inducement to retire to
the narrow exemption from the 180-day zero-dollar earnings
limit under the DB Program and corrects drafting errors.
e) Defines retired participant activities in the TRL for
the CB Benefit Program, mirroring the definition of retired
member activities for the DB Program.
f) Expands the 180-day zero-dollar earnings limit to all CB
annuitants who retire on or after January 1, 2014,
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regardless of age, and adds a narrow exemption parallel to
the exemption under the DB Program.
g) Prohibits the accruing of DB service credit when
performing retired participant activities.
h) Inserts the term retired participant activities where
appropriate.
EXISTING LAW establishes comprehensive public employee pension
reform through enactment of PEPRA (and related statutory
changes) that apply to all public employers and public pension
plans on and after January 1, 2013, excluding the University of
California and charter cities and counties that do not
participate in a retirement system governed by state statute.
FISCAL EFFECT : According to CalSTRS, there are no program
costs associated with this bill and administrative costs are
minor and absorbable.
COMMENTS : According to the sponsor of the bill, CalSTRS, "AB
1381 will ensure continued implementation of PEPRA as intended
by placing the act's requirements in the TRL. This bill
clarifies which provisions of the TRL apply to members subject
to PEPRA, also known as CalSTRS 2% at 62 members. Members who
were hired to perform CalSTRS creditable activities on or before
December 31, 2012, are not subject to PEPRA and are known as
CalSTRS 2% at 60 members."
CalSTRS has provided the Committee with the following
information regarding the need for the changes proposed in the
bill:
1)PEPRA is not defined in the TRL.
2)Public employer is not defined in the TRL.
3)A participant subject to PEPRA is not defined in the TRL for
the CB Benefit Program.
4)For CalSTRS 2% at 62 members, PEPRA reduced the age factor for
any specific age and increased both the minimum retirement age
and the normal retirement age.
5)For CalSTRS 2% at 62 members, PEPRA required final
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compensation to be calculated based on the highest average
annual salary rate over three consecutive school years,
regardless of years of service.
6)For CalSTRS 2% at 62 members, PEPRA reduced the limit on
compensation and limited the types of compensation that count
toward the retirement benefit paid by CalSTRS.
7)For CalSTRS 2% at 62 members, PEPRA prohibited the payment of
benefits in excess of the limitation imposed by the federal
Internal Revenue Code.
8)For CalSTRS 2% at 62 members, PEPRA required the member
contribution rate to be 50 percent of the normal cost of their
benefit structure rounded to the nearest one-quarter percent.
This contribution rate will be adjusted if the actuarial
valuation for the DB Program indicates that the normal cost of
the 2% at 62 benefit structure has changed by more than one
percent since the last adjustment. The employer is not
permitted to pay the 2% at 62 member contribution. A member or
participant that currently bargains for the member
contribution rate may bargain for a contribution rate that is
higher than one-half of the normal cost of the benefit
structure.
9)For all members, PEPRA prohibited the purchase of nonqualified
service, or airtime, after December 31, 2012.
10)Currently, the law authorizes CalSTRS to receive earnings
information from the Employment Development Department (EDD)
for individuals receiving a disability benefit under the DB
Program. For all members, PEPRA extended a very limited
exemption from the annual postretirement earnings limit
through 2013-14 and prohibited the granting of the exemption
if the member received an incentive to retire in the previous
six months. In addition, PEPRA required that a DB member's
retirement benefit be reduced dollar for dollar, regardless of
age, for the first 180 calendar days after retirement if the
member performs activities in the public schools that are
creditable to CalSTRS. A very narrow exemption may apply if a
member has reached normal retirement age, the appointment is
necessary to fill a critically needed position, the governing
body of the employer approves the appointment by resolution at
a public meeting, the member did not receive any financial
inducement to retire and the member's termination of service
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was not the cause of the need to acquire the services of the
member.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Teachers' Retirement System (Sponsor)
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957