BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1381
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          ASSEMBLY THIRD READING
          AB 1381 (Public Employees, Retirement and Social Security  
          Committee)
          As Introduced February 26, 2013
          Majority vote 

           PUBLIC EMPLOYEES    7-0         APPROPRIATIONS      17-0        
           
           ----------------------------------------------------------------- 
          |Ayes:|Bonta, Allen, Harkey,     |Ayes:|Gatto, Harkey, Bigelow,   |
          |     |Jones-Sawyer, Mullin,     |     |Bocanegra, Bradford, Ian  |
          |     |Rendon, Wieckowski        |     |Calderon, Campos,         |
          |     |                          |     |Donnelly, Eggman, Gomez,  |
          |     |                          |     |Hall, Holden, Linder,     |
          |     |                          |     |Pan, Quirk, Wagner,       |
          |     |                          |     |Ammiano                   |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           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  








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               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 California  
               State Teachers' Retirement System (CalSTRS) 2% 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  








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               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  
               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  
               Employment Development Department (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. 









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             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,  
               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 Assembly Public Employees, Retirement  








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          and Social Security 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  
            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% 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 1%  
            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 EDD for individuals receiving a  








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            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 was not the  
            cause of the need to acquire the services of the member.


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


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