BILL ANALYSIS Ó
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 1381
Jim Beall, Chair HEARING DATE: June 24, 2013
AB 1381 (Asm. PER&SS Comm) as amended 6/14/13
FISCAL: YES
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM: CONFORMITY
WITH PUBLIC EMPLOYEES' PENSTION REFORM ACT OF 2013
HISTORY :
Sponsor: California State Teachers' Retirement System
(CalSTRS)
Other legislation: SB 220 (Beall) 2013
Currently in Assembly PER&SS Committee
AB 1380 (Assembly PER&SS Comm) 2013
Currently in Senate PE&R Committee
AB 340 (Furutani),
Chapter 296, Statutes of 2012
ASSEMBLY VOTES :
PER & SS 7-0 4/10/13
Appropriations 17-0 4/17/13
Assembly Floor 74-0 5/02/13
SUMMARY :
AB 1381 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.
BACKGROUND AND ANALYSIS :
1)Existing law :
a) establishes CalSTRS, which provides retirement,
disability, and death benefits for the state's teachers
and school administrators in grades k-12 and community
colleges.
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b) establishes comprehensive public employee pension
reform through enactment of PEPRA (and related statutory
changes) that apply to all public employers (including
school districts) and public pension plans (including
CalSTRS) 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.
c) requires, in the TRL, a 2% at age 60 formula for
CalSTRS members prior to PEPRA and a 2% at age 60
formula for new members of the system following
enactment of PEPRA.
d) requires CalSTRS to administer both the Defined
Benefit (DB) Program and the Cash Balance (CB) Benefit
Program.
e) does not specifically amend the TRL to incorporate
the requirements and provisions of PEPRA as they apply
to members of CalSTRS.
1)This bill :
a) finds and declares that AB 1381 is declarative of
existing law and deems the amendments operative as of
January 1, 2013 (the operative date of PEPRA) unless
otherwise stated.
b) specifically amends the TRL to incorporate
requirements of PEPRA into the TRL and bring it into
conformity with PEPRA as those requirements relate to
CalSTRS and members and employers in the system.
c) defines PEPRA in the TRL using the legal citations.
(EC Section 22109.8)
d) defines public employer in the TRL for both the DB
Program and the CB Benefit Program by referencing the
definition of public employer in PEPRA. (EC Section
22160.5, 26135.5)
e) Defines a "member" subject to PEPRA employed to
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perform creditable service subject to coverage under the
DB Program, and a "participant" subject to PEPRA
employed to perform creditable service subject to
coverage under the CB Benefit Program.
Both are defined as a person who first becomes employed
on or after January 1, 2013. These definitions 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 DB or CB Benefit programs. (EC
Sections 22146.2, 26132.5)
f) Makes various changes to provisions governing age
factors and normal retirement age as follows:
i) includes age 62 in the definition of normal
retirement and normal retirement age to accommodate 2%
at 62 members and participants. (EC Section 22148,
26800)
ii) 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. (EC 22664)
iii) removes various references to age 60 and replaces
them with "normal retirement age" to accommodate both
CalSTRS' 2% at 60 and 2% at 62 members and
participants. (EC Section 23855, 24206, 24600, 26810)
iv) 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. (EC
Section 24202, 24202.5, 24202.6, 24202.7, 24203)
v) 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
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after age 60 after which the benefit will be the total
amount that would have been received at age 60. (EC
Section 24205)
vi) includes the 2% at 62 age factors in the service
retirement benefit calculation after reinstatement or
the termination of a disability retirement. (EC
Section 24209, 24210)
g) 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. (EC
26134.5, 22135)
h) adds clarification that 2% at 62 members are excluded
from receiving employer-paid member contributions unless
a labor agreement would be impaired, as specified, and
ends employer-paid member contributions for 2% at 60
members for labor agreements entered into, extended, or
renewed on or after January 1, 2014. (EC 22909)
i) makes various changes to provisions governing the
limits on amount and types of compensation as follows:
i) 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. (EC Section 22115)
ii) 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. (EC 22119.2)
iii) 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, and sets parameters for determining annual
adjustments to the limit. (EC 22119.3)
iv) prohibits 2% at 62 members from having
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compensation paid for a specified number of times or
to enhance a benefit credited to the Defined Benefit
Supplement (DBS) Program. (EC 22905)
v) makes technical and clarifying changes to the
definition of salary for 2% at 60 participants under
the CB Benefit Program. (EC 26139)
vi) adds a definition of salary that reflects PEPRA
and the prior definition for 2% at 62 participants
under the Cash Balance Benefit Program, 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. (EC 26139.5, 26503.5)
j) 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.
(EC Section 24252)
aa) inserts requirements and authorizations into the
member and participant contribution sections of the TRL,
including ending employer-paid member contributions for
2% at 60 members and restricting the 2% at 60
participant contribution rate from being less than the
employer contribution rate for contracts entered into,
extended, renewed or amended on or after January 1,
2014. (EC 22901, 22901.3, 22909, 26504)
bb) restricts the purchase of nonqualified service (i.e.,
"airtime") in the TRL. (EC 22826)
cc) makes various changes to provisions governing
postretirement employment, as follows:
i) allows CalSTRS to receive earnings information
from EDD for any member of the DB Program performing
retired member activities. (EC 22327)
ii) 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
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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. (EC Section 24214)
iii) amends the second occurrence of Education Code
section 24214 to match the first occurrence without
providing the narrow annual earnings limit exemption.
iv) 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. (EC Section 24214.5)
v) defines retired participant activities in the TRL
for the CB Benefit Program, mirroring the definition
of retired member activities for the DB Program. (EC
Section 26135.7)
vi) expands the 180-day zero-dollar earnings limit to
all CB Benefit Program 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. (EC Section 26812)
vii) prohibits the accruing of DB service credit when
performing retired participant activities. (EC Section
26812)
viii) inserts the term retired participant activities
where appropriate. (EC Section 26813 and various)
1)makes various technical corrections, including correcting
certain references by replacing the term "board" with
"system" when the functions referenced are administrative
in nature. (EC Section 22327, 22901.3, 24214)
FISCAL :
As stated by the Assembly Appropriations Committee, "Minor
and absorbable costs for CalSTRS."
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COMMENTS :
1)Argument in Support :
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:
a) PEPRA is not defined in the TRL.
b) Public employer is not defined in the TRL.
c) A participant subject to PEPRA is not defined in the
TRL for the CB Benefit Program.
d) 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.
e) 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.
f) 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.
g) For CalSTRS 2% at 62 members, PEPRA prohibited the
payment of benefits in excess of the limitation imposed
by the federal Internal Revenue Code.
h) For CalSTRS 2% at 62 members, PEPRA required the
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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.
i) For all members, PEPRA prohibited the purchase of
nonqualified service, or airtime, after December 31,
2012.
j) 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 was not the cause of the need to acquire the
services of the member.
1)SUPPORT :
California State Teachers' Retirement System (CalSTRS),
Sponsor
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2)OPPOSITION :
None to date
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