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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          Pamela Schneider
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