BILL ANALYSIS Ó
-----------------------------------------------------------------
|SENATE RULES COMMITTEE | AB 1381|
|Office of Senate Floor Analyses | |
|1020 N Street, Suite 524 | |
|(916) 651-1520 Fax: (916) | |
|327-4478 | |
-----------------------------------------------------------------
THIRD READING
Bill No: AB 1381
Author: Assembly Public Employees, Retirement and Social
Security Cmte.
Amended: 9/4/13 in Senate
Vote: 21
SENATE PUBLIC EMPLOYMENT & RETIREMENT COMM : 5-0, 6/24/13
AYES: Beall, Walters, Block, Gaines, Yee
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 74-0, 5/2/13 - See last page for vote
SUBJECT : State Teachers Retirement Law: pension reform
SOURCE : California State Teachers Retirement System
DIGEST : This bill 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.
Senate Floor Amendments of 9/4/13 ensure that CalSTRS will align
the TRL with the provisions of PEPRA, as enacted in AB 340
(Furutani), Chapter 296, Statutes of 2012.
ANALYSIS :
Existing law:
CONTINUED
AB 1381
Page
2
1.Establishes CalSTRS, which provides retirement, disability,
and death benefits for the state's teachers and school
administrators in grades k-12 and community colleges.
2.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.
3.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.
4.Requires CalSTRS to administer both the Defined Benefit (DB)
Program and the Cash Balance (CB) Benefit Program.
5.Does not specifically amend the TRL to incorporate the
requirements and provisions of PEPRA as they apply to members
of CalSTRS.
This bill:
1. Finds and declares that AB 1381 is declarative of existing
law and deems the amendments, with specified exclusions,
operative as of January 1, 2013, (the operative date of
PEPRA) unless otherwise stated.
2. 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.
3. Defines PEPRA in the TRL using the legal citations.
4. 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.
5. Defines a "member" subject to PEPRA employed to perform
creditable service subject to coverage under the DB Program,
CONTINUED
AB 1381
Page
3
and a "participant" subject to PEPRA employed to perform
creditable service subject to coverage under the CB Benefit
Program.
A. Both are defined as a person who first becomes
employed on or after January 1, 2013. These definitions
do 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.
1. 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% 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.
CONTINUED
AB 1381
Page
4
1. 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.
2. 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.
3. 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, and sets
parameters for determining annual adjustments to the limit.
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 under the CB Benefit
Program.
F. 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%
CONTINUED
AB 1381
Page
5
at 62 participant.
1. 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.
2. 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.
3. Restricts the purchase of nonqualified service (i.e.,
"airtime") in the TRL.
4. Makes various changes to provisions governing postretirement
employment, as follows:
A. Allows CalSTRS to receive earnings information from the
Employment Development Department (EDD) for any member of
the DB Program performing retired member activities.
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.
CONTINUED
AB 1381
Page
6
F. 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.
G. Prohibits the accruing of DB service credit when
performing retired participant activities.
H. Closes a loophole that allows retired members and
participants to be compensated in excess of the zero-dollar
earnings limit.
I. Avoids contractual impairment in regard to closing the
loophole used to compensate retired members and
participants in excess of the annual postretirement
earnings limit and the zero-dollar earnings limit.
J. Clarifies when various changes to the postretirement
employment provisions apply to compensation paid.
AA. Makes these and other technical corrections to
provisions governing both the DB and the CB plans.
BB. Inserts the term retired participant activities where
appropriate.
1. Makes various technical corrections, including correcting
certain references by replacing the term "board" with
"system" when the functions referenced are administrative in
nature.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 9/5/13)
California State Teachers' Retirement System (source)
California Teachers Association
ARGUMENTS 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.
CONTINUED
AB 1381
Page
7
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 Senate Public Employment and Retirement
Committee with the following information regarding the need for
the changes proposed in the bill:
PEPRA is not defined in the TRL.
Public employer is not defined in the TRL.
A participant subject to PEPRA is not defined in the TRL
for the CB Benefit Program.
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.
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.
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.
For CalSTRS 2% at 62 members, PEPRA prohibited the
payment of benefits in excess of the limitation imposed by
the federal Internal Revenue Code.
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.
CONTINUED
AB 1381
Page
8
For all members, PEPRA prohibited the purchase of
nonqualified service, or airtime, after December 31, 2012.
Currently, the law authorizes CalSTRS to receive
earnings information from 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.
ASSEMBLY FLOOR : 74-0, 5/2/13
AYES: Achadjian, Alejo, Allen, Ammiano, Bigelow, Bloom,
Blumenfield, Bocanegra, Bonilla, Bonta, Bradford, Brown,
Buchanan, Ian Calderon, Campos, Chau, Chávez, Chesbro, Conway,
Cooley, Dahle, Dickinson, Donnelly, Eggman, Fong, Fox,
Frazier, Beth Gaines, Garcia, Gatto, Gomez, Gordon, Gorell,
Gray, Grove, Hagman, Harkey, Roger Hernández, Holden,
Jones-Sawyer, Levine, Linder, Logue, Lowenthal, Maienschein,
Mansoor, Medina, Melendez, Mitchell, Morrell, Mullin,
Muratsuchi, Nazarian, Nestande, Olsen, Pan, Patterson, Perea,
V. Manuel Pérez, Quirk, Quirk-Silva, Rendon, Salas, Skinner,
Stone, Ting, Torres, Wagner, Waldron, Weber, Wieckowski, Wilk,
Yamada, John A. Pérez
NO VOTE RECORDED: Atkins, Daly, Hall, Jones, Williams, Vacancy
JL:nl 9/5/13 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
CONTINUED
AB 1381
Page
9
**** END ****
CONTINUED