BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1381
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          CONCURRENCE IN SENATE AMENDMENTS
          AB 1381 (Public Employees, Retirement and Social Security  
          Committee)
          As Amended September 4, 2013
          Majority vote
           
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          |ASSEMBLY:  |74-0 |(May 2, 2013)   |SENATE: |39-0 |(September 9,  |
          |           |     |                |        |     |2013)          |
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           Original Committee Reference:    P.E.,R.& S.S.  
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           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)Finds and declares that this bill 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)Defines PEPRA in the TRL using the legal citations.

          3)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.

          4)Defines a "member" subject to PEPRA employed to 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 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.

          5)Makes various changes to provisions governing age factors and  








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            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 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.

          6)Excludes 2% at 62 members from one-year final compensation  
            based on having 25 or more years of service credit or based on  
            a collective bargaining agreement.  Ends this benefit for 2%  
            at 60 members for contracts entered into, extended, renewed or  
            amended on or after January 1, 2014.
          
          7)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  








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               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  
               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.

             g)   Adds the PEPRA compensation limit for public employees  
               who pay into Social Security to the creditable compensation  
               and salary definitions for 2% at 62 members and  
               participants in case there are future changes in law.

          8)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.

          9)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.

          10)Requires the Teachers' Retirement Board (TRB) to adopt the  
            normal cost rate that is used to determine the 2% at 62 member  
            contribution rate and excludes that contribution rate from the  
            collective bargaining process since CalSTRS member  
            contribution rates are set in statute and have never been  








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            subject to collective bargaining.

          11)Restricts the purchase of nonqualified service in the TRL.

          12)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)   Clarifies that it is the annualized rate of pay for  
               retired member activities that cannot be less than the  
               minimum, nor exceed the maximum, paid to other employees  
               performing comparable duties.

             c)   Clarifies which compensation is not subject to the  
               postretirement limitations.

             d)   Corrects a reference and closes a loophole used to  
               compensate retired members and participants in excess of  
               the annual postretirement earnings limit and zero-dollar  
               earnings limit, as applicable, by making payments to a  
               deferred compensation plan, an annuity, a tax-deferred  
               retirement plan, an insurance program or a plan that meets  
               specified requirements in the federal Internal Revenue  
               Code.  Ensures that these provisions do not impair existing  
               contracts for postretirement employment. 

             e)   Amends the second occurrence of Education Code Section  
               24214 to match the first occurrence without providing the  
               narrow annual earnings limit exemption. 

             f)   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. 

             g)   Defines retired participant activities in the TRL for  
               the CB Benefit Program, mirroring the definition of retired  
               member activities for the DB Program.

             h)   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. 








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             i)   Prohibits the accruing of DB service credit when  
               performing retired participant activities.

             j)   Inserts the term retired participant activities where  
               appropriate.

          13)Makes various technical corrections, including correcting  
            certain references by replacing the term "board" with "system"  
            when the functions referenced are administrative in nature.

           The Senate amendments  make additional clarifying and conforming  
          changes to the bill.

           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 the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.

           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  
          and Social Security Committee with the following information  
          regarding the need for the changes proposed in the bill:

          1)PEPRA went in to effect on January 1, 2013.  However, most  
            related sections of the TRL were not amended by that act, and  
            AB 1381 would not be effective until January 1, 2014, so it is  
            necessary to state that the changes are declaratory of  
            existing law.

          2)PEPRA is not defined in the TRL.









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          3)Public employer is not defined in the TRL.

          4)A member subject to PEPRA is not defined in the TRL for the DB  
            Program and a participant subject to PEPRA is not defined in  
            the TRL for the CB Program.

          5)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.

          6)Current statute provides for one-year final compensation based  
            on having 25 or more years of service credit or a collective  
            bargaining agreement.  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.

          7)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.

          8)For CalSTRS 2% at 62 members, PEPRA prohibited the payment of  
            benefits in excess of the limitation imposed by the federal  
            Internal Revenue Code.

          9)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.  Under PEPRA, the employer is not  
            permitted to pay the 2% at 62 member or participant  
            contribution, and certain public employers are moved toward  
            equal sharing of normal costs between employers and employees.  
             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.

          10)For all members, PEPRA prohibited the purchase of  
            nonqualified service, or airtime, after December 31, 2012.

          11)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.  Under current law,  
            there are various restrictions that apply to retired member  
            activities.  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.

          12)CalSTRS performs the administrative duties applicable to the  
            benefits and services provided under the TRL, and the TRB sets  
            policies, consistent with that law, applicable to CalSTRS.   
            Several places in the TRL, however, use the terms "board" and  
            "system" interchangeably.


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


          FN: 0002454