BILL ANALYSIS �
AB 1381
Page 1
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