Amended in Senate June 12, 2014

California Legislature—2013–14 Regular Session

Assembly BillNo. 1469


Introduced bybegin delete Committee on Budget (Skinner (Chair), Bloom, Campos, Chesbro, Dababneh, Daly, Dickinson, Gordon, Jones-Sawyer, Mullin, Muratsuchi, Nazarian, Rodriguez, Stone, Ting, and Weber)end deletebegin insert Assembly Member Bontaend insert

begin insert

(Principal coauthor: Senator Torres)

end insert

January 9, 2014


begin deleteAn act relating to the Budget Act of 2014. end deletebegin insertAn act to amend Sections 22140, 22141, 22905, 22955, and 22955.5 of, to add Sections 22002.5, 22901.7, 22957, and 22958 to, and to add and repeal Sections 22311.9, 22950.5, and 22955.1 of, the Education Code, relating to state teachers’ retirement, and making an appropriation therefor, to take effect immediately, bill related to the budget.end insert

LEGISLATIVE COUNSEL’S DIGEST

AB 1469, as amended, begin deleteCommittee on Budgetend delete begin insertBontaend insert. begin deleteBudget Act of 2014. end deletebegin insertState teachers’ retirement: Defined Benefit Program: funding.end insert

begin insert

The State Teacher’s Retirement Law (STRL) creates the Defined Benefit Program of the State Teachers’ Retirement Plan for the provision of benefits to members of the plan, which is administered by the Teachers’ Retirement Board (board). The Defined Benefit Program is funded by employer and employee contributions as well as investment returns and state appropriations. Employee and employer contributions are deposited in the Teachers’ Retirement Fund, which is continuously appropriated. The Defined Benefit Program provides for an improvement factor, as defined, to be applied to monthly allowances or benefits of retired members of the system, as specified. STRL specifies that the Legislature reserves the right to adjust the amount of the improvement factor as economic conditions dictate, provided that an adjustment is prohibited from reducing the retirement allowance, annuity, or benefit below that which would have been payable to the recipient. Existing case law holds that the right to a pension is a contractually protected vested right and that the specific provisions of a pension system that a member earns through employment may be modified to the detriment of the member only if a comparable new advantage is provided.

end insert
begin insert

This bill, beginning July 1, 2014, would vest the improvement factor, as described above, as a benefit for an active member in any calendar year in which active members paid increased member contributions, pursuant to specified provisions. The bill would condition this vesting on the increased member contributions and if those contributions cease to be required, the Legislature would reserve the right to adjust the improvement factor, as specified. The bill would state that the vesting of the improvement factor is a comparable new advantage provided in exchange for the contribution increases and is contractually enforceable.

end insert
begin insert

The bill would also increase employer and state contributions to the Defined Benefit Program according to prescribed schedules, to be operative until July 1, 2046, or until the Director of Finance makes a certain determination of the status of these increases in connection with constitutionally required funding for schools or reimbursable mandates for local entities and provides notice of that determination, as specified. By increasing amounts deposited in a continuously appropriated fund, this bill would make an appropriation.

end insert
begin insert

This bill would prescribe requirements for any action or proceeding challenging the validity of any matter authorized by its provisions, including that any challenge be filed within 60 days. The bill would require, until July 1, 2046, that the Teachers’ Retirement Board report to the Legislature on or before July 1, 2019, and every 5 years thereafter, on the fiscal health of the Defined Benefit Program and the unfunded actuarial obligation with respect to the service of certain members and funding adjustments needed to eliminate by June 30, 2046, those obligations, among other things. The bill would prescribe how excess contributions to the Defined Benefit Supplement account are to be returned. The bill make certain findings and declarations and conforming changes. The bill would provide that its provisions are not severable.

end insert
begin insert

This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

end insert
begin delete

This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2014.

end delete

Vote: majority. Appropriation: begin deleteno end deletebegin insertyesend insert. Fiscal committee: begin deleteno end deletebegin insertyesend insert. State-mandated local program: no.

The people of the State of California do enact as follows:

P3    1begin insert

begin insertSECTION 1.end insert  

end insert

begin insertSection 22002.5 is added to the end insertbegin insertEducation Codeend insertbegin insert,
2to read:end insert

begin insert
3

begin insert22002.5.end insert  

The Legislature finds and declares all of the
4following:

5(a) The current and projected assets of the State Teachers’
6Retirement Plan administered by the State Teachers’ Retirement
7System with respect to the Defined Benefit Program are insufficient
8to meet the obligations of that program already accrued or
9projected to be accrued in the future with respect to service
10credited to members of that program before July 1, 2014.

11(b) Various legal rulings have determined that vested
12contractual rights of existing members generally cannot be changed
13without providing a comparable new advantage.

14(c) The improvement factor currently provided under the Defined
15Benefit Program pursuant to Sections 22140 and 22141, as those
16sections read before July 1, 2014, is not a contractually enforceable
17promise.

18(d) The Legislature hereby increases the contributions of active
19members by an amount not to exceed the normal cost of the
20improvement factor, providing a comparable new advantage by
21removing the statutory right to adjust the improvement factor, and
22thereby establishing the improvement factor as a contractually
23enforceable promise.

24(e) The statutory changes adopted by the act that added this
25section address the long-term funding needs of the Defined Benefit
26Program in a manner that allocates increased contributions among
27members of the system and school employers, consistent with the
28contractual rights of existing members.

29(f) The provisions of the act that added this section were based
30on various legal understandings and would not have been adopted
31without those understandings. The new obligations and benefits
P4    1provided in Sections 7 and 9 of the act adding this section are
2contingent on those legal understandings being accurate. Thus if
3there is a final unappealable judicial decision that holds that the
4increased contributions in Section 22950.5 constitute a new
5functional responsibility for schools and community colleges
6pursuant to subdivision (c) of Section 41204, and correspondingly
7require an adjustment pursuant to subdivision (b) of Section 8 of
8Article XVI of the California Constitution, or a final unappealable
9administrative or judicial decision that holds that the increased
10contributions in Section 22950.5 constitutes a reimbursable
11mandate pursuant to Article XIII B of the California Constitution,
12then it is the intent of the Legislature that the provisions added by
13the act adding this section shall cease to be effective.

14(g) It is in the public interest and a matter of urgency to
15authorize, and to implement as soon as possible, a remedy to the
16funding problem of the system. This remedy is necessary to ensure
17that funds will be available to support a pension system upon which
18hundreds of thousands of teachers rely and for which the current
19funding structure raises significant fiscal policy concerns.

20(h) It is of great importance to the state, the system, and school
21districts that there not be long term doubt about the feasibility of
22the solutions provided in the act that added this section. In order
23to fulfill the important objective of facilitating the system’s and
24school districts’ financial transactions the legality of the act that
25added this section must be quickly affirmed. The system, school
26districts, and teachers need to settle promptly all questions about
27the validity of each other’s duties and obligations under this
28statute.

29(i) It is well-established that the terms and conditions of public
30retirement plans generally are established by statute or other
31comparable enactment rather than by contract. Statutes governing
32the terms of compensation and deferred compensation of public
33employees are thus significant financial obligations contemplated
34and covered by Chapter 9 (commencing with Section 860) of Title
3510 of Part 2 of the Code of Civil Procedure.

end insert
36begin insert

begin insertSEC. 2.end insert  

end insert

begin insertSection 22140 of the end insertbegin insertEducation Codeend insertbegin insert is amended to
37read:end insert

38

22140.  

(a) “Improvement factor,” with respect to the Defined
39Benefit Program, means an increase of 2 percent in monthly
40allowances. The improvement factor shall be added to a monthly
P5    1allowance each year on September 1, commencing on September
21 following the first anniversary of the effective date of retirement,
3or the date on which the monthly allowance commenced to accrue
4to any beneficiary, or other periods specifically stated in this part.

5(b) The improvement factor may not be compounded nor shall
6it be applicable to annuities payable from the accumulated annuity
7deposit contributions or the accumulated tax-sheltered annuity
8contributions.begin delete Theend delete

begin insert

9(c) Beginning July 1, 2014, the improvement factor shall vest
10for an active member in any calendar year in which active members
11paid increased member contributions pursuant to Section 22901.7.

end insert
begin insert

12(d) If, for any reason, the increased employee contribution
13referenced in subdivision (c), and as required by subdivisions (a)
14and (b) of Section 22901.7, ceases to be legally required to be
15made pursuant to the act that added this subdivision, then the
16Legislature reserves the right to adjust the amount of the
17improvement factor up or down as the economic conditions dictate
18for all members who retire on or after January 1, 2014. No
19adjustments of the improvement factor shall reduce the monthly
20retirement allowance or benefit below that which would be payable
21to the recipient under this part had this section not been enacted.

end insert

22begin insert(e)end insertbegin insertend insertbegin insertFor members who retired before the calendar year in which
23Section 22901.7 was added end insert
begin inserttheend insert Legislature reserves the right to
24adjust the amount of the improvement factor up or down as
25economic conditions dictate. Any adjustment of the improvement
26factor may not reduce the monthly retirement allowance or annuity
27below that which would be payable to the recipient under this part
28had this section not been enacted.

29begin insert

begin insertSEC. 3.end insert  

end insert

begin insertSection 22141 of the end insertbegin insertEducation Codeend insertbegin insert is amended to
30read:end insert

31

22141.  

begin insert (a)end insertbegin insertend insert Notwithstanding Section 22140, “improvement
32factor” means an increase of 2 percent in benefits provided under
33Sections 24408 and 24409 for each year commencing on September
341, 1981, and under Section 24410.5 for each year commencing
35September 1, 2001, and under Sections 24410.6 and 24110.7 for
36each year commencing September 1, 2002. The factor shall not
37be compounded nor shall it be applicable to annuities payable from
38the accumulated annuity deposit contributions or the accumulated
39tax-sheltered annuity contributions. The Legislature reserves the
40right to adjust the amount of the improvement factor up or down
P6    1as the economic conditions dictate. No adjustments of the
2improvement factor shall reduce the monthly retirement allowance
3or benefit below that which would be payable to the recipient under
4this part had this section not been enacted.

begin insert

5(b) Beginning July 1, 2014, the improvement factor shall vest
6for an active member in any calendar year in which active members
7paid increased member contributions pursuant to Section 22901.7.

end insert
begin insert

8(c) If, for any reason, the increased employee contribution
9referenced in subdivision (b), and as required by subdivisions (a)
10and (b) of Section 22901.7, ceases to be legally required to be
11made pursuant to the act that added this subdivision, then the
12Legislature reserves the right to adjust the amount of the
13improvement factor up or down as the economic conditions dictate
14for all members who retire on or after January 1, 2014. No
15adjustments of the improvement factor shall reduce the monthly
16retirement allowance or benefit below that which would be payable
17to the recipient under this part had this section not been enacted.

end insert
begin insert

18(d) For members who retired before the calendar year in which
19Section 22901.7 was added, the Legislature reserves the right to
20adjust the amount of the improvement factor up or down as the
21economic conditions dictate. No adjustments of the improvement
22factor shall reduce the monthly retirement allowance or benefit
23below that which would be payable to the recipient under this part
24had this section not been enacted.

end insert
25begin insert

begin insertSEC. 4.end insert  

end insert

begin insertSection 22311.9 is added to the end insertbegin insertEducation Codeend insertbegin insert, to
26read:end insert

begin insert
27

begin insert22311.9.end insert  

(a) The board shall report to the Legislature on or
28before July 1, 2019, and every five years thereafter, on the fiscal
29health of the Defined Benefit Program and the unfunded actuarial
30obligation with respect to service credited to members of that
31program before July 1, 2014. The first report shall include the
32unfunded actuarial obligation and funded ratio as of the date of
33enactment of this section and compare that with the unfunded
34actuarial obligation and funded ratio as of June 30, 2018, and the
35projected unfunded actuarial obligation and funded ratio as of
36June 30, 2046, based on contributions, and economic and
37demographic assumptions identified in the June 30, 2018, actuarial
38valuation. The report shall also identify adjustments required in
39contribution rates in order to eliminate by June 30, 2046, the
40unfunded actuarial obligation of the Defined Benefit Program with
P7    1respect to service credited to members of that program before July
21, 2014. Subsequent reports shall include the unfunded actuarial
3obligation and the funded ratio of the Defined Benefit Program
4based on the actuarial valuation of the preceding year, and shall
5identify adjustments required in contribution rates in order to
6eliminate by June 30, 2046, the unfunded actuarial obligation of
7the Defined Benefit Program with respect to service credited to
8members of that program before July 1, 2014. These reports shall
9be provided consistent with the requirements of Section 9795 of
10the Government Code.

11(b) This section shall become inoperative on July 1, 2046, and
12as of January 1, 2047, is repealed.

end insert
13begin insert

begin insertSEC. 5.end insert  

end insert

begin insertSection 22901.7 is added to the end insertbegin insertEducation Codeend insertbegin insert, to
14read:end insert

begin insert
15

begin insert22901.7.end insert  

(a) Commencing July 1, 2014, the amount of
16contributions required under subdivision (a) of Section 22901 and
17Section 22901.3 as it applies to a member who is not subject to
18the Public Employees’ Pension Reform Act of 2013 shall increase
19by the percentage of the member’s compensation that is creditable
20to the Defined Benefit Program as follows:

21(1) On July 1, 2014, by 0.15 percent.

22(2) On July 1, 2015, by 1.20 percent.

23(3) On July 1, 2016, by 2.25 percent.

24(b) Commencing July 1, 2014, the amount of contributions
25required under subdivision (b) of Section 22901 and Section
2622901.3 as it applies to members who are subject to the Public
27Employees’ Pension Reform Act of 2013 shall increase by the
28following percentages of the member’s compensation that is
29creditable to the Defined Benefit Program as follows:

30(1) On July 1, 2014, by 0.15 percent.

31(2) On July 1, 2015, by 0.56 percent.

32(3) On July 1, 2016, by 1.205 percent.

33(c) The act adding this section establishes the improvement
34factor provided pursuant to Sections 22140 and 22141 as a vested
35benefit pursuant to a contractually enforceable promise and a
36comparable new advantage in exchange for the contribution
37increases made pursuant to this section.

end insert
38begin insert

begin insertSEC. 6.end insert  

end insert

begin insertSection 22905 of the end insertbegin insertEducation Codeend insertbegin insert is amended to
39read:end insert

P8    1

22905.  

(a) Member contributions pursuant tobegin delete Sectionend deletebegin insert Sectionsend insert
2 22901,begin insert 22901.3, and 22901.7,end insert employer contributions pursuant to
3Section 22903 or 22904, and member contributions made by an
4employer pursuant to Section 22909 shall be credited to the
5member’s individual account under the Defined Benefit Program
6or the Defined Benefit Supplement Program, whichever is
7applicable pursuant to the provisions of this part.

8(b) Except as provided in subdivisionbegin delete (f),end deletebegin insert (g),end insert member and
9employer contributions, exclusive of contributions pursuant to
10begin delete Sectionend deletebegin insert Sections 22901.7, 22950.5, andend insert 22951, on a member’s
11compensation under the following circumstances shall be credited
12to the member’s Defined Benefit Supplement account:

13(1) Compensation for creditable service that exceeds one year
14in a school year.

15(2) Compensation that is consistent with subdivision (b) of
16Section 22119.2.

17(3) Compensation that is paid for a limited number of times as
18specified by law, a collective bargaining agreement, or an
19employment agreement.

20(c) A member may not make voluntary pretax or posttax
21contributions under the Defined Benefit Supplement Program,
22except as provided in subdivision (d), nor may a member redeposit
23amounts previously distributed based on the balance in the
24member’s Defined Benefit Supplement account.

25(d) Member and employer contributions pursuant to paragraph
26(1) of subdivision (b) under the Defined Benefit Supplement
27Program shall be credited to the accounts of members as of July
281 each year following a determination by the system under the
29provisions of this part that those contributions should be credited
30to the Defined Benefit Supplement Program. Any other
31contributions under the Defined Benefit Supplement Program
32pursuant to paragraph (2) or (3) of subdivision (b), shall be credited
33to the individual account of the member upon receipt by the system.
34Contributions to a member’s Defined Benefit Supplement account
35shall be identified separately from the member’s contributions
36credited under the Defined Benefit Program.

begin insert

37(e) Any contributions on compensation that is creditable to the
38Defined Benefit Supplement account shall be limited to the
39contributions made pursuant to Sections 22901, 22901.3, 22950,
40and 22951. Any excess member contributions, as determined by
P9    1the system, shall be returned to the member through the employer
2and any excess employer contributions shall be returned to the
3employer.

end insert
begin delete

4(e)

end delete

5begin insert(f)end insert The provisions of this section shall become operative on July
61, 2002, if the revenue limit cost-of-living adjustment computed
7by the Superintendent of Public Instruction for the 2001-02 fiscal
8year is equal to or greater than 3.5 percent. Otherwise this section
9shall become operative on July 1, 2003.

begin delete

10(f)

end delete

11begin insert(g)end insert Paragraphs (2) and (3) of subdivision (b) shall not apply to
12a member subject to the California Public Employees’ Pension
13Reform Act of 2013.

14begin insert

begin insertSEC. 7.end insert  

end insert

begin insertSection 22950.5 is added to the end insertbegin insertEducation Codeend insertbegin insert, to
15read:end insert

begin insert
16

begin insert22950.5.end insert  

(a) Commencing July 1, 2014, the amount of
17contributions required under subdivision (a) of Section 22950
18shall increase by the following percentages of the creditable
19compensation upon which members’ contributions under the
20Defined Benefit Program are based:

21(1) On July 1, 2014, by 0.63 percent.

22(2) On July 1, 2015, by 2.48 percent.

23(3) On July 1, 2016, by 4.33 percent.

24(4) On July 1, 2017, by 6.18 percent.

25(5) On July 1, 2018, by 8.03 percent.

26(6) On July 1, 2019, by 9.88 percent.

27(7) On July 1, 2020, by 10.85 percent.

28(b) (1) For fiscal year 2021-22 and each fiscal year thereafter,
29the board shall increase or decrease the percentages paid specified
30in this section from the percentage paid during the prior fiscal
31year to reflect the contribution required to eliminate by June 30,
322046, the remaining unfunded actuarial obligation with respect
33to service credited to members before July 1, 2014, as determined
34by the board based upon a recommendation from its actuary.

35(2) If a rate adjustment is required, the percentages authorized
36in paragraph (1) shall not change in any single fiscal year by more
37than 1.00 percent of the creditable compensation upon which
38members’ contributions to the Defined Benefit Program are based.
39The percentages described in subdivision (a) and as may be
40adjusted pursuant to this subdivision shall not exceed 12.00 percent
P10   1of the creditable compensation upon which members’ contributions
2to the Defined Benefit Program are based, inclusive of the
3percentages identified in subdivision (a).

4(3) The board shall not increase the rates in order to supplant
5the state’s obligation pursuant to Section 22955.1.

6(c) (1) Except as described in paragraph (2), this section shall
7become inoperative on July 1, 2046, and as of January 1, 2047,
8is repealed.

9(2) Notwithstanding paragraph (1), on July 1 of the first fiscal
10year after a 30-day notice has been sent to the Joint Legislative
11Budget Committee and the Controller in compliance with
12 subdivision (d) of Section 22957, this section shall become
13inoperative and, as of the following January 1, is repealed.

end insert
14begin insert

begin insertSEC. 8.end insert  

end insert

begin insertSection 22955 of the end insertbegin insertEducation Codeend insertbegin insert is amended to
15read:end insert

16

22955.  

(a) Notwithstanding Section 13340 of the Government
17Code, commencing July 1, 2003, a continuous appropriation is
18hereby annually made from the General Fund to the Controller,
19pursuant to this section, for transfer to the Teachers’ Retirement
20Fund. The total amount of the appropriation for each year shall be
21equal to 2.017 percent of the total of the creditable compensation
22of the fiscal year ending in the immediately preceding calendar
23year upon which members’ contributions are based, as reported
24annually to the Director of Finance, the Chairperson of the Joint
25Legislative Budget Committee, and the Legislative Analyst
26pursuant to Section 22955.5, and shall be divided into four equal
27payments. The payments shall be made on, or the following
28business day after, July 1, October 1, December 15, and April 15
29of each fiscal year.

30(b) Notwithstanding Section 13340 of the Government Code,
31commencing October 1, 2003, a continuous appropriation, in
32addition to the appropriation made by subdivision (a), is hereby
33annually made from the General Fund to the Controller for transfer
34to the Teachers’ Retirement Fund. The total amount of the
35appropriation for each year shall be equal to 0.524 percent of the
36total of the creditable compensation of the fiscal year ending in
37the immediately preceding calendar year upon which members’
38contributions are based, as reported annually to the Director of
39Finance, the Chairperson of the Joint Legislative Budget
40Committee, and the Legislative Analyst pursuant to Section
P11   122955.5, and shall be divided into four equal quarterly payments.
2The percentage shall be adjusted to reflect the contribution required
3to fund the normal cost deficit or the unfunded obligation as
4determined by the board based upon a recommendation from its
5actuary. If a rate increase is required, the adjustment may be for
6no more than 0.25 percent per year and in no case may the transfer
7made pursuant to this subdivision exceed 1.505 percent of the total
8of the creditable compensation of the fiscal year ending in the
9immediately preceding calendar year upon which members’
10contributions are based. At any time when there is neither an
11unfunded obligation nor a normal cost deficit, the percentage shall
12be reduced to zero. The funds transferred pursuant to this
13subdivision shall first be applied to eliminating on or before June
1430, 2027, the unfunded actuarial liability of the fund identified in
15the actuarial valuation as of June 30, 1997.

16(c) For the purposes of this section, the term “normal cost
17deficit” means the difference between the normal cost rate as
18determined in the actuarial valuation required by Section 22311
19and the total of the member contribution rate required under Section
2022901 and the employer contribution rate required under Section
2122950, and shall exclude (1) the portion for unused sick leave
22service credit granted pursuant to Section 22717, and (2) the cost
23of benefit increases that occur after July 1, 1990. The contribution
24rates prescribed in Section 22901 and Section 22950 on July 1,
251990, shall be utilized to make the calculations. The normal cost
26deficit shall then be multiplied by the total of the creditable
27compensation upon which member contributions under this part
28are based to determine the dollar amount of the normal cost deficit
29for the year.

30(d) Pursuant to Section 22001 and case law, members are
31entitled to a financially sound retirement system. It is the intent of
32the Legislature that this section shall provide the retirement fund
33stable and full funding over the long term.

34(e) This section continues in effect but in a somewhat different
35form, fully performs, and does not in any way unreasonably impair,
36the contractual obligations determined by the court in California
37Teachers’ Association v. Cory, 155 Cal.App.3d 494.

38(f) Subdivision (b) shall not be construed to be applicable to
39any unfunded liability resulting from any benefit increase or change
40in contribution rate under this part that occurs after July 1, 1990.

P12   1(g) The provisions of this section shall be construed and
2implemented to be in conformity with the judicial intent expressed
3by the court in California Teachers’ Association v. Cory, 155
4Cal.App.3d 494.

5(h) begin deleteThis section end deletebegin insertSubdivisions (a) through (g), inclusive,end insert shall
6begin delete become operativeend deletebegin insert be inoperativeend insert onbegin insert and afterend insert July 1,begin delete 2003, if the
7revenue limit cost-of-living adjustment computed by the
8Superintendent of Public Instruction for the 2001-02 fiscal year
9is equal to or greater than 3.5 percent. Otherwise this section shall
10become operative on July 1, 2004.end delete
begin insert 2014, and shall become
11operative beginning the earlier of July 1, 2046, or July 1 of the
12first fiscal year after a 30-day notice has been sent to the Joint
13Legislative Budget Committee and the Controller in compliance
14with subdivision (d) of Section 22957.end insert

15begin insert

begin insertSEC. 9.end insert  

end insert

begin insertSection 22955.1 is added to the end insertbegin insertEducation Codeend insertbegin insert, to
16read:end insert

begin insert
17

begin insert22955.1.end insert  

(a) Notwithstanding Section 13340 of the Government
18Code, commencing July 1, 2003, a continuous appropriation is
19hereby annually made from the General Fund to the Controller,
20pursuant to this section, for transfer to the Teachers’ Retirement
21Fund. The total amount of the appropriation for each year shall
22be equal to 2.017 percent of the total of the creditable
23compensation of the fiscal year ending in the immediately
24preceding calendar year upon which members’ contributions are
25based, as reported annually to the Director of Finance, the
26Chairperson of the Joint Legislative Budget Committee, and the
27Legislative Analyst pursuant to Section 22955.5, and shall be
28divided into four equal payments. The payments shall be made on,
29or the following business day after, July 1, October 1, December
3015, and April 15 of each fiscal year.

31(b) (1) Commencing July 1, 2014, the amount of the
32appropriation required under subdivision (a) shall increase by the
33following percentages of the creditable compensation upon which
34that appropriation is based:

35(A) On July 1, 2014, by 1.437 percent.

36(B) On July 1, 2015, by 2.874 percent.

37(C) On July 1, 2016, by 4.311 percent.

38(2) For fiscal year 2017-18 and each fiscal year thereafter, the
39board shall increase or decrease the percentage specified in this
40subdivision from the percentage paid during the prior fiscal year
P13   1to reflect the contribution required to eliminate the remaining
2unfunded actuarial obligation, as determined by the board based
3 upon a recommendation from its actuary. If a rate increase is
4required, the adjustment may be for no more than 0.50 percent
5per year of the total of the creditable compensation of the fiscal
6year ending in the immediately preceding calendar year upon
7which members’ contributions are based. At any time when there
8is not an unfunded actuarial obligation as determined by the board,
9the percentage specified in this subdivision shall be reduced to
10zero.

11(c) Pursuant to Section 22001 and case law, members are
12entitled to a financially sound retirement system. It is the intent of
13the Legislature that this section shall provide the retirement fund
14stable and full funding over the long term.

15(d) This section continues in effect but in a somewhat different
16form, fully performs, and does not in any way unreasonably impair,
17the contractual obligations determined by the court in California
18 Teachers’ Association v. Cory, 155 Cal.App.3d 494.

19(e) Subdivision (b) shall not be construed to be applicable to
20any unfunded actuarial obligation resulting from any benefit
21increase or change in member or employer contribution rate under
22this part that occurs after July 1, 1990.

23(f) The provisions of this section shall be construed and
24implemented to be in conformity with the judicial intent expressed
25by the court in California Teachers’ Association v. Cory, 155
26Cal.App.3d 494.

27(g) (1)  Except as described in paragraph (2), this section shall
28become inoperative on July 1, 2046, and as of January 1, 2047,
29is repealed.

30(2) Notwithstanding paragraph (1), on July 1 of the first fiscal
31year after a 30-day notice has been sent to the Joint Legislative
32Budget Committee and the Controller in compliance with
33subdivision (d) of Section 22957, this section shall become
34inoperative and, as of the following January 1, is repealed.

end insert
35begin insert

begin insertSEC. 10.end insert  

end insert

begin insertSection 22955.5 of the end insertbegin insertEducation Codeend insertbegin insert is amended
36to read:end insert

37

22955.5.  

(a) For purposes of Sectionsbegin delete 22954end deletebegin insert 22954, 22955,end insert
38 andbegin delete 22955,end deletebegin insert 22955.1,end insert “creditable compensation” shall include only
39creditable compensation for which member contributions are
40credited under the Defined Benefit Program.

P14   1(b) On or after October 1 and on or before October 25 of each
2year, beginning in 2008, the board shall calculate the total amount
3of creditable compensation for the fiscal year that ended on the
4immediately preceding June 30. For the purpose of informing the
5Department of Finance and the Legislature of the amount of the
6state’s appropriations pursuant to Sectionsbegin delete 22954end deletebegin insert 22954, 22955,end insert
7 andbegin delete 22955end deletebegin insert 22955.1end insert in the next fiscal year, the system shall
8immediately submit a report that includes this calculation to the
9Director of Finance, the Chairperson of the Joint Legislative Budget
10Committee, and the Legislative Analyst.

11(c) After submission of the report described in subdivision (b),
12on or before the April 15 after submission of the report described
13in subdivision (b), the system shall notify the Director of Finance,
14the Chairperson of the Joint Legislative Budget Committee, and
15the Legislative Analyst of any revisions in its calculation of the
16total amount of creditable compensation for the fiscal year that
17ended on the immediately preceding June 30.

18(d) The last revised calculation submitted pursuant to subdivision
19(c) on or before April 15 of each year or, if no such revised
20calculation is submitted, the calculation in the report submitted
21pursuant to subdivision (b) shall be the calculation of creditable
22compensation upon which the state’s appropriations pursuant to
23Sectionsbegin delete 22954end deletebegin insert 22954, 22955,end insert andbegin delete 22955end deletebegin insert 22955.1end insert will be based
24in the next fiscal year. On or after April 15 and on or before May
251 of each year, the system shall submit to the Controller a copy of
26this calculation, along with a requested schedule of transfers to be
27made pursuant to the appropriations in Sectionsbegin delete 22954end deletebegin insert 22954,
2822955,end insert
andbegin delete 22955end deletebegin insert 22955.1end insert in the next fiscal year beginning on the
29next July 1. The system shall also provide a copy of this schedule
30to the Director of Finance and the Legislative Analyst.

31begin insert

begin insertSEC. 11.end insert  

end insert

begin insertSection 22957 is added to the end insertbegin insertEducation Codeend insertbegin insert, to
32read:end insert

begin insert
33

begin insert22957.end insert  

(a) The Legislature hereby finds and declares that the
34provisions of Section 22950.5 do not constitute a new functional
35responsibility for schools and community colleges pursuant to
36subdivision (c) of Section 41204, and do not require an adjustment
37pursuant to subdivision (b) of Section 8 of Article XVI of the
38California Constitution. The Legislature further finds and declares
39that the provisions of Section 22950.5 do not constitute a
40reimbursable mandate for school districts pursuant to Article
P15   1XIII B of the California Constitution. Any challenge to these
2findings shall be filed in Sacramento Superior Court within 60
3days of the effective date of the act adding this section. Any action
4so filed shall be consolidated with any action filed pursuant to
5Section 22958.

6(b) On or before June 1 of each year, the Director of Finance
7shall determine if an adjustment to the constitutional minimum
8guarantee of funding for schools shall be made pursuant to a final,
9unappealable judicial decision holding that the increased
10contributions in Section 22950.5 constitute a new functional
11responsibility for schools and community colleges, pursuant to
12subdivision (c) of Section 41204, or any other final, unappealable,
13judicial decision holding that the increased contributions in Section
1422950.5 require an adjustment in funding provided to schools and
15community colleges pursuant to subdivision (b) of Section 8 of
16Article XVI of the California Constitution. If the Director of
17Finance estimates that an adjustment will require increased
18General Fund expenditures of more than ten million dollars
19($10,000,000), then the determination described in this subdivision
20shall be considered to have been met. This estimate shall be
21 calculated solely within the discretion of the Director of Finance.

22(c) On or before June 1 of each year, the Director of Finance
23shall determine if any amounts are needed to fund school districts
24or other local governments due to a final unappealable
25administrative or judicial decision holding that the increased
26contributions in Section 22950.5 constitute a reimbursable mandate
27pursuant to Article XIII B of the California Constitution. If the
28Director of Finance estimates that the cost of the mandate is more
29than ten million dollars ($10,000,000), then the determination
30described in this subdivision shall be considered to have been met.
31This estimate shall be solely within the discretion of the Director
32of Finance, and the director need not wait for a final cost estimate,
33nor any other administrative determination, from the Commission
34of State Mandates prior to making this determination.

35(d) If, before June 1 of each year, the Director of Finance
36determines that the determinations described in subdivisions (b)
37or (c) have been met, then the Director of Finance shall
38immediately notify, in writing, the Joint Legislative Budget
39Committee and the Controller of this determination.

end insert
P16   1begin insert

begin insertSEC. 12.end insert  

end insert

begin insertSection 22958 is added to the end insertbegin insertEducation Codeend insertbegin insert, to
2read:end insert

begin insert
3

begin insert22958.end insert  

(a) Any action or proceeding challenging the validity
4of any matter authorized by the act adding this section by any
5person or entity shall be brought in accordance with, and within
6the time specified in, Chapter 9 (commencing with Section 860)
7of Title 10 of Part 2 of the Code of Civil Procedure.

8(b) This section provides the authorization for all entities
9referenced in the act adding this section as required by Section
10860 of the Code of Civil Procedure.

11(c) Any action initiated pursuant to this section shall be brought
12in the Superior Court of the County of Sacramento.

end insert
13begin insert

begin insertSEC. 13.end insert  

end insert
begin insert

(a) None of the provisions of this act are severable.
14All of the sections together are the complete operative expression
15of legislative intent. The Legislature inextricably connects the
16policies and goals of these sections together and would not enact
17the provisions separately.

end insert
begin insert

18(b) If any provision of this act or application of any section of
19this act to a person or circumstances is held by a court of
20competent jurisdiction to be invalid, unenforceable, or not binding
21on any person then this finding shall invalidate the other provisions
22and applications of this act in its entirety.

end insert
begin insert

23(c) The provisions of this act were based on various legal
24understandings and would not have been adopted without those
25understandings. Thus, if a final unappealable judicial decision
26holds that the increased contributions set out in Section 22950.5
27constitute a new functional responsibility for schools and
28community colleges pursuant to subdivision (c) of Section 41204,
29and correspondingly require an adjustment pursuant to subdivision
30(b) of Section 8 of Article XVI of the California Constitution, then
31Sections 5, 7, and 9 of this act shall be inoperable.

end insert
begin insert

32(d) The provisions of this act were based on various legal
33understandings and would not have been adopted without those
34understandings. Thus, if a final unappealable administrative or
35judicial decision holds that the increased contributions set out in
36Section 22950.5 constitutes a reimbursable mandate pursuant to
37Article XIII B of the California Constitution, then Sections 5, 7,
38and 9 of this act shall be inoperable.

end insert
39begin insert

begin insertSEC. 14.end insert  

end insert
begin insert

This act is a bill providing for appropriations related
40to the Budget Bill within the meaning of subdivision (e) of Section
P17   112 of Article IV of the California Constitution, has been identified
2as related to the budget in the Budget Bill, and shall take effect
3immediately.

end insert
begin delete
4

SECTION 1.  

It is the intent of the Legislature to enact statutory
5changes relating to the Budget Act of 2014.

end delete


O

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