BILL ANALYSIS Ó
SENATE COMMITTEE ON BUDGET AND FISCAL REVIEW
Mark Leno, Chair
Bill No: AB 1469
Author: Bonta
As Amended: June 12, 2014
Consultant: Joe Stephenshaw
Fiscal: Yes
Hearing Date: June 15, 2014
Subject: Budget Act of 2014: State Teachers' Retirement
System (STRS)
Summary: Provides for statutory changes necessary to enact
STRS provisions of the Budget Act of 2014.
Background: This bill makes the following statutory
changes to implement the 2014-15 budget.
1. Establishes a plan to address the STRS Defined
Benefit Program's unfunded liability, which is
approximately $74 billion, by increasing contribution
rates, beginning July 1, 2014, of teachers, employers,
and the state, as follows:
For members who are not subject to the Public
Employees' Pension Reform Act of 2013 (PEPRA), the
rate increases by the percentage of the member's
compensation that is creditable to the Defined
Benefit Program as follows: 1) on July 1, 2014, by
.15 percent; 2) on July 1, 2015, by 1.20 percent;
and, 3) on July 1 2016, by 2.25 percent.
For members who are subject to PEPRA, the rate
increases the percentage of the member's
compensation that is creditable to the Defined
Benefit Program as follows: 1) on July 1, 2014, by
.15 percent; 2) on July 1, 2015, by .56 percent;
and, 3) on July 1 2016, by 1.205 percent.
The state's contribution rate increases as
follows: 1) on July 1, 2014, by 1.437 percent; 2) on
July 1, 2015, by 2.874 percent; and, 3) on July 1
2016, by 4.311 percent.
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The employer contribution rate increases by the
percentages of creditable compensation upon which
members' contributions under the Defined Benefit
Program are based, as follows: 1) on July 1, 2014,
by .63 percent; 2) on July 1, 2015, by 2.48 percent;
3) on July 1 2016, by 4.33 percent; 4) on July 1,
2017, by 6.18 percent; 5) on July 1, 2018, by 8.03
percent; 6) on July 1, 2019, by 9.88 percent; and,
7) on July 1, 2020, by 10.85 percent.
1. The contribution rate increases on July 1, 2016,
for members and the state, and July 1, 2020, for
employers, will be in place until July 1, 2046, unless
adjusted as follows:
For the 2017-18 fiscal year and each fiscal
year thereafter, the STRS Board is required to
increase or decrease the state's contribution
percentage, from the percentage paid during the
prior fiscal year, to reflect the contribution
required to eliminate the remaining unfunded
actuarial obligation, from benefits in effect prior
to July 1, 1990, provided that:
o The adjustment may be for no more than
.50 percent per year of the total of the credible
compensation of the previous fiscal year.
o At any time when there is not an unfunded
actuarial obligation, as determined by the board,
the contribution percentage shall be reduced to
zero.
For the 2021-22 fiscal year and each fiscal
year thereafter, the STRS Board is required to
increase or decrease the employer contribution
percentage, from the percentage paid during the
prior fiscal year, to reflect the contribution
required to eliminate the current unfunded actuarial
obligation by June 30, 2046, provided that:
o The contribution percentage does not
change in any single fiscal year by more than 1.0
percent.
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o The increased contribution percentage
established by this bill does not exceed 12.0
percent.
o The board cannot increase the rate in
order to supplant the state's obligation, as
specified.
1. Makes the improvement factor, which provides
retirees with an annual increase of two percent in
monthly allowances, a vested right, beginning July 1,
2014 (for members who retire after December 31, 2013),
for active members in any calendar year in which
active members paid increased contributions pursuant
to this bill. Further, specifies that if the
increased contributions required by this bill cease to
be legally required, due to a prevailing legal
challenge that would cause the provisions of this plan
to become inoperable, the Legislature reserves the
right to adjust the improvement factor, as specified.
2. Requires the STRS Board to report to the
Legislature on or before July 1, 2019, and every five
years thereafter, on the fiscal health of the Defined
Benefit Program and the unfunded actuarial obligation
with respect to service credited to members of the
program, before July 1, 2014. The report must
identify adjustments required in contribution rates in
order to eliminate, by June 30, 2046, the unfunded
actuarial obligation of the Defined Benefit Program
with respect to service credited to members of the
program before July 1, 2014.
3. Establishes that any excess member contributions to
the Defined Benefit Supplement Account shall be
returned to the member or employer, as specified.
4. Makes legislative declaration that the provisions
of this bill, as specified, do not constitute a new
functional responsibility for schools and community
colleges pursuant to subdivision (c) of Section 41204,
and do not require an adjustment pursuant to
subdivision (b) of Section 8 of Article XVI of the
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California Constitution. Further, makes legislative
declaration that the provisions of this bill, as
specified, do not constitute a reimbursable mandate
for school districts pursuant to Article XIII B of the
California Constitution. Any challenge to these
findings must be filed in Sacramento Superior Court
within 60 days of the effective date of the act adding
this section.
5. Establishes that, on or after June 1 of each year,
the Director of Finance must determine if, pursuant to
a final, unappealable judicial decision, as specified,
an adjustment to the constitutional minimum guarantee
of funding for schools, or an adjustment in funding
provided to schools and community colleges pursuant to
subdivision (b) of Section 8 of Article XVI of the
California Constitution must be made, or amounts are
needed to fund a reimbursable mandate pursuant to
Article XIII B of the California Constitution. If the
Director of Finance estimates that an adjustment will
require increased General Fund expenditures of more
than $10 million, then the increased contributions for
members, employers, and the state, required by this
bill, will become inoperable.
6. Specifies that any action or proceeding challenging
the validity of any matter authorized by the act
adding this section by any person or entity shall be
brought in accordance with, and within the time
specified in (60 days), Chapter 9 (commencing with
Section 860) of Title 10 of Part 2 of the Code of
Civil Procedure.
7. Provides that none of the provisions are severable.
If any provision of this act or application of any
section of this act is held by a court to be invalid,
unenforceable, or not binding, the finding shall
invalidate the other provisions and applications of
this act in its entirety.
Fiscal Effect: Statutory changes contained in this bill
related to state costs are consistent with the 2014 budget
package. Significant increased costs for employers,
reaching billions of dollars annually through the 2045-46
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fiscal year.
Support: Unknown
Opposed: Unknown
Comments: This bill provides the necessary statutory
references to enact the 2014-15 budget related to STRS
contributions.
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