BILL ANALYSIS Ó
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THIRD READING
Bill No: AB 1469
Author: Bonta (D), et al.
Amended: 6/12/14 in Senate
Vote: 21
SENATE BUDGET AND FISCAL REVIEW COMMITTEE : Not available
ASSEMBLY FLOOR : Not relevant
SUBJECT : Budget Act of 2014: State Teachers Retirement
System
SOURCE : Author
DIGEST : This bill provides for statutory changes necessary to
enact State Teachers Retirement System (STRS) provisions of the
Budget Act of 2014.
ANALYSIS : 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:
A. 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
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follows: (1) on July 1, 2014, by 15%; (2) on July 1,
2015, by 1.20%; and (3) on July 1 2016, by 2.25%.
B. For Member's compensation that is creditable to the
Defined Benefit Program as follows: (1) on July 1, 2014,
by15%; (2) on July 1, 2015, by .56%; and (3) on July 1
2016, by 1.205%.
C. The state's contribution rate increases as follows: (1)
on July 1, 2014, by 1.437%; (2) on July 1, 2015, by 2.874%;
and (3) on July 1 2016, by 4.311%.
D. 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%; (2) on July 1,
2015, by 2.48%; (3) on July 1 2016, by 4.33%; (4) on July
1, 2017, by 6.18%; (5) on July 1, 2018, by 8.03%; (6) on
July 1, 2019, by 9.88%; and (7) on July 1, 2020, by 10.85%.
2. 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:
A. 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:
(1) The adjustment may be for no more than .50%
per year of the total of the credible compensation
of the previous fiscal year.
(2) At any time when there is not an unfunded
actuarial obligation, as determined by the STRS
Board, the contribution percentage shall be reduced
to zero.
B. 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
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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:
(1) The contribution percentage does not change
in any single fiscal year by more than 1.0%.
(2) The increased contribution percentage
established by this bill does not exceed 12.0%.
(3) The STRS Board cannot increase the rate in
order to supplant the state's obligation, as
specified.
3. Makes the improvement factor, which provides retirees with an
annual increase of 2% 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.
4. 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.
5. Establishes that any excess member contributions to the
Defined Benefit Supplement Account shall be returned to the
member or employer, as specified.
6. 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
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subdivision (c) of Section 41204, and do not require an
adjustment pursuant to subdivision (b) of Section 8 of
Article XVI of the 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.
7. 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
California 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.
8. 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.
9. 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 : Appropriation: Yes Fiscal Com.: Yes
Local: No
According to the Senate Budget and Fiscal Review Committee,
statutory changes contained in this bill related to state costs
are consistent with the 2014 Budget package. Significant
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increased costs for employers, reaching billions of dollars
annually through the 2045-46 fiscal year.
JL:d 6/15/14 Senate Floor Analyses
SUPPORT/OPPOSITION: NONE RECEIVED
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