BILL ANALYSIS Ó AB 1469 Page 1 ( Without Reference to File ) CONCURRENCE IN SENATE AMENDMENTS AB 1469 (Bonta) As Amended June 12, 2014 Majority vote. Budget Bill Appropriation Takes Effect Immediately ----------------------------------------------------------------- |ASSEMBLY: | |(May 23, 2014) |SENATE: |37-0 |(June 15, | | | | | | |2014) | ----------------------------------------------------------------- (vote not relevant) Original Committee Reference: BUDGET SUMMARY : Makes necessary statutory and technical changes to implement changes to the Budget Act of 2014 related to the California State Teachers' Retirement System (CalSTRS). Specifically, this bill : 1)Makes finding and declarations related to the CalSTRS Defined Benefit Program, including: a) Stating that new obligations and benefits provided in Sections 7 and 9 are contingent on those legal understandings being accurate, and if there is a final unappealable judicial decision that holds that the increased contributions constitute either a new functional responsibility for schools and community colleges, or a reimbursable mandate pursuant to California Constitution Article XII Section B, then the provisions added by the act shall cease to be effective. 2)Provides that beginning July 1, 2014, the improvement factor shall vest for an active member in any calendar year in which active members paid increased member contributions pursuant to Education Code Section 22901.7. 3)Provides that the Legislature's right to adjust the improvement factor shall be reinstated for all members if the increased contributions are eliminated in the future. 4)Retains the Legislature's right to adjust the improvement factor for members who retire prior to January 1, 2014. AB 1469 Page 2 5)Requires the CalSTRS 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 and sunsets the report on July 1, 2046. 6)Increases member contributions for those members who are not subject to the Public Employees' Pension Reform Act of 2013 (PEPRA), currently at 8% of creditable compensation, over three years beginning in fiscal year (FY) 2014-15 as follows: a) On July 1, 2014, by 0.15%; b) On July 1, 2015, by 1.20%; and c) On July 1, 2016, by 2.25%. 7)Increases member contributions for those members who are subject to PEPRA, currently at 8% of creditable compensation, over three years beginning in FY 2014-15 as follows: a) On July 1, 2014, by 0.15%; b) On July 1, 2015, by 0.56%; and c) On July 1, 2016, by 1.205%. 8)Establishes that any excess member contributions shall be returned to the member, as specified. 9)Increases the employer contribution rate, currently at 8.25% of creditable compensation, over seven years beginning in FY 2014-15 as follows: a) On July 1, 2014, by 0.63%; b) On July 1, 2015, by 2.48%; c) On July 1, 2016, by 4.33%; d) On July 1, 2017, by 6.18%; e) On July 1, 2018, by 8.03%; AB 1469 Page 3 f) On July 1, 2019, by 9.88%; and g) On July 1, 2020, by 10.85%. 10)Requires the CalSTRS Board to adjust the employer contribution rate within certain parameters beginning in FY 2021-22, to reflect the contribution required to eliminate the unfunded actuarial obligation by June 30, 2046, including: a) Providing that the contribution percentage does not change in any single fiscal year by more than 1%; b) Establishing that the increased contribution percentage included in this bill does not exceed 12%; and c) Prohibiting the board from increasing the rate in order to supplant the state's obligation, as specified. 11)Increases the state's contribution rate, over three years beginning in FY 2014-15 as follows: a) On July 1, 2014, by 1.437%; b) On July 1, 2015, by 2.874%; and c) On July 1, 2016, by 4.311%. 12)Requires the CalSTRS Board to adjust the state contribution within certain parameters beginning in FY 2017-18 to reflect the contribution required to eliminate the unfunded actuarial obligation attributed to benefits in effect prior to July 1, 1990, including: a) Adjusting for no more than 0.50% per year of the total of the creditable compensation of the previous year; and b) Reducing the contribution percentage to zero, at any time when there is not an unfunded actuarial obligation. 13) Finds and declares that the increase in employer contributions neither requires an adjustment in Proposition 98 of 1988 funding nor constitutes a reimbursable state mandate. 14)Requires that any challenge to these findings be filed within 60 days of the effective date and to be consolidated with any other challenge to the validity of the act. AB 1469 Page 4 15)Establishes that, on or after June 1, of each year the Director of Finance must determine if an adjustment to the constitutional minimum guarantee of funding for schools must be made, or an adjustment in funding provided to schools and community colleges, pursuant to a final, unappealable judicial decision, as specified. If the Director of Finance estimates that an adjustment will require increase in General Fund expenditures of more than $10 million, then the increase contributions for members, employers, and the state, required by the act will become inoperable. 16)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 Chapter 9 (commencing with Section 860) of the Title 10 of Part 2 of the Code of Civil Procedures, and shall be brought in the Superior Court of the County of Sacramento. 17)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. Significant increased costs for employers; reaching billions of dollars annually through the 2045-46 fiscal year. COMMENTS : This bill provides the necessary statutory references to enact the 2014-15 budget related to the CalSTRS contributions. Analysis Prepared by : Genevieve Morelos / BUDGET / (916) 319-2099 FN: 0003978 AB 1469 Page 5