BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Kevin de León, Chair SB 1220 (Torres) - CalSTRS Annual Legislation Amended: April 10, 2014 Policy Vote: PE&R 4-0 Urgency: No Mandate: No Hearing Date: May 5, 2014 Consultant: Maureen Ortiz This bill does not meet the criteria for referral to the Suspense File. Bill Summary: SB 1220 makes numerous technical, clarifying and non-controversial changes to the Teachers' Retirement Law (TRL). Fiscal Impact: One-time costs of approximately $55,000 to $63,000 to CalSTRS (Special Fund). CalSTRS indicates one-time costs for implementing changes to the CalSTRS member database system resulting from the following components: 1) break in service provision: $15,000, 2) cash balance termination requirements: $5,000 to $8,000, and 3) option change for same-sex spouse: $35,000 to $40,000. Background: The enactment of the Public Employees' Pension Reform Act (PEPRA) of 2013 resulted in the creation of two distinct groups of employees: 1) those first hired to perform CalSTRS creditable activities prior to January 1, 2013 and who are subject to a 2% at age 60 retirement formula; and 2) those first hired to perform CalSTRS creditable activities on or after January 1, 2013 and who are subject to the new higher formula of 2% at age 62. Proposed Law: SB 1220 makes various technical, conforming, or minor changes to the Teachers' Retirement Law to facilitate efficient administration of the State Teachers' Retirement Plan which includes the Defined Benefit (DB) Program, the Defined Benefit Supplement (DBS) program and the Cash Balance (CB) Benefit Program. SB 1220 makes the following specific changes to the Teachers' Retirement Law: SB 1220 (Torres) Page 1 a) Clarifies the definition of creditable service as it relates to state apportionment to apply only to charter schools. b) Clarifies the definitions of "school year" and "academic year" so that it will also apply to members who work in school districts with nontraditional school years which could be construed to have qualified as a break in service under PEPRA. c) Adds a definition for the term "base allowance" and replaces "initial monthly" and "original" with "base allowance" to reduce inconsistent use of terms that refer to a monthly allowance under the DB Program prior to an annual benefit adjustment and after modification for an option. d) Defines "credit service" for 2% at 62 members so that service for which compensation is in excess of the limit and no contributions are paid is deemed to be credit service. e) Clarifies instances where a JPA may be considered employers in the Teachers' Retirement Law. f) Clarifies "compensation earnable" to make the period of time used for the calculation consistent. g) Clarifies the definition of CalSTRS members subject to PEPRA by specifying that this definition excludes individuals who are employed to perform creditable service within six months of performing service in a concurrent retirement system even if they do not become members of the DB Program within those six months. h) Makes numerous other technical and clarifying changes, clarifies several applicable definitions with the TRL, deletes obsolete code references, and makes conforming changes relating to the administration of the state Teachers Retirement Law resulting from enactment of PEPRA. Staff Comments: SB 1220 is sponsored by CalSTRS to make various technical, conforming or minor amendments necessary for continued effective administration of the California State Teachers' Retirement System. SB 1220 (Torres) Page 2