BILL ANALYSIS                                                                                                                                                                                                    Ó



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          SENATE THIRD READING
          SB 1220 (Torres)
          As Amended August 11, 2014
          Majority vote 

           SENATE VOTE  :33-0  
           
           PUBLIC EMPLOYEES    7-0         APPROPRIATIONS      17-0        
           
           ----------------------------------------------------------------- 
          |Ayes:|Bonta, Allen, Harkey,     |Ayes:|Gatto, Bigelow,           |
          |     |Jone-Sawyer, Rendon,      |     |Bocanegra, Bradford, Ian  |
          |     |Ridley-Thomas, Wieckowski |     |Calderon, Campos,         |
          |     |                          |     |Donnelly, Eggman, Gomez,  |
          |     |                          |     |Holden, Jones, Linder,    |
          |     |                          |     |Pan, Quirk,               |
          |     |                          |     |Ridley-Thomas, Wagner,    |
          |     |                          |     |Weber                     |
          |-----+--------------------------+-----+--------------------------|
          |     |                          |     |                          |
           ----------------------------------------------------------------- 
           SUMMARY  :  Makes various technical, conforming, or  
          non-controversial changes to the Teachers Retirement Law (TRL)  
          to facilitate efficient administration of the California State  
          Teachers Retirement (CalSTRS) Plan, which includes the Defined  
          Benefit (DB) Program, the Defined Benefit Supplement (DBS)  
          Program, and the Cash Balance Benefit (CB) Program.   
          Specifically,  this bill  :   

          1)Defines the term "base allowance" and corrects various  
            references to a member's base allowance.

          2)Clarifies that months not included in the normal school year  
            will not be considered a break-in service and ensures that  
            members are treated consistently when calculating final  
            compensation.

          3)Makes minor punctuation corrections and removes unnecessary  
            references.

          4)Specifies that when a member is performing outgrowth  
            activities, the compensation earnable for those activities is  
            determined as if the creditable compensation if earned at the  
            lowest pay rate for other creditable service activities that  








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            the member performs for the same employer during the same  
            year.

          5)Clarifies the calculation for the annual adjustment to the  
            compensation cap for members subject to the Public Employees'  
            Pension Reform Act of 2013 (PEPRA).

          6)Repeals an obsolete section and clarifies the definition of  
            creditable service and specifies that the clause related to  
            state apportionment is only meant to be applicable to charter  
            schools.

          7)Defines "credited service" for 2% at 62 members so that even  
            though no contributions are made on compensation earned above  
            the limit (and therefore not eligible for a resulting benefit)  
            the member still earns appropriate service credit for the  
            amount of time worked.

          8)Specifies that joint powers authorities (JPAs) are among the  
            entities considered to be employers so long as the JPA meets  
            specified criteria.

          9)Specifies that the definition of employer shall be in  
            compliance with the requirements defining governmental plan  
            specified in Internal Revenue Code Section 414(d).

          10)Clarifies that the time periods used to calculate final  
            compensation for the three-year timeframes are equal to 36  
            months in order to be consistent with the 12-month calculation  
            and requires employer certification that a member's salary was  
            reduced because of a reduction in school funds in order to use  
            36 non-consecutive months to calculate final compensation.

          11)Inserts a reference to the principles supporting the  
            integrity of the Teachers' Retirement Fund with regard to  
            determining which compensation is not eligible for credit in  
            the DB Program and instead is credited to the DBS Program.

          12)Clarifies that written employment agreements are included in  
            the provisions that restrict employers from paying the  
            member's portion of contributions to the DB Program.

          13)Provides CalSTRS the authority to issue a refund payment by  
            direct deposit if requested by the member, in lieu of mailing  








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            a refund payment.

          14)Clarifies that a member cannot currently be receiving a  
            retirement benefit when he/she subsequently applies for a  
            disability benefit.

          15)Removes the unclear term "retiring" and clarifies that the  
            limit on backdating applies to a member who submits an  
            application to retire on or after the statutorily applicable  
            date.

          16)Adds references to code sections authorizing retirement that  
            were previously left out of the provisions of law pertaining  
            to the longevity bonus and the career factor.

          17)Clarifies various provisions relating to the calculation of  
            benefits.

          18)Opens a window period in which a member who was married to a  
            same-sex spouse and who elected a beneficiary option under the  
            DB Program, or an annuity under the DBS Program, including  
            disability annuities, or the CB Program, prior to June 26,  
            2013, can change his/her option or annuity election if the  
            member was prevented from selecting the option of his/her  
            choice due to the federal age restrictions previously in place  
            that applied to same-sex spouse beneficiaries.  The option or  
            annuity change become effective on either the date the  
            original election became effective or June 26, 2013, whichever  
            is later.

          19)Comprehensively reorganizes the sections of Chapter 28 of the  
            TRL pertaining to option beneficiary elections, repeals  
            obsolete sections and references, aligns references to the new  
            section numbers, and clarifies the provisions of law related  
            to survivor benefit options, as specified.

          20)Clarifies resulting changes to the member's benefit and when  
            and how a member may elect a new option beneficiary with  
            regard to the option beneficiary pre-deceasing the member.

          21)Specifies the requirements for naming a new option  
            beneficiary upon re-retirement, and the situations in which  
            anew beneficiary election may become invalid for retired  
            members who reinstate into active service.








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          22)Clarifies that with regard to dissolution of marriage, a  
            judgment of nullity, or an order of separate maintenance made  
            within one year of the termination of benefits and  
            reinstatement, CalSTRS will remove or change the option  
            election in accordance with the court order, and any  
            additional changes cannot be made until one year from the  
            termination effective date.

          23)Clarifies that when a member has elected a compound option  
            under the DB Program, and also elects a DBS annuity, the DBS  
            annuity is subject to specified age restrictions imposed by  
            federal law.

          24)Revises the definition of "vendor" to include a statewide  
            public education employee organization, or its affiliate, that  
            has entered into an agreement with a bank custodian to offer  
            403(b) products.

          25)Allows a CB Program participant to apply for a retirement or  
            termination benefit without requiring employer certification  
            that employment has been terminated if no contributions are  
            reported by the employer within the previous 12 months,  
            consistent with the requirements in the DB Program.

          26)Specifies that Education Code Parts 13.5 and 14 cannot be  
            waived by the State Board of Education.

          27)Makes various technical, conforming, changes to the TRL.

           EXISTING LAW  :

          1)Establishes CalSTRS, which provides retirement, death, and  
            disability benefits to over 868,000 members and retirees who  
            are or were educators in California k-12 schools and community  
            colleges.

          2)Creates three retirement benefit programs in CalSTRS:  a) the  
            DB Program, which covers all eligible members and provides a  
            retirement benefit based on age at retirement, years of  
            service, and the member's final compensation; b) the CB  
            Program, which primarily is for part-time educators who do not  
            participate in, or are not eligible for, the DB Program; and  
            c) the DBS Program, which takes contributions from members and  
            employers for service performed that is not eligible for  








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            coverage in the DB Program (such as teaching classes in excess  
            of a full-time load, coaching, or other designated  
            activities).

          3)Creates, due to enactment of the PEPRA, two distinct groups of  
            employees:  a) those first hired to perform CalSTRS creditable  
            activities prior to January 1, 2013 - the 2% at age 60  
            members; and b) those first hired to perform CalSTRS  
            creditable activities on or after that date - the 2% at age 62  
            members.

          4)Defines creditable service by providing a list of activities  
            that are considered creditable service, including school  
            activities related to, and an outgrowth of, the instructional  
            and guidance program of the school when performed in addition  
            to other creditable service. These outgrowth activities  
            include assignments such as coach, club advisor, department  
            chair, and mentor teacher. 

          5)Provides for periodic increases to a retired members base  
            allowance to mitigate inflation and ensure adequate purchasing  
            power; however, the term base allowance is not always  
            consistently cited.

          6)Defines "creditable service" for the DB Program and CB Program  
            by providing a list of activities that are considered  
            creditable service, including employment in a charter school  
            that is eligible for state apportionment.

          7)Allows two or more public agencies to join together and  
            operate collectively under a JPA; however, JPAs are not  
            explicitly included in the current definition of employer in  
            the TRL.

          8)Gives CalSTRS the authority to select, purchase, or acquire an  
            office building for the purposes of establishing a permanent  
            headquarters facility for the system.

          9)Specifies which employer and member contributions on  
            compensation are to be credited to the DBS Program, including  
            contributions on compensation not eligible for credit in the  
            DB Program.

          10)Restricts an employer from paying member contributions to the  








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            DB Program, as specified.

          11)Authorizes CalSTRS to provide a requested refund of member  
            contributions, as specified, by placing the payment in the  
            mail, addressed to the address directed by the member.   
            However, CalSTRS is not specifically authorized to issue a  
            member's refund through direct deposit.

          12)Allows a retired member to terminate his or her retirement  
            and reinstate to active, creditable service.  After at least  
            one year of additional active service, the member, if  
            eligible, may apply for disability benefits.  Termination of  
            the retirement benefit is required prior to applying for a  
            subsequent disability benefit.

          13)Allows a member to submit an application for service  
            retirement during a period either before or after the chosen  
            retirement date, within specified parameters, including  
            limited backdating of the chosen retirement date.  In  
            addition, an individual awaiting a disability determination  
            may apply for service retirement, as specified and if so  
            eligible.  However, the term "retiring" as used in these  
            provisions is not clearly defined.

          14)Allows a member receiving a disability retirement benefit to  
            terminate the disability benefit and later retire for service.  
             Upon subsequent service retirement, the member may be  
            eligible for the longevity bonus; however, the law omits  
            reference to that benefit enhancement from the service  
            retirement calculation.  In addition, existing law  
            inconsistently applies the longevity bonus and career factor  
            when a member moves from disability allowance to service  
            retirement.  Moreover, the age factor and the exclusion of the  
            children's portion of the disability allowance are missing  
            from the calculation of service retirement when a member moves  
            directly from disability allowance to service retirement.

          15)Establishes that government benefit providers are to treat  
            same-sex married couples equally in all areas of benefit  
            administration, including taxes and survivor benefits.

          16)Requires CalSTRS to administer an impartial website  
            information bank for vendors wishing to sell 403(b) products  
            in the state of California.  Vendors must register with the  








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            Internet Web site and provide certain information on their  
            companies and the products offered.  The Internet Web site,  
            known as 403bCompare, provides CalSTRS members and  
            participants, classified employees and eligible state  
            employees the ability to review and compare information about  
            tax-deferred retirement investment 403(b) products provided by  
            the registered vendors.

          17)Defines a vendor who would be able to register an investment  
            product on the website as "a public retirement system,  
            broker-dealer, registered investment company, nonbank  
            custodian, or life insurance company qualified to do business  
            in California that provides 403(b) products."

          18)Grants the State Board of Education authority to waive  
            portions of the Education Code, so that they do not apply to  
            school districts that request a waiver.  However, there are  
            several provisions of the Education Code that cannot be  
            waived.  Education Code Part 13, which governs the DB and DBS  
            programs, is included among those provisions that cannot be  
            waived.  Education Code Part 13.5, which relates to health  
            care benefits programs, and Education Code Part 14, which  
            relates to the CB Program, were added to the Education Code  
            after the enactment of the waiver authority.

           FISCAL EFFECT  :  According to the Assembly Appropriations  
          Committee, one-time special fund costs to CalSTRS of $55,000 to  
          $63,000; minor and absorbable ongoing program costs.

           COMMENTS  :  According to CalSTRS, "This bill is necessary to  
          permit continued effective administration of the California  
          State Teachers' Retirement System.  Any administrative costs  
          associated with this bill are minor and absorbable, and there  
          are no program costs resulting from this bill."

          There is no registered opposition to this bill.


           Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916)  
          319-3957 


                                                                FN: 0004689









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