BILL ANALYSIS Ó SB 1220 Page 1 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 SB 1220 Page 2 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 SB 1220 Page 3 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. SB 1220 Page 4 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 SB 1220 Page 5 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 SB 1220 Page 6 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 SB 1220 Page 7 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 SB 1220 Page 8