BILL ANALYSIS Ó
AB 991
Page 1
Date of Hearing: April 8, 2015
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL
SECURITY
Rob Bonta, Chair
AB 991
(Committee on Public Employees, Retirement, and Social Security)
- As Introduced February 26, 2015
SUBJECT: State teachers' retirement
SUMMARY: Makes various technical and conforming changes to the
Teachers' Retirement Law (TRL) necessary for continued effective
administration of the California State Teachers' Retirement
System (CalSTRS). Specifically, this bill:
1)Clarifies the Cash Balance (CB) Benefit Program is for persons
employed:
a) By an employer, excluding a community college district,
for less than 50 percent of a full-time position.
b) On a temporary basis by a community college district.
c) As a substitute employee.
AB 991
Page 2
2)Conforms state law to federal law by prohibiting a CB Benefit
Program participant who receives a lump-sum retirement benefit
payment from performing creditable service during the first
180 calendar days following his or her retirement effective
date in order to conform to requirements set forth in the
Internal Revenue Code by:
a) Not distributing the lump-sum payment until 180 calendar
days have elapsed following the retirement effective date.
b) Automatically cancelling the retirement application if
creditable service is performed, unless the participant has
reached the age at which a distribution of benefits is
required.
3)Defines "credited service" so that service for which
compensation is in excess of the 401(a)(17) limit, and no
contributions are paid, is deemed to be credited service.
4)Corrects a typographical error in the statute that provides an
increase of 2% to the minimum guaranteed allowance for retired
members to read "24410.7," rather than "24110.7" and adds the
term "improvement" to consistently use "improvement factor."
5)Broadens the types of payments and overpayments eligible for
dispensation when the amounts are below a specified threshold.
6)Corrects a reference in the statute that requires a member's
election of a retirement system to be filed with the
appropriate system to correctly refer to subdivision (c) of
section 22508.
AB 991
Page 3
7)Specifies that Retirement Incentive Program documentation is
required to be submitted by the employer within 30 calendar
days after the last day of the window period for retirement
established by the employer for incentive eligibility.
8)Adds references to code sections regarding the CalSTRS
full-funding plan where they are necessary.
9)For benefit reductions due to compensation earned in excess of
the applicable earnings limit:
a) Clarifies that, for retired members, annuitants and
members receiving a disability retirement benefit, the
amount shall not exceed the monthly allowance payable in
that month.
b) Clarifies that, for members receiving a disability
retirement benefit, the total amount shall not exceed the
annual allowance payable for the calendar year in which the
compensation was earned.
c) Clarifies that, for retired members and annuitants, the
total amount shall not exceed either, as applicable:
i) The annual allowance payable for the fiscal year in
which the compensation was earned following any reduction
made under the zero-dollar earnings limit, or
AB 991
Page 4
ii) The amount of the allowance payable during the first
180 calendar days from the effective date of the benefit.
10)Clarifies that only compensation, including employer-provided
health benefit coverage, earned for the performance of retired
member or participant activities is subject to the applicable
postretirement earnings limit.
11)Corrects an incorrect reference relating to exceptions for
provisions in state law conflicting with federal law for
registered domestic partners.
12)Defines "system's headquarters office" and removes
unnecessary references to section 22375 in Part 14 of the TRL.
13)Clarifies that although CalSTRS is required to identify
credits resulting from rollovers to the CB Benefit Program
separately from credits in employee and employer accounts, it
will otherwise treat rollover credits as if they are credits
to the participant employee and employer accounts.
EXISTING LAW:
1)Establishes the CB Benefit Program which is a hybrid
retirement plan that has attributes of both a defined benefit
and defined contribution plan, including employee and employer
contributions and annuities. It was established to provide an
alternative retirement program for employees who do not
AB 991
Page 5
mandate into the DB Program and is optional for employers to
offer. Requirements for mandatory membership into the DB
Program depend on the type of employer (preK-12 or community
college district) and if that employer offers the CB Benefit
Program or if they are a DB-only employer. The CB Benefit
Program is for employees of public schools who are hired to
perform creditable service by any of the following:
a) School district or county office of education:
i) On an hourly or daily basis; or
ii) In a contract position for less than 50 percent of a
full-time position.
b) Community college district:
i) On a part-time or temporary basis not subject to
mandatory membership in the DB Program; or
ii) For not more than 67 percent of a full-time
position.
c) Governing body of a school district or community college
district as a trustee.
2)Defines "credited service" as service for which the required
contributions have been paid. However, there is a limit
established by Section 401(a)(17) of the Internal Revenue Code
on compensation that counts toward the pension of a public
employee who first becomes a member on or after July 1, 1996,
and no contributions are paid to CalSTRS on compensation in
AB 991
Page 6
excess of the limit. The limit is increased based on
cost-of-living increases.
3)Provides an increase of 2 percent to the minimum guaranteed
allowance payable to retired members, their option
beneficiaries and surviving spouses. Chapter 1027, Statutes
of 2000 (AB 429-Correa), added section 24410.7 to the
Education Code and amended section 22141 to include section
24410.7 in the 2 percent increase. However, the reference to
section 24410.7 within section 22141 is inadvertently written
as section 24110.7. In addition, the term "improvement factor"
is not used consistently throughout section 22141.
4)Allows the Teachers' Retirement Board to establish a threshold
of up to $10 for the processing of a payment or the collection
of an overpayment resulting from an adjustment to a benefit or
other amount paid to a member, participant or beneficiary. If
the amount of the payment or collection is below the
threshold, then CalSTRS is not required to issue the payment
or collect the overpayment until the amount equals or exceeds
the threshold. This allows CalSTRS to avoid the expense of
issuing a payment or collecting an overpayment when the amount
is relatively small. However, there are payments or
collections that are not subject to the threshold, requiring
CalSTRS to process a payment or collection for small amounts.
5)Allows a member of the California Public Employees' Retirement
System (CalPERS) to elect to retain coverage in CalPERS if the
member performs service subject to coverage by the DB Program.
However, this option is available only if the service he or
she performs requires membership in CalSTRS. Subdivision (c)
of Education Code section 22508 describes the circumstances
under which an eligible CalPERS member can elect to retain
CalPERS coverage. Section 22509 requires elections to be
filed with the appropriate retirement system and contains an
incorrect reference to subdivision (b) of section 22508.
AB 991
Page 7
6)Establishes the Retirement Incentive Program but does not
specify the time period during which an employer is required
to submit documentation to participate in the Retirement
Incentive Program. Without a specific deadline, there is an
impact on CalSTRS' ability to correctly calculate member
benefits in a timely manner. A delay in receiving the
documentation also delays CalSTRS' ability to notify members
of the postretirement employment restrictions associated with
the incentive in a timely manner.
7)Establishes, through AB 1469 (Bonta), Chapter 47, Statutes of
2014, the CalSTRS full-funding plan which made several changes
to the sections of the Education Code concerning member,
employer and state contributions to the Teachers' Retirement
Fund. Several code references were inadvertently left out of
the legislation.
8)Specifies when compensation is earned for the performance of
retired member or participant activities as an employee,
independent contractor or an employee of a third party, the
amount of the annuity or retirement benefit is reduced dollar
for dollar by the amount earned in excess of the earnings
limit, including amounts for contributions to tax-sheltered
annuities and other tax-favored products. Under the
separation-from-service requirement, annuitants of the CB
Benefit Program and retired members of the DB Program are
subject to the zero-dollar earnings limit during the first 180
calendar days following the most recent effective date of
their retirement benefit. Retired members of the DB Program
are also subject to a postretirement earnings limit in which
the retired member's benefit amount is reduced by the amount
earned in excess of the limit. Member's receiving a
disability retirement benefit may be employed or self-employed
in any capacity but are subject to a limit on earnings from
any such employment.
AB 991
Page 8
9)Limits the compensation a retired member or participant may
earn for performing retired member or participant activities.
A retired member or participant may receive employer-assisted
healthcare as a continuation of the employer-provided health
benefit coverage he or she received for the performance of
creditable service as an employee during active membership.
As currently written, existing law could be inadvertently
interpreted to mean that employer-provided benefit coverage is
compensation that is subject to the earnings limit. However,
the intent of existing law is to capture only compensation
earned for the performance of retired member or participant
activities and not employer-provided healthcare benefits by
virtue of the person's retirement.
10)Permits establishing a registered domestic partnership by
filing a Declaration of Domestic Partnership with the
Secretary of State. Existing law also confers on registered
domestic partners rights and responsibilities that are the
same as those conferred on married couples, including the
filing of joint state income tax returns. However, there are
specific exceptions for provisions of state law that are
inconsistent with provisions of federal law with respect to
domestic partnerships, and there is an incorrect reference in
Education Code section 26002.5 concerning those exceptions.
11)Authorizes CalSTRS, pursuant to Education Code section 22375,
to select, purchase or acquire an office building in the
greater metropolitan Sacramento area for the purposes of
establishing a permanent headquarters facility for the system.
In 2009, when construction of the current headquarters
building was completed, CalSTRS staff moved into the new
headquarters. Many sections of law continue to refer to
Education Code section 22375. AB 1379 (PER&SS Committee),
Chapter 558, Statutes of 2013, defined "system's headquarters
office" in Part 13 of the Teachers' Retirement Law and removed
AB 991
Page 9
references to section 22375 in multiple sections of law.
However, the removal of the reference was not provided for in
Part 14 of the Teachers' Retirement Law.
12)Provides CB Benefit Program participants with the ability to
roll over qualified funds into the program. CalSTRS is
required to account for the resulting credits separately from
the credits that are held in the employee and employer
accounts. However, the rollover credits are otherwise treated
the same as other credits to the participant's employee
account.
FISCAL EFFECT: Unknown.
COMMENTS: According to CalSTRS, "This bill is necessary to
permit continued effective administration of CalSTRS.
Administrative costs associated with this bill are estimated to
range from $90,000 to $100,000 for changes to the CalSTRS
database system to broaden the types of payments and collection
of overpayments eligible for dispensation. However, there would
be ongoing savings related to eliminating payments or collection
efforts for amounts subject to dispensation. There are no
program costs resulting from this bill."
REGISTERED SUPPORT / OPPOSITION:
AB 991
Page 10
Support
California State Teachers' Retirement System (Sponsor)
Opposition
None on file
Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)
319-3957