BILL ANALYSIS Ó SENATE COMMITTEE ON PUBLIC EMPLOYMENT AND RETIREMENT Dr. Richard Pan, Chair 2015 - 2016 Regular Bill No: AB 991 Hearing Date: 6/08/15 ----------------------------------------------------------------- |Author: |Committee on Public Employees, Retirement, and | | |Social Security | |-----------+-----------------------------------------------------| |Version: |6/01/15 As amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Glenn Miles | | | | ----------------------------------------------------------------- Subject: State Teachers' Retirement SOURCE: California State Teachers' Retirement System ASSEMBLY VOTES: ----------------------------------------------------------------- |Assembly Floor: |78 - 0 | |--------------------------------+--------------------------------| |Assembly Appropriations |16 - 0 | |Committee: | | |--------------------------------+--------------------------------| |Assembly Public Employees, |6 - 0 | |Retirement/Soc Sec Committee: | | ----------------------------------------------------------------- DIGEST: This bill 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). ANALYSIS: Existing law: 1)Establishes CalSTRS to provide retirement benefits for school employees, as defined, through the Defined Benefit Program AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 2 of ? (DB), the Defined Benefit Supplement Contribution Program (DBS), and the Cash Balance Benefit Program (CB). 2)Requires school employers, as specified, to enroll their employees into mandatory membership into the DB depending on the type of employer (preK-12 or community college district) and whether that employer offers the CB or if they are a DB-only employer. 3)Establishes the CB to provide an alternative retirement program for employees, primarily part-time or temporary employees as defined, who are not mandated into the DB. The CB is optional for employers to offer and is a hybrid retirement plan that has attributes of both a defined benefit and defined contribution plan, including employee and employer contributions and annuities. This bill clarifies the CB is for 1) persons employed for less than 50 percent of a full-time position by a public school employer, as defined, other than a community college district; 2) on a temporary basis, as defined, by a community college district; or 3) as a substitute employee. Sections affected: 22001.5, 26000, 26132, 26400, 26401, 26806, 26812 4)Defines "creditable compensation" and includes remuneration that is paid for the use of sick leave, vacation, and other employer approved leave in creditable compensation, but is unclear on what qualifies as "employer approved leave." This bill defines "leave of absence," as specified, and provides that a leave of absence must be employer approved and compensated for leave-related remuneration to be included in the member's creditable compensation. Sections affected: 22119.2, 22119.3, 22144.3 5)Defines "credited service" as service for which the required contributions have been paid. Also, existing federal law IRC 401(a)(17) establishes a limit on compensation upon which a qualified plan may base allocations or benefit accruals for a plan participant. No contributions above that amount are made into the CalSTRS plan. This bill clarifies that service attributable to compensation AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 3 of ? for which no contributions to CalSTRS are paid because of the 401(a)(17) limit is nevertheless included in creditable service. Thus, a member does receive creditable service for time worked during the year when contributions were suspended to avoid violating the federal 401(a)(17) limit on compensation. Section affected: 22121 6)Contains erroneous or obsolete statutory references for provisions related to the following: 1) the annual "improvement factor" increase of 2 percent to the minimum guaranteed retirement allowance; 2) a member's right to elect to continue membership in CalPERS rather than join CalSTRS; 3) the exclusion of Domestic Partners from specified annuity beneficiary options; and 4) references to the CalSTRS headquarters building. This bill corrects or eliminates erroneous or obsolete statutory references in the provisions noted above. Sections affected: 22141, 22509, 26602.5, 26142.5, 26400, 26401, 26807.6, 26906.6, 27100 7)Authorizes CalSTRS to establish a threshold of up to $10.00 for processing specified payments or collections of overpayments resulting from benefit or other payment adjustments. This bill clarifies CalSTRS's authority to not issue payments or collect overpayments that are de minimus (less than $10.00) until the cumulative amount owed reaches an established threshold. Section affected: 22404 8)Authorizes substitute teachers and part-time employees who are excluded from the DB to elect membership in the DB at any time they become employed to perform creditable service and become eligible for DB membership. This bill clarifies that a person's election of membership into the DB is irrevocable until the member both terminates employment and receives a refund of accumulated retirement contributions. Section affected: 22515 AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 4 of ? 9)Existing law authorizes up to 12 years of service credit for specified time on compensated leave as an elected officer of an employee organization. This bill clarifies that eligible members are eligible for a full year of service credit, not a fraction of a year, for each 12-month period served, up to 12 years. Sections affected: 22711, 44987, 87768.5 10)Authorizes CalSTRS to grant two years of service credited to affected DB members when the governing board of a school district, county office of education, or community college district determines that a retirement incentive program (RIP) is necessary and would result in net savings, as specified. This bill provides that an employer who offers a RIP to its employees shall submit documentation, as specified, to CalSTRS within 30 calendar days after the last day of the RIP eligibility window period. Section affected: 22714 11)Grants service credit for unused sick leave reported by all employers during the last school year in which the member performed creditable service. Also under existing law, employers report creditable compensation earned not creditable service performed. Thus, CalSTRS cannot distinguish between a member who is on a compensated leave but not performing creditable service in the member's final school year and a member who is working in the last school year performing creditable service since both members would be reported by their employers as having earned creditable compensation. This bill clarifies that a member shall be credited for unused sick leave in his or her last school year of employment based on creditable compensation earned rather than creditable service performed to clarify that a member on paid leave in the last year of service also receives credit for his or her unused sick leave. Section affected: 22717 12)Creates a long-term plan to address full funding for CalSTRS by increasing stakeholder contributions, as specified. AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 5 of ? This bill adds conforming codes sections to reference contributions to CalSTRS required under the CalSTRS full-funding plan of 2014. Sections affected: 22900, 22903, 22950, 23001 13)Prohibits DB and CB members from any postretirement employment, as specified, during the first 180 days following retirement and, thereafter, authorizes members to engage in limited postretirement employment subject to specified earnings limitations. Existing law also requires CalSTRS to offset a retired member's retirement allowance, dollar for dollar, if the member exceeds the earnings limitation. This bill clarifies how CalSTRS shall apply benefit reductions to retired members' allowances to offset compensation earned in excess of the postretirement earnings limitations and ensures that the offset for the excess postretirement compensation is no more than the retirement allowance received by the retiree, as specified. Sections affected: 24114, 24214, 24214.5, 26812 14)Authorizes a member who retires for service or for disability to reinstate into service and receive additional credited service or re-retire for service. Thus, a member may have multiple retirement dates and periods of service. Existing law also requires unused sick leave to be included in determining creditable service, as specified. This bill clarifies service retirement calculations for members who retire from service after reinstating from a previous service or disability retirement, or both, and specifies how unused sick leave will or will not be applied to different service periods prior to and after reinstatement and the subsequent retirement. Sections affected: 24209, 24209.3, 24210, 24211, 24212, 24213 15)Limits the compensation a retired member can earn for postretirement employment, as specified, and includes as compensation certain employer payments for benefits such as participation in a deferred compensation plan, purchase of an annuity contract, a tax-deferred plan, or an insurance program. AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 6 of ? This bill clarifies that employer payments for health care coverage are not included in the postretirement compensation limitations. Sections affected: 24214, 24214.5, 26812 16)Defines a CB "participant" as a person who has performed creditable service subject to coverage by the CB and who has 1) contributions credited under the CB or 2) is receiving an annuity under the CB. This bill clarifies that the definition of "participant" for purposes of the CB includes a member who has terminated covered employment but has not yet received a lump sum distribution of his or her CB retirement benefit and is still within the 180 days following the member's retirement date. Section affected: 26132 17)Defines "salary" for participants in the CB subject to PEPRA, as specified, and limits salary to 120 percent of the federal Social Security contribution and benefit base on January 1, 2013, for participants who do not pay into the federal Social Security system and 100 percent for participants who do pay into Social Security. Existing law also requires CalSTRS to adjust the salary cap annually based on increases in the Consumer Price Index, as specified. This bill clarifies that the annual CPI adjustment to the PEPRA compensation cap is applied to the previous year's adjusted compensation cap. Section affected: 26139.5 18)Prohibits CB participants from making voluntary pretax or post-tax contributions or redeposits to the CB, but does permit participants to roll over funds from other tax qualified retirement plans, as specified, into the CB. Existing law also requires CalSTRS to credit the rollover funds to the participant and separately identify the rollover funds from the participant's CB employee and employer credits. This bill clarifies that CalSTRS shall treat a member's rollover funds as credits to the participant's employee account for all other purposes in the CB. Section affected: 26506 AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 7 of ? 19)Authorizes a CB participant retired for service who receives an annuity to engage in postretirement employment, as specified, but requires that any compensation from the postretirement employment earned in the first 180 days after the participant's retirement date be offset by a reduction in the participant's annuity allowance if the participant is below normal retirement age or retired on or after January 1, 2014. This bill automatically cancels a CB participant's retirement application if the participant is going to receive a lump sum distribution instead of an annuity and the participant earns compensation from creditable service within 180 calendar days following the termination of employment unless the participant has reached the age at which the IRS requires a distribution of benefits. This provision is necessary to avoid triggering federal law prohibitions against early distributions from tax qualified plans. Section affected: 26812 20)Provides that where two or more legislative bills amend the same code section, the section in the last bill chaptered shall prevail. This bill provides that any section enacted by any other bill in 2015 shall prevail over this bill. Background CalSTRS sponsors a bill annually to make technical and noncontroversial housekeeping changes to the Teachers' Retirement Law to facilitate efficient administration of the State Teachers' Retirement Plan, which includes the Defined Benefit Program, the Defined Benefit Supplement Program, and the Cash Balance Benefit Program. Prior/Related Legislation SB 1220 (Torres, Chapter 755, Statutes of 2014) made various technical, conforming, or non-controversial changes to the Teachers' Retirement Law to facilitate efficient administration of the State Teachers' Retirement Plan, which includes the DB, the DBS, and the CB. AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 8 of ? AB 1381 (Assembly PER&SS Committee, Chapter 559, Statutes of 2013) made technical and conforming changes to align the Teachers' Retirement Law with the Public Employees' Pension Reform Act of 2013 as enacted by AB 340 (Furtani), Chapter 296, Statutes of 2012. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No According to the Assembly Appropriations Committee, this bill would result in "one-time special fund costs to CalSTRS of $90,000 to $100,000 to update systems; minor and absorbable ongoing program costs; ongoing savings from eliminating certain payments and collection efforts." SUPPORT: California State Teachers' Retirement System (source) OPPOSITION: None received ARGUMENTS IN SUPPORT: According to this bill's sponsor, CalSTRS, AB 991 will help ensure continued effective and efficient plan administration for CalSTRS internal and external customers.