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
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|Author: |Committee on Public Employees, Retirement, and |
| |Social Security |
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|Version: |6/01/15 As amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Glenn Miles |
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Subject: State Teachers' Retirement
SOURCE: California State Teachers' Retirement System
ASSEMBLY VOTES:
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|Assembly Floor: |78 - 0 |
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|Assembly Appropriations |16 - 0 |
|Committee: | |
|--------------------------------+--------------------------------|
|Assembly Public Employees, |6 - 0 |
|Retirement/Soc Sec Committee: | |
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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.