BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 991 (Committee on Public Employees, Retirement, and Social Security) - State teachers' retirement ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 1, 2015 |Policy Vote: PE&R 4-0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: June 22, 2015 |Consultant: Maureen Ortiz | | | | ----------------------------------------------------------------- This bill does not meet the criteria for referral to the Suspense File. Bill Summary: AB 991 makes various technical and conforming changes to the Teachers' Retirement Law. Fiscal Impact: One-time costs of $90,000-$100,000 to CalSTRS (Special Fund) CalSTRS indicates one-time costs for database changes associated with broadening the types of payments and collection of overpayments eligible for dispensation. Background: The Cash Balance Benefit Program (CB) is a hybrid retirement plan that has attributes of both a defined benefit (DB) and defined contribution plan, including employee and employer AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 1 of ? contributions and annuities. It was established to provide an alternative retirement program for employees who do not 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 certain employees of public schools. Existing law 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 excess of the limit. The limit is increased based on cost-of-living increases. The Teachers' Retirement Board is allowed 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. Proposed Law: AB 991 makes numerous technical and conforming changes to the Teachers' Retirement Law including the following provisions: Clarifications governing membership in the Defined Benefit Program and eligibility to participate in the Cash Balance Benefit Program. AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 2 of ? Clarifies the types of compensated leave for which compensation is creditable for CalSTRS by adding a definition of "leave of absence" and adding pay for the use of an employer-approved compensated leave of absence to the definition of "creditable compensation." This measure 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. Reduces the number of payments or collections for relatively small amounts by broadening the types of payments and overpayments eligible for dispensation when the amounts are below the threshold. Clarifies that a person's election of membership into the DB Program is irrevocable until the member receives a refund of accumulated retirement contributions, in addition to terminating employment. Allows CalSTRS to grant service credit for unused sick leave reported by employers during the last school year in which the member earns creditable compensation. Makes clarifications with respect to retired members, annuitants and members receiving a disability retirement benefit, and the amount of the reduction due to compensation earned in excess of the earnings limit. Makes various changes to specify and clarify service retirement calculations for members with multiple retirements. Clarifies that only the compensation earned for the performance of retired member or participant activities is AB 991 (Committee on Public Employees, Retirement, and Social Security) Page 3 of ? subject to the applicable postretirement earnings limits (not employer provided health benefits). Clarifies the salary cap for members who are subject to PEPRA. Makes numerous clarifications, typographical corrections, inadvertent code references, and technical changes. Staff Comments: 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. -- END --