BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 991|
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THIRD READING
Bill No: AB 991
Author: Committee on Public Employees, Retirement, and Social
Security
Amended: 6/1/15 in Senate
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE: 4-0, 6/8/15
AYES: Pan, Morrell, Beall, Hall
NO VOTE RECORDED: Fuller
SENATE APPROPRIATIONS COMMITTEE: 5-0, 6/22/15
AYES: Lara, Beall, Hill, Leyva, Mendoza
NO VOTE RECORDED: Bates, Nielsen
ASSEMBLY FLOOR: 78-0, 4/23/15 (Consent) - See last page for
vote
SUBJECT: State teachers retirement
SOURCE: California State Teachers Retirement System
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
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(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.
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."
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.
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.
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.
8)Authorizes substitute teachers and part-time employees who are
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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.
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.
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 is
necessary and would result in net savings, as specified.
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.
12)Creates a long-term plan to address full funding for CalSTRS
by increasing stakeholder contributions, as specified.
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.
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.
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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.
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.
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.
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.
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.
20)Provides that where two or more legislative bills amend the
same code section, the section in the last bill chaptered
shall prevail.
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This bill:
1) Clarifies the Cash Balance program (CB) is for persons
employed 1) 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
2) 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
3) Clarifies that service attributable to compensation 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
4) Corrects or eliminates erroneous or obsolete statutory
references in the provisions noted in existing law #6 above.
Sections affected: 22141, 22509, 26602.5, 26142.5, 26400,
26401, 26807.6, 26906.6, 27100
5) 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
6) 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
7)Clarifies that eligible members on compensated leave as an
elected officer of an employee organization as referenced in
existing law #9 above 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,
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87768.5
8) Provides that an employer who offers a retirement incentive
program to its employees shall submit documentation, as
specified, to CalSTRS within 30 calendar days after the last
day of the program's eligibility window period. Section
affected: 22714
9) Adds to existing law conforming code sections to reference
pension contributions required under the CalSTRS full-funding
plan of 2014. Sections affected: 22900, 22903, 22950, 23001
10)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
11)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
12)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
13)Clarifies that employer payments for health care coverage
are not included in the postretirement compensation
limitations as described in existing law #15 above. Sections
affected: 24214, 24214.5, 26812
14)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
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180 days following the member's retirement date. Section
affected: 26132
15)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
16)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
17)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
18)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 1381 (Assembly Public Employees, Retirement and Social
Security Committee, Chapter 559, Statutes of 2013) made
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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.:YesLocal: No
According to the Senate Appropriations Committee, this bill
would result in one-time costs of $90,000-$100,000 to CalSTRS
(Special Fund) for database changes associated with broadening
the types of payments and collection of overpayments eligible
for dispensation.
SUPPORT: (Verified6/23/15)
California State Teachers' Retirement System (source)
OPPOSITION: (Verified6/23/15)
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.
ASSEMBLY FLOOR: 78-0, 4/23/15
AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom,
Bonilla, Bonta, Brough, Brown, Burke, Calderon, Chang, Chau,
Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly,
Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina
Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez,
Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden,
Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder,
Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina,
Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen,
Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez,
Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner,
Waldron, Weber, Wilk, Williams, Wood, Atkins
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NO VOTE RECORDED: Campos, Salas
Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519
6/23/15 16:34:12
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