BILL ANALYSIS Ó
AB 991
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB
991 (Committee on Public Employees, Retirement, and Social
Security)
As Amended June 1, 2015
Majority vote
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|ASSEMBLY: | 78-0 | (April 23, |SENATE: |39-0 | (June 29, 2015) |
| | |2015) | | | |
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Original Committee Reference: P.E., R., & S.S.
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% of a full-time position.
b) On a temporary basis by a community college district.
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c) As a substitute employee.
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)Clarifies the types of compensated leaves of absence for which
compensation is creditable.
4)Defines "credited service" so that service for which
compensation is in excess of the Internal Revenue Code Section
401(a)(17) limit, and no contributions are paid, is deemed to
be credited service.
5)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."
6)Broadens the types of payments and overpayments eligible for
dispensation when the amounts are below a specified threshold.
7)Corrects a reference in the statute that requires a member's
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election of a retirement system to be filed with the
appropriate system to correctly refer to Education Code
Section 22508 (c).
8)Clarifies that a person's election of membership into the
Defined Benefit (DB) Program is irrevocable until the member
receives a refund of accumulated retirement contributions, in
addition to terminating employment.
9)Clarifies that members may receive up to 12 years of service
credit for service as an elected officer of an employee
organization while on a compensated leave of absence.
10)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.
11)Clarifies that CalSTRS may grant service credit for unused
sick leave reported by employers during the last school year
in which the member earns creditable compensation.
12)Adds references to code sections regarding the CalSTRS
full-funding plan where they are necessary.
13)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
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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
ii) The amount of the allowance payable during the first
180 calendar days from the effective date of the benefit.
14)Makes various changes to specify and clarify service
retirement calculations for members with multiple retirements.
15)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.
16)Corrects an incorrect reference relating to exceptions for
provisions in state law conflicting with federal law for
registered domestic partners.
17)Clarifies that the calculation for the annual adjustment to
the compensation cap does not require using the initial
compensation cap set by the Public Employees' Pension Reform
Act of 2013 (PEPRA) in 2013 for years after 2014.
18)Defines "system's headquarters office" and removes
unnecessary references to Section 22375 in Part 14 of the TRL.
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19)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.
The Senate amendments make additional clarifying, technical and
conforming changes to the TRL.
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
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% of a
full-time position.
b) Community college district:
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i) On a part-time or temporary basis not subject to
mandatory membership in the DB Program; or
ii) For not more than 67% of a full-time position.
c) Governing body of a school district or community college
district as a trustee.
2)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."
3)Defines "credited service" as service for which the required
contributions have been paid. However, there is a limit
established by Internal Revenue Code Section 401(a)(17) 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.
4)Provides an increase of 2% to the minimum guaranteed allowance
payable to retired members, their option beneficiaries and
surviving spouses. AB 429 (Correa), Chapter 1027, Statutes of
2000, added Section 24410.7 to the Education Code and amended
Section 22141 to include Section 24410.7 in the 2% 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.
5)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
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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.
6)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. Education Code
Section 22508 (c) 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 Education Code Section 22508 (b).
7)Allows substitute teachers and part-time employees otherwise
excluded from mandatory membership to elect membership in the
DB Program at any time while employed to perform creditable
service. As currently worded, the law specifies that the
election is irrevocable and is to remain in effect until the
member terminates employment. This had led some employers and
members to incorrectly interpret the law to mean that an
individual may make a new election if he or she terminates
employment with on employer and begins employment with
another.
8)Authorizes up to 12 years of service credit for specified time
on compensated leave as an elected officer of an employee
organization.
9)Establishes the Retirement Incentive Program but does not
specify the time period during which an employer is required
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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.
10)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.
11)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.
12)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
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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.
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.
15)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.
16)Permits establishing a registered domestic partnership by
filing a Declaration of Domestic Partnership with the
Secretary of State. Existing law also confers on registered
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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.
17)Defines "salary" for participants in the CB subject to PEPRA,
as specified, and limits salary to 120% 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% 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)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 (Public Employees,
Retirement, and Social Security Committee), Chapter 558,
Statutes of 2013, defined "system's headquarters office" in
Part 13 of the TRL and removed references to Section 22375 in
multiple sections of law. However, the removal of the
reference was not provided for in Part 14 of the TRL.
19)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.
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FISCAL EFFECT: According to the Senate Appropriations
Committee, one-time costs of $90,000 to $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.
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."
Analysis Prepared by:
Karon Green / P.E., R., & S.S. / (916) 319-3957
FN:
0001060