BILL ANALYSIS Ó
SENATE COMMITTEE ON
PUBLIC EMPLOYMENT AND RETIREMENT
Dr. Richard Pan, Chair
2015 - 2016 Regular
Bill No: AB 1875 Hearing Date: 6/13/16
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|Author: |Chávez |
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|Version: |4/11/16 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: option beneficiaries:
trusts
SOURCE: Author
ASSEMBLY VOTES:
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|Assembly Floor: |79 - 0 |
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|Assembly Appropriations |19 - 0 |
|Committee: | |
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|Assembly Public Employees, |7 - 0 |
|Retirement/Soc Sec Committee: | |
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DIGEST: This bill amends the definition of option beneficiary
in the defined benefit program (DB) and annuitant beneficiary in
the cash balance (CB) program of the California State Teachers'
Retirement System (CalSTRS) to include a special needs trust
that meets specified requirements under federal law and is
established for a DB member's or CB participant's disabled
child, grandchild, or legal ward.
ANALYSIS:
Existing law:
AB 1875 (Chávez) Page 2 of ?
1)Allows DB members to receive an actuarial modified retirement
allowance and elect an option beneficiary to receive a
lifetime allowance upon the retiree's death.
2)Allows CB participants to receive an actuarial modified
annuity and elect an option beneficiary to receive a lifetime
annuity upon the participant's death.
3)Requires that the DB or CB option beneficiary be a person and
prohibits the naming of corporate or trust entities as
beneficiaries. This requirement ensures that the benefit is
paid only over the actuarial determinable span of two lives.
This bill:
1)Includes special needs trusts, as specified, in the CalSTRS
definition of option beneficiary for purposes of receiving a
lifetime retirement allowance or annuity under the DB and CB
plans. The trust must meet specified requirements under
federal law and be established for a DB member's or CB
participant's disabled child, grandchild, or legal ward.
2)Requires that the beneficiary of the trust be considered the
designated option beneficiary for the purpose of determining
eligibility for, and the amount and determination of,
benefits.
3)Allows a member or participant to change an existing
beneficiary designation without penalty to designate a special
needs trust as a beneficiary, if the trust's beneficiary was
the member's or participant's previously named option
beneficiary.
4)Requires a member or participant to provide specified
documentation if a trust is designated, including a
certification that the trust meets relevant requirements.
Trustees acting at the time of the death of the member or
participant would be required to provide a similar
certification and additionally certify that the trust has not
been revoked, modified or amended in a manner that would cause
the certification to be incorrect.
5)Allows a trustee to name a beneficiary to receive payments
AB 1875 (Chávez) Page 3 of ?
issued for the month of the trust beneficiary's death and any
contributions and interest remaining in the member's account,
unless the terms of the trust specify otherwise.
6)Provides that the Teachers' Retirement Board (Board) is not
required to determine the powers of a trustee or the validity
of a trust and, provided the Board acts in good faith,
immunizes the Board, system and plan from liability.
Background
According to the author, "The current code correctly states that
entities with no termination date (e.g. corporation, trust,
public entity or parochial institution) cannot be option
beneficiaries since they can "live forever". However, when
making estate plans to care for disabled adult children, many
parents use Special Needs Trusts or Supplemental Needs Trusts.
These irrevocable trusts terminate upon the death of the
beneficiary of said trusts (the disabled child). Allowing
Supplemental Needs Trusts or Special Needs Trusts to be the
option beneficiary would have no monetary effect on the State
and would greatly assist those who truly need some help."
Under federal law, a parent, grandparent or court can establish
a special needs trust for a disabled individual to shield the
assets and income of the trust from disqualifying him or her
from eligibility for public benefits, such as Medi-Cal or
Supplemental Security Income, and from barring his or her access
to support services that require eligibility for those benefits.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: According to the author, "As a parent
of a disabled child, I know firsthand the challenges that many
families face when making sure that their child's needs are met.
The State has a responsibility to make sure we strive to
provide assistance to those who truly need help, especially
those in our disabled community."
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