BILL ANALYSIS Ó
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 1875 (Chávez) - State teachers' retirement: option
beneficiaries: trusts
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|Version: April 11, 2016 |Policy Vote: P.E. & R. 5 - 0 |
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|Urgency: No |Mandate: No |
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|Hearing Date: August 8, 2016 |Consultant: Robert Ingenito |
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This bill does not meet the criteria for referral to the
Suspense File.
Bill
Summary: AB 1875 would allow CalSTRS Defined Benefit (DB)
Program members and Cash Balance (CB) Benefit Program
participants to designate a specific type of trust established
for a disabled individual (often called a "special needs trust")
to be an option beneficiary or annuity beneficiary and receive a
benefit for the duration of the disabled individual's lifetime.
Fiscal
Impact: The bill would result in minor and absorbable costs for
the development of forms, publications, web content, and staff
training.
Background: Under current law, CalSTRS DB Program members and CB Benefit
AB 1875 (Chávez) Page 1 of
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Program participants can elect to receive an actuarially reduced
lifetime benefit and, in exchange, can name an option
beneficiary or annuity beneficiary who will receive a lifetime
allowance upon the member's or participant's death. However, the
beneficiary must be a person, and election of a trust as an
option beneficiary is prohibited.
Special needs trusts shield the assets and income of disabled
individuals from disqualifying them from eligibility for public
benefits and services. Since trusts currently are prohibited
from being named as an option or annuity beneficiary, a member
or participant who wishes to provide a lifetime benefit to a
disabled person cannot do so without jeopardizing that
individual's eligibility for other public benefits.
Proposed Law:
This bill would do all of the following:
Include 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.
Require 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.
Permit 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.
Require a member or participant to provide specified
documentation if a trust is designated, including a
certification that the trust meets relevant requirements.
AB 1875 (Chávez) Page 2 of
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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.
Allow a trustee to name a beneficiary to receive
payments 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.
Provide 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.
Staff
Comments: As noted above, entities with no termination date,
such as corporations and trusts, cannot be option beneficiaries
since they can "live forever." However, when making estate
plans to care for disabled adult children, 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).
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