BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1875| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1875 Author: Chávez (R) Amended: 4/11/16 in Assembly Vote: 21 SENATE PUBLIC EMP. & RET. COMMITTEE: 5-0, 6/13/16 AYES: Pan, Morrell, Beall, Hall, Moorlach SENATE APPROPRIATIONS COMMITTEE: 7-0, 8/11/16 AYES: Lara, Bates, Beall, Hill, McGuire, Mendoza, Nielsen ASSEMBLY FLOOR: 79-0, 5/5/16 (Consent) - See last page for vote SUBJECT: State teachers retirement: option beneficiaries: trusts SOURCE: Author DIGEST: This bill amends the definition of option beneficiary in the defined benefit (DB) program 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: 1)Allows DB members to receive an actuarial modified retirement AB 1875 Page 2 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 issued for the month of the trust beneficiary's death and any contributions and interest remaining in the member's account, AB 1875 Page 3 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. Comments 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." FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No AB 1875 Page 4 According to the Senate Appropriations Committee, this bill will result in minor and absorbable costs for the development of forms, publications, Web content, and staff training. SUPPORT: (Verified 8/11/16) None received OPPOSITION: (Verified8/11/16) None received ASSEMBLY FLOOR: 79-0, 5/5/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, 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, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NO VOTE RECORDED: Beth Gaines Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519 8/15/16 20:35:47 **** END **** AB 1875 Page 5