BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1352| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- CONSENT Bill No: SB 1352 Author: Committee on Public Employment and Retirement Introduced:2/19/16 Vote: 21 SENATE PUBLIC EMP. & RET. COMMITTEE: 5-0, 4/11/16 AYES: Pan, Morrell, Beall, Hall, Moorlach SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: State teachers retirement SOURCE: California State Teachers' Retirement System DIGEST: This bill makes various technical, conforming, or non-controversial changes to the Education Code related to the California State Teachers' Retirement System (CalSTRS) to improve the administration of the State Teachers' Retirement Plan, which includes the Defined Benefit Program (DB), the Defined Benefit Supplement Program (DBS), and the Cash Balance Benefit Program (CB). ANALYSIS: Existing law: 1) Establishes CalSTRS to provide retirement benefits for school employees, as defined, through the DB, the DBS, and the CB. 2) Requires school employers, as specified, to enroll their employees into mandatory membership into the DB depending on the type of employer (pre K-12 or community college district) and whether that employer offers the CB or if they are a SB 1352 Page 2 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) Contains duplicative Education Code sections with identical section numbers for the definition of "accumulated Defined Benefit Supplemental account balance". The duplicate code sections occurred when two simultaneous bills were chaptered in 2000 and the first was erroneously not "chaptered out" by the second. 5) Provides a disability allowance program for CalSTRS members who joined the system prior to October 16, 1992, and who did not elect to participate in the disability retirement program (members after that date participate in the disability retirement program). The disability allowance provides 50 percent of the member's highest average annual compensation until the member reaches the age to qualify for a service retirement. Upon reaching retirement age, the member then receives the lower of either the disability allowance or the service retirement benefit. The service retirement benefit is based on an age factor, a projected service factor, and a projected final compensation factor determined as if the member had not become disabled. 6) Provides supplemental benefit payments to protect the purchasing power of the member's base allowance. 7) Defines "credited interest". 8) Prescribes conditions under which persons in positions otherwise excluded from membership in the DB may elect to become a member, including the following: transferring from a position that is covered under CalSTRS to one covered under CalPERS; and, working in part-time or substitute position otherwise excluded from the DB but performing creditable SB 1352 Page 3 service. Persons electing membership must do so on a form determined by CalSTRS. 9) States how service shall be credited to the DB; limits a member's creditable service to one credit per school year; and provides that contributions in excess of the amount required for one credit, except certain excluded excess contributions, shall be credited the DBS. 10)Authorizes service credit for a member's unused sick leave upon service retirement and prescribes the calculation used to determine the conversion of sick leave to service credit for members employed by a school employer. 11)Requires, under the federal Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), that qualified pension funds treat returning military service members as if they had no break in service. Existing state statutes governing the DB and CB conform to USERRA. 12)Provides that a disability allowance, a disability retirement benefit, or a service retirement benefit related to a disability becomes effective under specified conditions, including that the effective date of the benefit be later than the last day of the member's creditable service. 13)Authorizes a member who is awaiting the determination of an application for a disability allowance or disability retirement benefit to apply for a service retirement from the DB, if eligible. Upon approval or denial of the pending disability application, the member's retirement allowance is adjusted appropriately. The member is not permitted to opt for a lump sum payment of the DB service retirement during the pendency of the disability application determination. However, a member may take a lump sum from the member's DBS account. 14)Provides to eligible members who receive a service retirement certain enhancement factors to use in calculating the member's retirement allowance, including the following: one year final compensation; a career factor; and a longevity bonus. In determining whether the member has enough service SB 1352 Page 4 credits to qualify for the enhancement factors, existing law credits the member with two-tenths of service credit for each year of unused sick-leave. 15)Authorizes a member to change or cancel the member's option benefit and beneficiary election up to 30 days after the effective date of the member's initial benefit payment. The member must make the change or cancelation on a CalSTRS-provided form and ensure that CalSTRS receives the form within 30 days of the date of the member's signature on the form. 16)Requires interest to continue to accrue on any amount that is retained in the fund but otherwise payable to a member or beneficiary who cannot be located after a good faith attempt. However, no interest accrues on amounts that are made by warrant drawn and subsequently canceled by the State Controller after one year of being unclaimed. Payments revert to the fund and are available to pay the fund's liabilities but should a member or beneficiary later appear with a legal claim, the member or beneficiary shall receive payment. 17)Requires the board to acquire the services of an actuary to provide information, as specified, including an actuarial evaluation of the DB at least every six years and of the CB and DBS plans annually. 18)Provides that members of the CB plan (e.g., part-time employees who didn't qualify for the DB plan) who have separated from employment, attained normal retirement age, and have received an annuity from the CB plan for at least a year may, may terminate their annuity and begin making contributions and receiving employer contributions to the CB plan upon returning to employment performing creditable service and notifying CalSTRS, as specified. This bill: 1)Repeals a duplicative code section that erroneously was never chaptered out and amends the remaining section to clarify that the accumulated DBS account balance is an amount of credits, SB 1352 Page 5 as specified. Sections affected: 22101.5 (added by Chapter 74, Statutes of 2000), 22101.5(added by Chapter 1021, Statutes of 2000) 2)Clarifies which base allowance to use when determining supplemental benefit payments for a member potentially subject to a disability allowance/service retirement conversion. Sections affected: 22106.1, 24410 3)Corrects typographical errors in the section defining "credited interest". Section affected: 22120 4)Clarifies that the form electing membership in CalSTRS for persons who transfer to a CalPERS covered position but have the option to remain in CalSTRS or for persons previously in the CB plan but newly eligible for the DB plan must be received at CalSTRS headquarters office within 30 days after the date of the member's signature on the form. It also clarifies that membership in the DB will become effective beginning the first day of the pay period following the election. Sections affected: 22508, 22508.5, 22509, and 22515 5)Adds conforming statutory references to exclude additional contributions made as part of the full-funding plan for CalSTRS by Chapter 47, Statutes of 2014, from excess contributions that are credited to the DBS. Section affected: 22703 6)Clarifies that when the member is employed by the state instead of a school employer the conversion of sick leave to service credit will be .004 years of service credit for each day of unused sick leave, which is consistent with the time base used to calculate service credit reported by the state. Section affected: 22717 7)Makes changes to statutory provisions administering the DBS plan to conform to the USERRA. Sections affected: 24005, 24105, 24201.5, and 24204. 8)Clarifies that the effective date of a disability related benefit be later than the last day of creditable compensation SB 1352 Page 6 earned rather than the last day of the member's creditable service. This distinction conforms to the statutory intent of requiring a member to exhaust the member's leave before initiating a disability benefit. Sections affected: 24005, 24105, 24201.5, and 24204 9)Clarifies that a member who applies for a service retirement from the DB pending a disability determination and who opts to take a lump sum distribution from the member's DBS account is not eligible for a disability benefit or disability annuity from the DBS. Section affected: 24201.5 10)Clarifies that, when determining whether the member has enough service credits to qualify for specified enhancement factors (e.g., one year final compensation, a career factor, and a longevity bonus), the credit for unused sick-leave to determine the member's eligibility also applies when the member "re-retires" after having previously received a disability allowance, a disability retirement benefit, or a disability-related service retirement. Sections affected: 24209, 24209.3, 24211, 24212, and 24213 11)Clarifies that a specified requirement (that a member make a change or cancelation of an option benefit or beneficiary election on a CalSTRS-provided form within 30 days of the date of the member's signature on the form) also applies to changes or cancelations made due to a dissolution of the member's marriage. Section affected: 24322 12)Clarifies that, in addition to payments made by warrant and canceled by the State Controller, payments rejected via electronic funds transfer shall also not accrue interest when they revert to the fund. Section affected: 24606 13)Makes a technical change fixing an erroneous code reference and clarifies various provisions to recognize that the board does not formerly "adopt" actuarial valuations but bases its decisions on the actuarial valuations provided by the actuary. Sections affected: 25001, 25006, and 26202 14)Eliminates the requirement that an annuitant in the CB plan who wants to terminate the annuity and begin making SB 1352 Page 7 contributions again while performing post-retirement creditable service must have been receiving the annuity for at least a year and must have attained normal retirement age. This technical change aligns the CB plan with similar changes previously made to the DB plan. Sections affected: 26808, 26810 Background CalSTRS sponsors an annual housekeeping bill to make various technical and conforming changes to the Education Code to enable CalSTRS to more effectively administer the Teachers' Retirement Plan. Prior Legislation AB 991 (Assembly Public Employees, Retirement, and Social Security Committee, Chapter 123, Statutes of 2015), the annual housekeeping bill, made various technical and conforming changes to the Education Code to enable CalSTRS to more effectively administer the Teachers' Retirement Plan. SB 1220 (Torres, Chapter 755, Statutes of 2014), the annual housekeeping bill, made various technical and conforming changes to the Education Code to enable CalSTRS to more effectively administer the Teachers' Retirement Plan. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified4/18/16) California State Teachers' Retirement System (source) OPPOSITION: (Verified4/18/16) SB 1352 Page 8 None received ARGUMENTS IN SUPPORT: According to the sponsor, this bill will help ensure continued effective and efficient plan administration for CalSTRS' internal and external customers. Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519 4/20/16 15:58:14 **** END ****