BILL ANALYSIS                                                                                                                                                                                                    Ó




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          |SENATE RULES COMMITTEE            |                       SB 1352|
          |Office of Senate Floor Analyses   |                              |
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                                      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  








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             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  








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             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  








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             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,  








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            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  








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            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  








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            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)










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          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


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