BILL ANALYSIS                                                                                                                                                                                                    Ó



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          Date of Hearing:   June 22, 2016


           ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL  
                                      SECURITY


                                  Rob Bonta, Chair


          SB  
          1352 (Committee on Public Employment and Retirement) - As  
          Amended May 27, 2016


          SENATE VOTE:  39-0


          SUBJECT:  State teachers' retirement


          SUMMARY:  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 (DB) Program, the  
          Defined Benefit Supplement (DBS) Program, and the Cash Balance  
          (CB) Benefit Program.  Specifically, 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 Program account balance is an amount of  
            credits, as specified.



          2)Clarifies that the base allowance used to calculate  








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            supplemental payments for members converting to service  
            retirement after the termination of their disability allowance  
            is the lesser of the two allowances determined at conversion,  
            as specified.



          3)Corrects typographical errors in the section defining  
            "credited interest".



          4)Repeals the current definition of "break in service,"  
            including eliminating a superfluous provision for career  
            substitute teachers.



          5)Defines "school term" consistent with current law and  
            applicable school calendars.

          6)Specifies within the "final compensation" definitions that  
            periods of service for determining final compensation include  
            full pay periods in which members earn compensation, periods  
            prior to the school term when members earn compensation during  
            the first pay period, periods following the school term when  
            members earn compensation during the last pay period and  
            periods in the middle of the school term when members earn  
            compensation during the immediately preceding and immediately  
            following pay periods.



          7)Clarifies that the prohibition on using full pay periods  
            beyond the benefit effective date does not apply with regards  
            to the final pay period of the school term.











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          8)Repeals the definition of "final compensation" that allows for  
            36 months of service to be used that are consecutive except  
            for periods in which an employer certifies that there has been  
            a reduction in school funds and moves that language to the  
            definition of 36-month final compensation.



          9)Specifies that final compensation for concurrent retirement  
            can use "compensation for services rendered on a full-time  
            basis" under the other retirement system rather than the  
            CalSTRS-defined "compensation earnable."





          10)Conforms the definition of "final compensation" to the  
            definition of "concurrent retirement" by stating that it is  
            only available when a member retires "for service" from each  
            system, rather than retires for disability.



          11)Clarifies that when additional months are needed to calculate  
            final compensation, they come from the member's first school  
            year, rather than first position.



          12)Requires non-service-based benefits for all members to be  
            calculated using the average annual creditable compensation  
            earned by a member over 36 or 12 months, consistent with the  
            current calculation for part-time members, eliminating the  
            need to determine subjectively whether a member is working  
            part time when calculating benefits intended to provide income  
            replacement.










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          13)Specifies that membership election forms must be received by  
            CalSTRS within 30 days of the member's signature.



          14)Adds conforming statutory references to exclude additional  
            contributions made as part of the full-funding plan for  
            CalSTRS by AB 1469 (Bonta), Chapter 47, Statutes of 2014, from  
            excess contributions that are credited to the DBS Program.



          15)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.



          16)Makes changes to statutory provisions administering the DBS  
            Program to conform to the federal Uniformed Services  
            Employment and Reemployment Rights Act of 1994 (USERRA).



          17)Specifies that beginning on July 1, 2018, contributions to  
            DBS and CB accounts will be credited on a specific day  
            following the period for which the contributions are earned  
            thereby ensuring that DBS and CB Benefit program benefits  
            accrue in a definitely determinable and predictable manner.



          18)Clarifies that the effective date of a disability related  
            benefit be later than the last day of creditable compensation  
            earned rather than the last day of the member's creditable  
            service.  This distinction conforms to the statutory intent of  








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            requiring a member to exhaust the member's leave before  
            initiating a disability benefit.



          19)Clarifies that a member who applies for a service retirement  
            from the DB Program 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.



          20)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.



          21)Clarifies that in the event of the dissolution of marriage,  
            option cancellations are required to be made on a properly  
            executed form provided by CalSTRS.



          22)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.



          23)Makes a technical change fixing an erroneous code reference  
            and clarifies various provisions to recognize that the board  








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            does not formerly "adopt" actuarial valuations but bases its  
            decisions on the actuarial valuations provided by the actuary.



          24)Clarifies that all CB participants employed to perform  
            creditable service subject to coverage by the CB Benefit  
            Program who are receiving an annuity may terminate the annuity  
            to make contributions to the plan regardless of their age or  
            the length of time they have received the annuity, as  
            specified.  



          EXISTING LAW: 





          1)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.



          2)Provides benefit recipients whose monthly benefit has not kept  
            pace with inflation a quarterly supplemental payment.  Prior  
            to January 1, 2014, Education Code section 24410 outlined the  
            base date used for the purpose of determining postretirement  
            allowance increases for members who convert to service  
            retirement (SR) after the termination of their disability  
            allowance (DA) without returning to employment, pursuant to  
            Education Code section 24212 or 24213. Although these sections  
            specifically require a comparison calculation for the benefit  
            to ensure that the member will receive no more than the  








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            terminated disability allowance, the law was silent regarding  
            the base allowance amount used to determine supplemental  
            purchasing power payments.  In an effort to clarify the law,  
            AB 1379 (PER&SS Committee), Chapter 558, Statutes of 2013,  
            included language specifying that under all circumstances, the  
            base allowance shall be the original DA allowance.  However,  
            during planning implementation, this change was found to have  
            serious unintended consequences by providing increase  
            supplemental payments that offset any decreases resulting when  
            the retirement calculation is determined using a lower service  
            credit-based SR calculation.  The intent was and always has  
            been to use the service credit-based SR calculation for the  
            base allowance for those members whose SR amount is the lesser  
            of the two calculations.



          3)Contains in the current definition of "credited interest"  
            surplus commas that change the meaning of the provision to be  
            nonsensical.



          4)Provides, generally, that final compensation is calculated  
            using 36 or 12 months that are consecutive except that periods  
            of service separated by "breaks in service" may be aggregated.  
             Because teachers are often employed from September through  
            June, the definition of "break in service" specifically  
            excludes "months not recognized as part of the school term" if  
            a member begins teaching at the beginning of the school term.   
            As a result, if the first day of the school term is in  
            September and a member does not earn creditable compensation  
            in July or August, July and August will be included in the  
            calculation of final compensation.  Although CalSTRS has  
            interpreted this requirement to provide that months not  
            recognized as part of the school term could additionally  
            include months during winter intersession or June for school  
            terms ending in May, there is no separate definition of school  
            term in current law, and the specific mechanics of the  








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            calculation are similarly lacking.  In addition, the Teachers'  
            Retirement Board may determine a different final compensation  
            for certain types of non-service-based benefits.  For example,  
            under CalSTRS disability benefits, a typical benefit is based  
            on a percentage of a member's final compensation that is fixed  
            in statute, regardless of service credit.  To determine, final  
            compensation for part-time service, the compensation earnable  
            "shall be adjusted by the ratio that part-time service bears  
            to full-time service."  This calculation is intended to  
            provide a benefit that adequately replaces the income a member  
            was receiving prior to a disability or death.



          5)Provides for several different ways employees can elect DB  
            Program membership.  However, none of the laws concerning  
            election specify that the election form must be submitted to  
            CalSTRS within any specific time frame.  Other sections of law  
            require that forms be received by the system within 30 days of  
            the specified qualifying event, including the election of  
            disability and death benefit coverage, conditions for service  
            retirement allowance and pre-retirement option election  
            changes.



          6)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.



          7)Grants service credit in the DB Program for a member's unused  
            sick leave when the member retires for service. The Education  
            Code prescribes the calculation of service credit for  
            employees of California public schools.  However, it does not  
            address the calculation for DB members who are employed by a  








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            state agency.



          8)Requires, under USERRA, that qualified pension plans treat  
            returning military service members as if they had not incurred  
            a break in service. CalSTRS initially implemented USERRA's  
            requirements with regards to benefits provided under the DB  
            Program and the CB Benefit Program. However, no changes were  
            made to codify USERRA's requirements as they relate to the DBS  
            Program when it was established in 2001.



          9)Specifies generally that contributions to the CB Benefit  
            Program and the DBS Program be credited to a member's account  
            upon receipt by the system.  Both programs have been  
            determined by the Internal Revenue Service to be "definitely  
            determinable" because contributions are credited based on a  
            specified percentage of earnings, and interest is credited at  
            a pre-determined minimum interest rate.  As a result, two  
            members earning the exact same amount could accumulate  
            different benefits (via interest credits) because although one  
            employer could remit contributions in a timely manner, another  
            employer could remit the required contributions late.



          10)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.



          11)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  








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            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.



          12)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 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.



          13)Provides, generally, that retired and disabled members may  
            cancel or change option benefit and beneficiary elections up  
            to 30 days after the effective date of the member's initial  
            benefit payment, and the law requires such changes to be made  
            on a form provided by the system.  However, the section of law  
            governing cancellation of an option in the event of  
            dissolution of marriage does not prescribe such a form which  
            allows for inconsistent application of the law because CalSTRS  
            must honor the member's request, regardless of the written  
            format.



          14)Requires CalSTRS to add interest if a payment has not been  
            made because, after a good faith effort, the member or  
            beneficiary cannot be located.  Additionally, another  
            provision of the Education Code clearly states that when a  
            payment has been issued, but remains unclaimed, no interest  








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            shall accrue.  However, that section only applies when a  
            warrant is cancelled by the State Controller's Office after  
            the warrant is unclaimed for one year.  As a result, the law  
            is silent regarding the interest that may or may not accrue  
            when a payment is returned to CalSTRS or the State  
            Controller's Office within 12 months or when an electronic  
            funds transfer is rejected.



          15)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.



          16)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 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.



          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.


          COMMENTS:  According to the sponsor, CalSTRS, this bill will  
          help ensure continued effective and efficient plan  
          administration for CalSTRS' internal and external customers.  












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          REGISTERED SUPPORT / OPPOSITION:




          Support


          California State Teachers' Retirement System (Sponsor)




          Opposition


          None on file




          Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)  
          319-3957