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