BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1352|
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UNFINISHED BUSINESS
Bill No: SB 1352
Author: Committee on Public Employment and Retirement
Amended: 5/27/16
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
SENATE FLOOR: 39-0, 4/21/16 (Consent)
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,
Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,
Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone,
Vidak, Wieckowski, Wolk
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR: 77-0, 8/4/16 (Consent) - See last page for
vote
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 (EDC) 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).
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Page 2
Assembly Amendments make technical and conforming changes and
consolidate definitions relating to "break in service", final
compensation, concurrent retirement, "school term" and other
related terms and calculations.
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
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 EDC 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.
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5) Provides benefit recipients whose monthly benefit has not
kept pace with inflation a quarterly supplemental payment.
Prior to January 1, 2014, EDC 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
EDC 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
terminated DA, 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
(Committee on Public Employees, Retirement, and Social
Security, 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.
6) Contains in the current definition of "credited interest"
surplus commas that change the meaning of the provision to be
nonsensical.
7) 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
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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 calculation are similarly lacking. In
addition, the Teachers' Retirement Board (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.
8) 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.
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)Grants service credit in the DB Program for a member's
unused sick leave when the member retires for service. The
EDC prescribes the calculation of service credit for
employees of California public schools. However, it does not
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address the calculation for DB members who are employed by a
state agency.
11)Requires, under the federal Uniformed Services Employment
and Reemployment Rights Act of 1994 (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.
12)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.
13)Provides that a DA, 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.
14)Authorizes a member who is awaiting the determination of an
application for a DA 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
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of the disability application determination. However, a
member may take a lump sum from the member's DBS account.
15)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.
16)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.
17)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 EDC clearly states that when a payment has
been issued, but remains unclaimed, no interest shall accrue.
However, that section only applies when a warrant is
cancelled by the State Controller's Office (SCO) 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 SCO within 12 months
or when an electronic funds transfer is rejected.
18)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
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and DBS plans annually.
19)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.
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
supplemental payments for members converting to service
retirement after the termination of their DA 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
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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.
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
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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.
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 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 requiring a member to exhaust the member's leave before
initiating a disability benefit.
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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 DA, 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
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.
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Background
CalSTRS sponsors an annual housekeeping bill to make various
technical and conforming changes to the EDC to enable CalTRS to
more effectively administer the Teachers' Retirement Plan.
Related/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 EDC 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 EDC to enable CalSTRS to more effectively administer the
Teachers' Retirement Plan.
FISCAL EFFECT: Appropriation: No Fiscal
Com.:YesLocal: No
According to the Assembly Appropriations Committee, this bill
results in negligible state costs.
SUPPORT: (Verified8/5/16)
California State Teachers' Retirement System (source)
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OPPOSITION: (Verified8/5/16)
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.
ASSEMBLY FLOOR: 77-0, 8/4/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chiu, Chu, Cooper, Dababneh,
Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher,
Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez,
Gonzalez, Gordon, Gray, Grove, Hadley, Harper, 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: Chávez, Cooley, Roger Hernández
Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519
8/5/16 14:25:16
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