BILL ANALYSIS Ó
SENATE COMMITTEE ON
PUBLIC EMPLOYMENT AND RETIREMENT
Dr. Richard Pan, Chair
2015 - 2016 Regular
Bill No: SB 1353 Hearing Date: 8/15/16
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|Author: |Pan |
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|Version: |6/8/16 As amended |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Glenn Miles |
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Subject: State Teachers' Retirement System: funding
SOURCE: California State Teachers' Retirement System
ASSEMBLY VOTES:
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|Assembly Floor: |77 - 0 |
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|Assembly Appropriations |18 - 0 |
|Committee: | |
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|Assembly Public Employees, |6 - 0 |
|Retirement/Soc Sec Committee: | |
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DIGEST: This bill previously dealt with pension fund
divestments but was substantially amended in the Assembly. Now
the bill makes necessary technical changes to eliminate possible
confusion over how to calculate the applicable unfunded
actuarial obligation (UAO) when determining future adjustments
to the state contribution rate pursuant to the 2014 CalSTRS Full
Funding Plan.
ANALYSIS:
Existing law:
SB 1353 (Pan) Page 2 of ?
1)Establishes the California State Teachers' Retirement System
(CalSTRS) and creates the Defined Benefit (DB) program, which
provides a defined benefit to CalSTRS members, based on final
compensation, credited service, and age at retirement, as
specified.
2)Funds the DB program through employer and employee
contributions, investment returns, and state appropriations as
prescribed.
3)Establishes the Full Funding Plan pursuant to AB 1469 (Bonta),
Chapter 47, Statutes of 2014, to address the DB program's
unfunded actuarial obligation (UAO) by June 30, 2046. Under
the plan, teachers', employers', and the state's contribution
rates increase beginning July 1, 2014, as specified. The plan
further requires the CalSTRS Board to adjust the state
contribution rate within a specified range beginning fiscal
year 2017-18, and each fiscal year thereafter, to reflect the
contribution required to assist in eliminating the UAO by June
30, 2046.
This bill:
1)Clarifies that state contribution rate changes made by
legislation prior to the AB 1469 Full Funding Plan continue to
be allocated, as before AB 1469, to the post 1990 UAO and that
state contribution rate changes required by the Full Funding
Plan apply to the 1990 UAO (and only to the 1990 UAO).
Background
Legislation in the 1990s provided for specified changes in state
contribution rates and benefit plan benefit changes. Under
those legislative changes, adjustments in contribution rates
that occurred after July 1, 1990, are excluded from the
calculation of the UAO to which CalSTRS applies the state
appropriation. This language was intended to segregate the UAO
of the 1990 DB benefit plan from any UAO that might occur from
changes made after July 1, 1990, and hold the state harmless
from liability arising out of the post 1990 changes.
AB 1469 included a similar provision that was intended to mirror
the language segregating the 1990 benefit plan UAO so that the
Full Funding Plan's increased state contribution would be
allocated only to the 1990 UAO and not to the UAO attributable
SB 1353 (Pan) Page 3 of ?
to plan changes after July 1, 1990. The intent of this language
was to continue to hold the state harmless for post 1990 benefit
plan changes.
CalSTRS believes that due to inartful drafting, the provision
could be misinterpreted in the future to require all state
appropriations from prior to the Full Funding plan to be used to
pay down the 1990 UAO. The apparent effect of such an
interpretation would be to eliminate the 1990 UAO much earlier
than anticipated and increase exponentially the remaining post
1990 UAO such that it could not be paid down by 2046, if at all,
as intended by the Full Funding Plan.
This technical bill clarifies that the post 1990 state rate
changes made prior to AB 1469 will continue as previously
administered (i.e., they will not be applied to the 1990 UAO
calculation and will instead continue to apply to the post 1990
UAO calculation).
The bill will also ensure that the AB 1469 state rate changes,
that technically are also post 1990 state rate changes, will not
be caught in the technical language prohibiting post 1990 state
rate changes from being used in the calculation of the 1990 UAO.
This will ensure that the AB 1469 state rate changes are
applied to the 1990 UAO and not the post 1990 UAO.
Related/Prior Legislation
AB 1469 (Bonta, Chapter 47, Statutes of 2014) created the
CalSTRS Full Funding Plan to address the system's unfunded
actuarial obligation by June 30, 2046.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: Yes Local: No
SUPPORT:
California State Teachers' Retirement System (source)
OPPOSITION:
None received
ARGUMENTS IN SUPPORT: According to the sponsor, SB 1353 is
SB 1353 (Pan) Page 4 of ?
necessary to avoid confusion in the future about how to adjust
the state's contribution rate to CalSTRS and is consistent with
the original intent of the 2014 Full Funding Plan.