BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1353| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- UNFINISHED BUSINESS Bill No: SB 1353 Author: Pan (D) Amended: 6/8/16 Vote: 21 PRIOR VOTES NOT RELEVANT SENATE PUBLIC EMP. & RET. COMMITTEE: 5-0, 8/15/16 (Pursuant to Senate Rule 29.10 (d)) AYES: Pan, Morrell, Beall, Hall, Moorlach ASSEMBLY FLOOR: 77-0, 8/4/16 (Consent) - See last page for vote SUBJECT: State Teachers' Retirement System: funding SOURCE: California State Teachers' Retirement System DIGEST: This 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 California State Teachers' Retirement System (CalSTRS) Full Funding Plan. Assembly Amendments delete the Senate version of this bill relating to pension fund divestments and instead now clarify 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). SB 1353 Page 2 ANALYSIS: Existing law: 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 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 SB 1353 Page 3 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 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.:YesLocal: No According to Assembly Appropriations Committee this bill would SB 1353 Page 4 result in no additional state costs. SUPPORT: (Verified8/15/16) California State Teachers' Retirement System (source) OPPOSITION: (Verified8/15/16) None received ARGUMENTS IN SUPPORT: According to the sponsor, SB 1353 is 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. 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:Irene Reteguin / P.E. & R. / (916) 651-1519 8/15/16 20:58:49 **** END **** SB 1353 Page 5