BILL ANALYSIS
AB 1852
Page 1
Date of Hearing: May 5, 2004
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Judy Chu, Chair
AB 1852 (Mullin) - As Amended: March 18, 2004
Policy Committee: PERSSVote:9-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill authorizes several benefit increases for members of
the CalSTRS Defined Benefit (DB) plan. Specifically, this bill:
1)Nonconsecutive 3-Year Final Compensation . Authorizes the use
of three nonconsecutive school years of employment for the
purpose of calculating final compensation.
2)25 and Out . Reduces the number of years of credited service
required to retire at age 50 from 30 years to 25 years.
3)Lump-Sum Longevity Bonus . Authorizes a member who retires
with a longevity bonus to receive a lump sum payment equal to
the actuarial present value of the longevity bonus in lieu of
increased monthly payments.
4)Employee Contribution Exemption for Military Service . Exempts
members from paying employee contributions for the period of
time served in the armed forces, not to exceed one year, if
the period of service occurred between September 11, 2001 and
July 30, 2005.
FISCAL EFFECT
1)Nonconsecutive 3-Year Final Compensation . CalSTRS estimates
that the total present value cost for the three-year
nonconsecutive final compensation benefit to be approximately
$164 million over a 30-year period, requiring an increase in
employer contributions of $11 million annually, beginning in
2005-06.
2)25 and Out . CalSTRS estimates that the total present value
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cost for members to retire at age 50 with at least 25 years of
credited service to be approximately $188 million over a
30-year period, requiring an increase in employer
contributions of $11 million annually, beginning in 2005-06.
3)Lump-Sum Longevity Bonus . CalSTRS notes (but did not estimate
the impact) that allowing members to receive their longevity
bonus could have an actuarial impact on the Teachers'
Retirement Fund (TRF), if members who know they will die early
elect to receive a lump-sum payment.
4)Employee Contribution Exemption for Military Service . CalSTRS
estimates that exempting members from their employee
contribution requirement for their period of military service
for the defined period would result in a cost to the TRF of
approximately $1 million.
5)Administrative Costs . CalSTRS estimates one-time
administrative costs of $148,000, in 2004-05.
COMMENTS
1)Purpose . This bill contains several benefit increases for
members of the CalSTRS DB plan endorsed by the sponsor, the
California Teachers' Association.
2)Background . CalSTRS DB Program allows a member to retire at
age 55 with 5 years of service credit, or age 50 with 30 years
of service credit. A member's benefit is equal to a
percentage of final compensation per year of service. That
percentage, known as the "age factor," increases with age from
1.1 percent at age 50 to 2.4 percent at age 63. Final
compensation, for members with 25 or more years of service, is
defined as the highest average annual compensation earnable by
the member during a period of 12 consecutive months in a
school year while an active member of the DB Program. For
members with fewer than 25 years of service, final
compensation is generally defined as the highest average
annual compensation earnable by the member during a period of
three consecutive school years while an active member of the
DB Program.
For members with at least 30 years of service credit, the age
factor is increased by a "career factor" equal to 0.2 percent,
although the combined age factor and career factor cannot
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exceed 2.4 percent. Members who accumulate at least 30 years
of credited service by January 1, 2011, also receive a
"longevity bonus." This bonus is added to the unmodified
lifetime monthly retirement allowance and is equal to $200 per
month for 30 years of service, $300 for 31 years, and $400 for
32 or more years.
In addition, members who are at least age 60 and have an age
factor, including any career bonus, in excess of 2 percent may
elect at the time of retirement to receive the amount of the
monthly benefit in excess of 2 percent of final compensation
per year of service as a lump-sum payment.
Members of the CalSTRS DB Program may purchase additional
service credit for their time spent on military duty away from
employment. CalSTRS employers pay their normal contribution
for their returning employees' military service.
Analysis Prepared by : Stephen Shea / APPR. / (916) 319-2081