BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 1852
Nell Soto, Chair Hearing date: June 14, 2004
AB 1852 (Mullin) as amended May 20, 2004 FISCAL: YES
STRS: MILITARY SERVICE CREDIT CHANGES AND LUMP SUM PAYMENT
TO RETIRING MEMBERS
HISTORY :
Sponsor: California Teachers Association (CTA)
Prior legislation: None
ASSEMBLY VOTES :
PER & SS 9-0 4/21/04
Appropriations 16-5 5/19/04
Assembly Floor 70-6 5/25/04
SUMMARY :
Would authorize a member of the State Teachers' Retirement
System (STRS) to receive an earned monthly longevity bonus
instead as a lump sum payment, and purchase prior military
service which occurs between September 11, 2001 and July 30,
2005, under certain conditions.
BACKGROUND AND ANALYSIS :
1) MILITARY SERVICE PROPOSED CHANGES
Existing STRS law authorizes most members to receive STRS
service credit for the period of time they served in the
military, if the STRS member immediately returns to
employment with the same employer and makes the employee
contributions that would have been required during the
military service.
This bill allows most STRS members to receive credit for time
they served in the military, up to one year, without paying
any employee contributions, if the period of military service
occurred between September 11, 2001 and July 30, 2005.
David Felderstein
Date: June 3, 2004 Page 1
2) EXPANSION OF ELIGIBILITY FOR LUMP SUM PAYMENT OF THE STRS
"LONGEVITY BONUSES"
Existing STRS law :
a) provides most STRS members with a "longevity bonus"
($200, $300 or $400 per month for teaching to 30, 31, or 32
years, respectively) added to their monthly STRS allowance,
and
b) authorizes these STRS members who are 60 years and 3
months old at the time of retirement to receive a specified
lump-sum payment upon retirement and an actuarially reduced
monthly allowance if they retire before July 1, 2011.
This bill removes the age 60 years and 3 months age
requirement for choosing the lump-sum payment option and
authorizes most STRS members who retire with 30 or more years
of service, in lieu of a monthly "longevity bonus," to
receive a lump-sum payment at retirement of the lesser of the
actuarial value of the "longevity bonus" or 15% of the
actuarial value of the benefit.
FISCAL EFFECT :
1) Lump-Sum Longevity Bonus
STRS notes that allowing members to receive their longevity
bonus could have an actuarial impact on the STRS Fund if
members who know they will die early elect to receive a
lump-sum payment. May 20, 2004 amendments provide that an
actuarial reduction of all lump sum payments made in lieu of
monthly "longevity bonuses" would recognize the actuarial
impact of early deaths of some lump-sum "longevity bonus"
benefit recipients.
2) Employee Contribution Exemption for Military Service
STRS 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 STRS
Fund of approximately $1 million.
David Felderstein
Date: June 3, 2004 Page 2
3) Administrative Costs
STRS estimates one-time administrative costs of $148,000, in
2004-05 to comply with the provisions of this bill .
David Felderstein
Date: June 3, 2004 Page 3
COMMENTS :
1) Arguments in support
According to the sponsor, the California Teachers'
Association, existing STRS law provides that to get
additional STRS service credit, you can either work the time,
or buy a limited amount of "air time" with employees paying
the total cost.
Those in the National Guard called to active duty do not get
service credit in STRS while they are away from school.
This bill helps the families of teachers who are called to
active duty and would, under existing STRS law , suffer a
reduced lifetime pension because of their military service.
STRS fiduciaries report that the STRS Fund is able to absorb
the modest cost of this bill .
2) SUPPORT :
California Federation of Teachers
Faculty Association of California Community Colleges,
Inc. (FACCC)
California Retired Teachers Association (CRTA)
3) OPPOSITION :
None to date
David Felderstein
Date: June 3, 2004 Page 4
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David Felderstein
Date: June 3, 2004 Page 5