BILL ANALYSIS
AB 1852
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1852 (Mullin)
As Amended August 23, 2004
Majority vote
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|ASSEMBLY: |70-6 |(May 25, 2004) |SENATE: |23-12|(August 24, |
| | | | | |2004) |
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Original Committee Reference: P.E.,R.&S.S.
SUMMARY : Authorizes a member of the California State Teachers'
Retirement System (CalSTRS) to earn a longevity bonus and makes
various changes to a early retirement incentive program.
The Senate amendments :
1)Appropriate $53,000 from the Teachers' Retirement Fund (TRF)
to the Teachers' Retirement Board to implement this bill's
provisions.
2)Make minor technical changes.
3)Eliminates the minimum age requirement for a member of
CalSTRS' Defined Benefit (DB) Program who elects to receive a
partial lump sum payment in return for an actuarial reduction
in his or her monthly benefit. Appropriates $53,000 from TRF
for administrative expenses associated with the change.
4)Imposes on County Office of Education and Community College
members who receive an additional retirement benefit under the
CalSTRS Retirement Incentive Program, the same five-year
prohibition on employment with the employer that provided the
additional benefit that applies to K-12 members.
5)Eliminates the one-year prohibition on employment with any
California public school employer for K-12 members who receive
an additional retirement benefit under the CalSTRS Retirement
Incentive Program.
EXISTING LAW :
1)Authorizes specified members of the DB Program who retire
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prior to January 1, 2011, to receive a specified lump-sum
payment upon retirement and an actuarially reduced monthly
allowance.
2)Provides a member of the DB Program with a specified increase
to his or her monthly allowance, if the member retires with 30
or more years of service.
AS PASSED BY THE ASSEMBLY, this bill:
1)Allowed a member of the DB Program of the State Teachers'
Retirement Plan (Defined Benefit Program) to receive credit
for a period of time during which he or she served in the
uniformed services, up to one year, without paying any
employee contributions if the period of service occurred
between September 11, 2001 and July 30, 2005, and other
conditions exist.
2)Authorized a member of the DB Program who retires with 30 or
more years of service, in lieu of an increase to his or her
monthly retirement allowance, to receive a lump-sum payment
upon retirement equal to the actuarial present value of the
increase to the monthly retirement allowance.
3)Made related technical changes.
FISCAL EFFECT : the following fiscal information was provided by
CalSTRS:
Benefit Program Costs/Savings
Expanded Lump Sum Benefit: Any lump-sum payment would be
subject to an actuarial adjustment to avoid any program impact
on the DB Program.
Retirement Incentive Program: Potentially reduces the
forfeiture of retirement incentive benefits paid to K-12 members
who otherwise would not comply with the 1-year post-retirement
restrictions on employment with another California school
employer imposed by current law. Although there is insufficient
history with the restriction to project the total impact with
any precision, it would likely not be substantial. In addition,
it would likely be at least partially offset by applying the
5-year restriction on employment with the members' former
employer to all members receiving a retirement incentive, not
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just those who return to work for a K-12 district, as provided
under current law.
Administrative Costs/Savings
Expanded Lump-Sum Benefit: The total one-time cost to modify
the CalSTRS database, the Web Retirement and Benefit Calculator
is estimated to be $53,000.
Retirement Incentive Program: None. The minor implementation
costs should be offset by savings generated by monitoring one
post-retirement employment rule instead of two.
COMMENTS : AB 1207 (Corbett), Chapter 313, Statutes of 2003,
reopened and made permanent an existing retirement incentive
program (often referred to as the "Golden Handshake" program)
that provides an additional two years of service credit to
members of the DB Program employed by participating school
districts able to demonstrate cost savings. It also established
a new retirement incentive program through 2004 that allows
school districts to add two years of service credit and two
years of age to the age factor calculation in determining a
member's retirement allowance.
Although it may have been the intent of the Legislature to apply
the restrictions to K-12 school districts, County Offices of
Education, and Community Colleges equally, the actual language
contained in Chapter 313 requires CalSTRS to apply the
post-retirement employment restrictions narrowly to members who
return to work for K-12 employers. If a conforming change is not
made, retired members will be able to keep their retirement
incentive benefit and earn up to an annually adjusted $25,740
working on a part-time or substitute basis in a county office of
education or community college district, and retired
administrators may be able to keep their retirement incentive
benefit and earn an unlimited amount without penalty.
The provisions of AB 1852 concerning post-retirement employment
would affect a retired member of the DB Program who receives a
CalSTRS retirement incentive and returns to work for their
former employer within one year. It would, however, allow the
retired member to go to work for another K-12 school district,
county office of education or community college district
immediately, and earn up to the $25,740 annual earnings limit
without penalty.
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Finally, AB 1852 replaces references to sunsetted code sections
that detail Department of Education audit requirements in order
to avoid confusion for participating employers and makes
technical and clarifying amendments to Chapter 313.
Expanded Lump-Sum Payment: AB 1852 eliminates the explicit age
requirement for the partial lump-sum payment in current law, and
instead bases the partial lump-sum payment on the extent to
which the member's allowance (including all bonuses) exceeds an
amount equal to 2% of final compensation per year of service, up
to the current maximum 15% reduction in the monthly benefit.
The Teachers' Retirement Law presumes that these payments have
no actuarial impact to the DB Program. To the extent, however,
that a member knows that he or she will have a
shorter-than-normal lifespan, there could be an actuarial impact
on the DB Program if that person elected to receive a partial
lump-sum payment. This is referred to as adverse selection. In
order to maintain no net actuarial impact, the bill includes
language to specify that any partial lump-sum payment made in a
given year be adjusted by a factor adopted by the Teachers'
Retirement Board that accounts for adverse selection by members
electing the partial lump-sum payment.
Analysis Prepared by : Clem Meredith / P.E., R. & S.S. / (916)
319-3957
FN: 0008795