BILL ANALYSIS
AB 2260
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Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Alberto Torrico, Chair
AB 2260 (P.E.,R & S.S. Com.) - As Amended: March 16, 2010
SUBJECT : State teachers' retirement: administration: benefits.
SUMMARY : Makes various minor and technical amendments to the
Teachers' Retirement Law (TRL) to facilitate efficient
administration of the California State Teachers' Retirement
System (CalSTRS). Specifically, this bill :
1)Clarifies how CalSTRS establishes the start date or
reoccurrence date of a disability.
2)Corrects references restricting specified executive-level
positions from performing post-employment activities to
reflect the actual titles used by CalSTRS for these positions.
3)Expands the existing process of receiving forms and documents
by allowing benefits counselors to be designated as official
recipients, in addition to the counseling offices, thereby
allowing a member, spouse or beneficiary to submit CalSTRS
forms and documents to a benefits counselor even when a
counseling session takes place at a location other than a
counseling office.
4)Clarifies that the Teachers' Retirement Board (Board) may
direct the State Controller to transfer funds from the
Teachers' Retirement Program Development Fund to another
designated fund, if the Board finds the transfer would
facilitate the efficient administration of the program for
which the fund was established.
5)Resolves inconsistencies between the Education Code and
generally accepted accounting principles that require
recording CalSTRS' headquarters as a capital asset.
6)Strengthen provisions of the Reduced Workload Program to
ensure continued compliance with federal law and further
maintain CalSTRS' status as a tax-qualified public pension
system.
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7)Conforms provisions of the Education Code to provisions of the
Federal Family and Medical Leave Act (FMLA) and the Government
Code relation to the ability of CalSTRS members to buy service
credit for family and medical leave for a maximum of 12
workweeks.
8)Clarifies procedures to administer the Defined Benefit
Supplement (DBS) Program after its sunset date of December 31,
2010.
9)Makes the specific dates for the quarterly transfers from the
General Fund to the Teachers' Retirement Fund consistent
within the appropriate section of the Education Code.
10)Clarifies and conforms the language that applies to death
benefit payments and makes the language consistent across
those different sections.
11)Specifies that a member must apply for disability benefits on
a CalSTRS-provided form that is completed correctly and
conforms language to other portions of the code.
12)Clarifies that the post-retirement earnings limit for
retirees under the normal retirement age applies to employment
specific to the public school system.
13)Removes references to two state academic intervention
programs that are no longer funded and updates references to
specify instead the state's Local Educational Agency
Intervention program.
14)Adds language that specifies members must elect an option on
a form provided by CalSTRS and clarifies that a member has the
ability to change or cancel an option election prior to the
effective date of his or her retirement.
15)Allows CalSTRS to administer the death benefit in a more
efficient manner by revoking benefit overpayments made to a
deceased member without requiring the member's beneficiary to
make a revocation request.
16)Ensures CalSTRS does no incorrectly provide broader benefits
to registered domestic partners than authorized by Federal
law.
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FISCAL EFFECT : According to CalSTRS, minor and absorbable.
COMMENTS : The following information was provided to the
Committee by CalSTRS:
Disability Benefits
A member of the Defined Benefit (DB) Program may receive
disability benefits once he or she is vested and meets the
eligibility requirements. An impairment qualifies as a
disability when it is permanent or lasts at least 12 months from
its onset and prevents a member from performing his or her usual
job or comparable duties. The onset date cannot be earlier than
the day following the last day of service. If a disability
reoccurs within six months of returning to work, the onset date
is considered to be the original onset date and an allowance is
paid as of the first of the month when the disability reoccurs
or the last day of service, whichever is later.
The various sections of the Education Code that relate to
disability benefits do not use terms consistently, which can
cause some confusion related to the meaning of the terms. In
addition, some sections do not specifically state that members
should apply for disability benefits on a form provided by
CalSTRS. This measure clarifies the terms used in these
sections and specifically states that a members need to apply
for disability benefits on a form provided by CalSTRS. This
measure also clarifies how CalSTRS establishes the date of the
start of a disability or the reoccurrence of a disability.
Conflict of Interest
In 2009, AB 1584 (Hernandez), Chapter 301, Statutes of 2009,
expanded post-employment restrictions for specified CalSTRS
employees or Board members and requires additional disclosures
of placement agent fees and activities to prevent "pay-for-play"
activities with public pension investments and increases
transparency and accountability.
The position titles used in AB 1584 are not titles used by
CalSTRS for its executive-level positions. This measure
corrects the references that AB 1584 made to several of CalSTRS'
executive-level positions that are restricted from performing
post-employment activities by removing the position title that
does not apply to CalSTRS and adding titles that are applicable.
Receipt of Documents
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SB 1466 (PE&R Committee), Chapter 655, Statutes of 2006, allowed
the Board, to designate, by resolution, one or more of the
contracted field counseling offices as an official recipient of
member benefit applications and other documents from members,
spouses and beneficiaries. That measure allowed the date the
document is received by the designated counseling office to be
considered the official receipt date. In September of 2007, the
Board authorized five counseling offices to officially begin
receiving CalSTRS forms and documents. In November of 2008, the
Board approved the addition of 14 offices, for a total of 19
counseling offices officially designated to receive CalSTRS
forms and documents. In June of 2009, the Board adopted a
resolution to authorize the remaining counseling offices as
official recipients of CalSTRS forms and documents.
This bill would expand the existing process that allows members,
spouses and beneficiaries to submit CalSTRS forms and documents
at all contracted counseling offices throughout the state by
allowing benefits counselors to be designated as official
recipients, in addition to the counseling offices. This would
allow a member, spouse or beneficiary to submit CalSTRS forms
and documents to a benefits counselor even when a counseling
session takes place at a location other than a counseling
office.
Teachers' Retirement Program Development Fund
AB 2462 (Mullin), Chapter 780, Statutes of 2006, established the
continuously appropriated Teachers' Retirement Program
Development Fund (TRPDF) within the State Treasury to pay any
costs related to the development of programs authorized by
statute that enhance the financial security of members or
beneficiaries of CalSTRS. The first such program was
establishing a contract-based program to provide school
employers with compliance services under regulations established
by the Internal Revenue Service (IRS) for 403(b) plans. The
programs created through he TRPDF are ultimately transferred to,
and administered by, funds or accounts that are outside of the
TRPDF.
Existing law allows the Board to authorize the transfer and
disbursement of funds to the TRPDF, but other resources of the
program being initiated through the TRPDF may be administered in
other funds. In order to facilitate efficient administration of
these new programs, this bill allows the Board to direct the
Controller to transfer the resources in the TRPDF to the fund,
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so all program expenditures are paid from a single fund.
CalSTRS Headquarters Building
Current law provides that the CalSTRS headquarters constitutes
an investment in the retirement fund and that it be carried on
the books as such in accordance with generally accepted
accounting practices (GAAP). However, an external auditor
advised CalSTRS that GAAP require that assets used in CalSTRS
operations, such as the new headquarters building, be reported
as capital assets.
An external auditor advised CalSTRS that GAAP require that
assets used in CalSTRS operations, such as the new headquarters
building, be reported as capital assets, instead of as an
investment. The Board adopted a resolution in June of 2009 to
reclassify the headquarters building as a capital asset and
remove it from the investment portfolio. This measure resolves
the inconsistencies between the Education Code and GAAP
requirements for recording the headquarters as a capital asset.
Reduced Workload Program
Employers may offer a reduced workload program (RWP) under which
a member works part-time but receives DB Program credit as
though the member was working full-time. Under this program, the
member and employer make contributions based on creditable
compensation the member would have received were the member
working full-time.
The IRS requires that participating employees in RWP must not
opt out of the "pick-up", or to receive the contributed amount
directly instead of having them paid by the employing unit to
the plan. The ability to change employer pick-ups is a feature
of 401(k) defined contribution plans and is not allowed by law
in a 401(a) defined benefit plan, such as the DB Program. This
measure strengthens the provisions of RWP to ensure continued
compliance with federal laws and further maintain CalSTRS'
status as a tax-qualified public pension system.
FMLA Service Credit
CalSTRS members may purchase up to four months of service credit
for time spent on an employer approved leave under the FMLA.
However, under the provisions of the FMLA and Government Code
Section 12945.2, employees are allowed a total of 12 workweeks
of family and medical leave during any 12-month period.
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The FMLA and the Government Code already limit an employee's
ability to take a total of 12 workweeks of family and medical
leave. This measure conforms the Education Code to provisions
of the FMLA and the Government Code relating to the ability of
CalSTRS members to buy service credit for family and medical
leave for a maximum of 12 workweeks.
DBS Sunset
All CalSTRS members of the DB Program who make contributions to
CalSTRS on creditable compensation earned between January 1,
2001 and December 31, 2010, have an account under the DBS
Program to which a portion of 8% employee contributions is
allocated. Two percent of members' creditable compensation is
allocated to the DBS Program. But the 2% allocation to the DBS
Program will end on December 31, 2010 and after that date the
full 8% of creditable compensation will be allocated to the DB
Program.
CalSTRS employers report information about the compensation paid
to members at the end of each pay period, but some employers'
pay periods do not end on the last day of the month. For
employers reporting creditable compensation for pay periods
ending on or after January 1, 2011, CalSTRS will be required to
allocate the entire 8% contributions to the DB Program, even if
some of the compensation was earned prior to January 1, 2011.
Unless employers report compensation separately, CalSTRS does
not have a way to determine whether the compensation was earned
before January 1, 2011. This measure authorizes CalSTRS to
credit all of the member's contributions that are reported by
the employer at the end of 2010 to the DB Program, if the
employer report does not separate pre- and post-December 31,
2010, earnings.
Transfers to the Teachers' Retirement Fund
Current law requires a quarterly transfer of funds from the
General Fund to the Teachers' Retirement Fund equal to a
percentage of the total creditable compensation reported by
CalSTRS for the prior fiscal year. ABX8 5 (Budget Committee),
Chapter 1, Statutes of 2010, specified dates for some but not
all the quarterly transfers from the General Fund to the
Teachers' Retirement Fund.
This measure makes the specific dates for the quarterly
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transfers from the General Fund to the Teachers' Retirement Fund
consistent within the appropriate section of the Education Code.
Death Benefits
The DB Program provides benefits to beneficiaries when a member
dies, either before or after retirement. Those benefits are
based on several factors that include the options chosen by a
member and the type of coverage he or she was under. CalSTRS
pays the benefit after receiving proof of death of the member.
Existing law governing death benefits do not use consistent
terms when they refer to creditable compensation. This measure
clarifies and conforms the language that applies to death
benefit payments and makes the language consistent across those
different code sections.
Post-Retirement Earnings Limit
Generally, a retired member who returns to work in creditable
service may only earn up to an annually set dollar limit. If the
member earns above that limit, his or her benefit payments for
that year are reduced on a dollar-for-dollar basis by the amount
the member exceeds the limit.
There are several exemptions to the post-retirement earnings
limit. Any member who has a 12-month break in all creditable
compensation is exempt from the limit. Additionally, there are
several specific exemptions to address specific needs within the
California public education system.
AB 506 (Furutani), Chapter 306, Statues of 2009, effective July
1, 2010, prohibits retirees under age 60 from working in any
CalSTRS-related service for the first six calendar months after
they retire. After this break-in-service, they would be able to
return to work under the existing earnings limit.
AB 506 did not include the phrase "within the California public
school system" when it added section 24214.5. Therefore, it may
be unclear that only public school employment is affected by the
six-month, zero dollar earnings limit for retirees under the
normal retirement age of 60. This measure clarifies that the
post-retirement earnings limit for retirees under the normal
retirement age, applies to employment specific to the public
school system.
One of the earnings exemptions is for a retired member who is
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appointed as a trustee under the Immediate
Intervention/Underperforming Schools Program or the High
Priority Schools Grant Program. However, these two programs are
no longer funded programs and have been replaced by the Local
Educational Agency Intervention program. This measure removes
references to the two state academic intervention programs that
are no longer funded and adds a reference to the existing
program.
Preretirement Election of an Option
A member may elect one of several options for an actuarially
modified retirement allowance payable through the life of the
member and the member's option beneficiary or beneficiaries. A
member may change or cancel a preretirement election of an
option by submitting a form to CalSTRS. The form must be
received by CalSTRS within 30 days of the date of the member's
signature.
The provisions for CalSTRS option elections contain some
inconsistencies among them regarding applying for these options
on a form provided by CalSTRS. In addition, these provisions
allow members to change or cancel their pre-retirement option
election on the same day the member's retirement benefit takes
effect. This measure provides consistency among all other
option election provisions so that all option elections are made
on a form prescribed by CalSTRS and clarifies that a member has
the ability to change or cancel an option election prior to the
effective date of his or her retirement.
Warrants Upon Death
When a notification of death is received for a member receiving
a retirement or disability benefit, CalSTRS may invalidate the
payment made in the month of death only if the member's
beneficiary makes such a request.
The requirement to obtain a request to invalidate a pay warrant
for overpayments of less than $2,000 may be an unnecessary
burden for the beneficiaries of deceased members. In addition,
CalSTRS currently establishes a receivable for any overpayment,
including payments made in the month or after a member's death.
This measure would simplify the process so that CalSTRS can
revoke overpayments to a deceased member.
Refund of Accumulated Retirement Contributions
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A nonmember spouse has the right to a refund of the accumulated
retirement contributions in his or her separate account.
Nonmember spouses may also choose to rollover the accumulated
retirement contributions to a qualified plan under Section 402
of the Internal Revenue Code of 1986. The Federal Pension
Protection Act of 2006 did not authorize a nonspouse to rollover
a distribution of a segregated account; registered domestic
partners are "nonspouses" under Federal law. Therefore, current
law provides broader benefits to registered domestic partners
than is authorized by Federal law.
The Federal Pension Protection Act of 2006 (PPA) authorizes
nonspouse rollovers when the nonspouse is a beneficiary who is
owed a distribution because of the member's or participant's
death. Under AB 1432 (Soto), Chapter 513, Statutes of 2007,
which conformed the Education code to the PPA, registered
domestic partners were authorized to rollover the balance of
their segregated accounts. However, under federal law,
registered domestic partners are "nonspouses" and the PPA did
not authorize a nonspouse to rollover a distribution of a
segregated account. This measure conforms the language, so that
registered domestic partners are prohibited from rolling over
the balance of their segregated accounts to bring CalSTRS back
into compliance with federal law.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Teachers' Retirement System (Sponsor)
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957