BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 2260
Lou Correa, Chair Hearing date: June 14, 2010
AB 2260 (Asm. PER&SS Comm) as amended 6/09/10
FISCAL: YES
CALSTRS ANNUAL HOUSEKEEPING BILL: MAKES VARIOUS CHANGES TO
THE TEACHERS' RETIREMENT LAW
HISTORY :
Sponsor: California State Teachers' Retirement System
(CalSTRS)
Prior legislation: CalSTRS Annual Housekeeping Bill
ASSEMBLY VOTES :
PER & SS 6-0 4/21/10
Appropriations 17-0 5/05/10
Assembly Floor 76-0 5/13/10
SUMMARY :
This bill would make several technical, clarifying and
non-controversial changes to various sections of the
Education Code administered by the California State
Teachers' Retirement System (CalSTRS) to improve and
continue effective administration of the System.
BACKGROUND AND ANALYSIS :
1)Existing State law :
a) Establishes the California State Teachers' Retirement
System (CalSTRS) which administers, through its Board,
the State Teachers' Retirement Law, and prescribes a
comprehensive system of rights and retirement benefits
for its members, including disability, retirement, death
benefits and service credit.
b) Defines creditable compensation for purposes of
calculating retirement benefits and the reporting
requirements of such compensation by employers to
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CalSTRS;
i. Requires employers to reimburse the plan
for overpayments in benefits that occur because of
inconsistent reporting, and makes employers liable for
fraud, theft or embezzlement in accordance with the
Penal Code if the employer knowingly or willfully
reports compensation inconsistent with
statutorily-permitted creditable compensation;
c) Establishes post-employment restrictions on specified
CalSTRS employees or Board members with regard to
influencing legislative or administrative action of the
Board.
d) Permits 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;
e) Establishes the Teachers' Retirement Program
Development Fund (TRPDF) within the State Treasury to be
continuously appropriated and to pay any costs related
to the development of programs authorized by statute
that enhance the financial security of members or
beneficiaries of CalSTRS;
f) Provides the Board with authority to appropriate
funds from the retirement fund for construction,
remodeling, improvements, maintenance and repair of
buildings, and provides that the land, building and
improvements on the land constitute an investment of the
system;
g) Grants the governing board of a school district or
community college district authority to allow a member
to participate in the Reduced Workload Program (RWP) in
which a member works part-time, but receives Defined
Benefit program (DB) credit as if he or she was working
full-time. Under this program, both the employer and
member make contributions based on the creditable
compensation the member would have received had he or
she worked full-time;
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h) Allows a member to purchase up to 4 months of service
credit for specified service, and for employer-approved
leaved under the federal Family Medical Leave Act
(FMLA);
i) Establishes 8% of a member's creditable compensation
as the member's contribution rate to the retirement
system's DB program;
j) Requires a quarterly transfer of funds from the
General Fund to the Teachers' Retirement Fund (TRF)
equal to a percentage of the total creditable
compensation reported by CalSTRS for the prior fiscal
year;
aa) Provides either a $5,000 or $20,000 death
benefit as specified, to a beneficiary upon receipt of
proof of death of a member who had performed at least 1
year of credited service. These benefits are subject to
annual increases based on the state consumer price
index;
bb) Provides a disability allowance to a member if
the member has at least 5 years of credited service and
files for benefits on a form provided by CalSTRS;
cc) Prohibits, effective July 1, 2010, retirees from
working in any CalSTRS-related service, with exceptions,
for the first six calendar months after they retire, but
allows them to return to work under the existing
earnings limit after the break in service;
dd) Provides a member the opportunity, prior to
retirement, to elect an actuarially modified retirement
allowance option payable throughout the life of the
member and the member's option beneficiary or
beneficiaries;
ee) Provides that warrants less than $2,000 paid by
CalSTRS in a month in which a retired or disabled member
dies may not be invalidated by CalSTRS unless requested
by the retired or disabled member's beneficiary, and
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ff) Grants a nonmember spouse the right to a refund
of the accumulated retirement contributions in his or
her separate account as granted under a community
property settlement. 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.
2)Existing federal law :
a) Requires that a tax-qualified retirement program be a
definite written program that is established and
maintained by an employer to provide for the payment of
definitely determinable benefits to its employees over a
period of years, usually for life, after retirement, and
b) Requires that distributions from the pension trust
must be in accordance with the plan and that a qualified
retirement plan must be administered in accordance with
its terms.
3)Regarding State law, this bill :
a) Would clarify, for purposes of disability benefits,
the date of disability as determined by CalSTRS;
b) Would remove requirements of employers or individuals
reimbursing the plan for benefit overpayments that occur
because of inconsistent reporting and instead requires
that the system calculate the actuarial present value of
expected payments from the member, former member, or
beneficiary, and the employer paying the difference
between the amount of the overpayment and that
calculation;
c) Would clarify which CalSTRS executive-level staff are
restricted from performing post-employment activities
that influence the legislative or administrative action
of the Board;
d) Would modify the existing process of receiving forms
and documents by including benefits counselors as
designated officials who can receive documents from a
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member, spouse, or beneficiary;
e) Would permit the Board to direct the State Controller
to transfer the resources in the TRPDF to a designated
fund, as specified, so all program expenditures are paid
from a single fund, and to facilitate efficient
administration of new programs;
f) Would resolve inconsistencies between the Education
Code and generally accepted accounting practices (GAAP)
for recording CalSTRS' headquarters as a capital asset;
g) Would strengthen the provisions of the RWP to ensure
continued compliance with federal laws and maintain
CalSTRS' status as a tax-qualified public pension
system;
h) Would conform the Education Code to provisions of the
FMLA and Government Code relating to the ability of
CalSTRS members to buy service credit for family and
medical leave for a maximum of 12 workweeks;
i) Would clarify that CalSTRS shall 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;
j) Would clarify the dates for quarterly transfer from
the General Fund to the TRF consistent with the
quarterly dates specified in the Education Code;
aa) Would make technical, non-controversial changes
to clarify and conform language that applies to death
benefit payments by making the language consistent
across code sections;
bb) Would clarify that disability allowance
applications submitted by a member, member's guardian or
conservator, or member's employer must be properly
executed and filed on a CalSTRS form;
cc) Would clarify that the post-retirement earnings
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limit for retirees below the normal retirement age
applies to work performed within the California public
school system;
dd) Would remove references to two state academic
intervention programs that are no longer funded and adds
a reference to the existing Local Educational Agency
Intervention program;
ee) Would clarify a member's right to elect a
retirement option and designate an option beneficiary on
a CalSTRS form at the time of the member's retirement;
would clarify that the member may revoke or change the
option prior to the effective date of retirement, and
would clarify that the revocation is subject to
community property rights, and
ff) Would allow CalSTRS to efficiently administer
the benefits of deceased retiree overpayments to the
decedent's family member without requiring a separate
revocation request from the family member or
beneficiary.
4)Regarding federal law, this bill :
a) Would bring the Teachers' Retirement Law into
compliance with federal law that requires members to be
paid a definitely determinable benefit, and
b) Would clarify that a non-participant partner is not
eligible for direct trustee-to-trustee transfers (as
allowed by federal law) of any court-awarded, separate
account under the Cash Balance Benefit Program.
FISCAL IMPACT :
According to the Assembly Appropriations Committee, this bill
would create only minor and absorbable costs to CalSTRS.
COMMENTS :
1) According to CalSTRS :
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Disability Benefits
A member of the 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.
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
SB 1466 (Senate 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
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documents from members, spouses and beneficiaries, and
allowed the date the document is received to be considered
the official receipt date. Since that time, all counseling
offices have been authorized as official recipients of
CalSTRS forms and documents.
This bill would allow 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. 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 designated funds, as specified, so all program
expenditures are paid from those designated funds.
CalSTRS Headquarters Building
Current law provides that the CalSTRS headquarters
constitutes an investment by 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
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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.
Reduced Workload Program (RWP)
Employers may offer a RWP under which a member works
part-time but receives DB 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.
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.
The FMLA and the Government Code already limit an employee's
ability to take a total of 12 workweeks of family and medical
leave.
Defined Benefit Supplemental Program (DBS) Sunset
All CalSTRS members of the DB program who make contributions
on creditable compensation earned between January 1, 2001 and
December 31, 2010, have an account under the DBS Program to
which 2% percent of the members' 8% employee contribution is
allocated. 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.
For employers reporting creditable compensation for pay
periods ending on or after January 1, 2011, CalSTRS will be
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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 earned
in 2010 separately.
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.
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 does not use consistent
terms when referring to creditable compensation.
Post-Retirement Earnings Limit
Generally, a retired member who returns to work in creditable
service may only earn up to a specific annual 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.
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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
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.
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, prior to retirement, 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.
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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 of, or
after a member's death. This measure would simplify the
process so that CalSTRS can revoke overpayments to a deceased
member without unnecessary administrative actions.
Refund of Accumulated Retirement Contributions
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
such as due to court-ordered community property division, and
registered domestic partners are "nonspouses" under Federal
law. Therefore, current state law provides broader benefits
to registered domestic partners than is authorized by Federal
law.
2) SUPPORT :
California State Teachers' Retirement System (CalSTRS),
(Sponsor)
3) OPPOSITION :
None to date
#####
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