BILL ANALYSIS
AB 2260
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 2260 (P.E.,R.& S.S. Committee)
As Amended June 21, 2010
Majority vote
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|ASSEMBLY: |76-0 |(May 13, 2010) |SENATE: |33-0 |(August 2, |
| | | | | |2010) |
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Original Committee Reference: P.E.,R.& S.S.
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).
The Senate amendments make additional minor and technical
changes to the bill, including: requiring, in the case of
employer-reported erroneous information, the retirement system
to calculate the actuarial present value of the payments that
should have been received from a member, former member, or
beneficiary and requiring the employer to pay the difference
between the total amount of the overpayment and the calculation
of the actuarial present value of expected payments rather than
simply requiring an employer to reimburse the retirement system
for any overpayments of benefits that occur as a result of
erroneous reporting.
FISCAL EFFECT : According to CalSTRS, minor and absorbable.
AS PASSED BY THE ASSEMBLY, this bill:
1)Clarified how CalSTRS establishes the start date or
reoccurrence date of a disability.
2)Corrected references restricting specified executive-level
positions from performing post-employment activities to
reflect the actual titles used by CalSTRS for these positions.
3)Expanded 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
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counseling session takes place at a location other than a
counseling office.
4)Clarified 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)Resolved inconsistencies between the Education Code and
generally accepted accounting principles that require
recording CalSTRS' headquarters as a capital asset.
6)Strengthened 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.
7)Conformed 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)Clarified procedures to administer the Defined Benefit
Supplement (DBS) Program after its sunset date of December 31,
2010.
9)Made 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)Clarified and conforms the language that applies to death
benefit payments and makes the language consistent across
those different sections.
11)Specified 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)Clarified that the post-retirement earnings limit for
retirees under the normal retirement age applies to employment
specific to the public school system.
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13)Removed 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)Added 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)Allowed 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)Ensured CalSTRS does not incorrectly provide broader benefits
to registered domestic partners than authorized by Federal
law.
COMMENTS : The following information was provided to the
Committee by CalSTRS:
1)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.
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2)Overpaid benefits: CalSTRS retired members sometimes receive
benefit payments above the amount that the member should
actually be receiving. This situation may occur because of
late or erroneous information provided by the employer or the
member or because of system error.
This bill would bring the Education Code into compliance with
federal law that requires members to be paid a "definitely
determinable" benefit. Overpaid benefits are outside of that
"definitely determinable" benefit and, therefore, must be
collected from the member to the extent possible. In order to
make the system whole, what is not collected from the member
would be collected from the employer when the overpayment was
made due to employer error.
3)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.
4)Receipt of documents: 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
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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.
5)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, so all program expenditures are paid
from a single fund.
6)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
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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.
7)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.
8)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. 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.
9)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'
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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.
10)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
transfers from the General Fund to the Teachers' Retirement
Fund consistent within the appropriate section of the
Education Code.
11)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
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across those different code sections.
12)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
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.
13)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
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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.
14)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.
15)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; 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,
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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.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0005146