BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 634
Lou Correa, Chair Hearing date: April 20, 2009
SB 634 (Senate PE&R Comm) as introduced 2/27/09
FISCAL: YES
STRS: ANNUAL TECHNICAL "HOUSEKEEPING" OMNIBUS BILL
HISTORY :
Sponsor: California State Teachers Retirement System
(STRS)
Prior legislation: annual bill
SUMMARY :
Would provide technical "housekeeping" changes in the STRS
Law to facilitate efficient administration of the teachers
retirement system.
BACKGROUND AND ANALYSIS :
1) STRS "compensation earnable "
STRS "compensation earnable" is defined in the STRS Law as
creditable compensation for STRS-covered service performed on
a full-time basis.
In general, for members employed by a community college, the
current minimum standard for "full time" is 1,050 hours.
However, for members employed by a community college prior to
July 1, 1996, if the community college acts to reduce the
minimum standard for full time, full time is defined using
the definition that applied on June 30, 1996.
The problem :
The committee is advised that STRS employers sometimes make
retroactive changes to base hours and apply these changes to
individual employees rather than the entire class of
employees, which causes problems for STRS to correctly
David Felderstein
Date: 4/9/09 Page 1
compute the correct benefit for part-time community college
instructors employed prior to July 1, 1996.
The solution :
Section 1 of this bill (Ed. Code Sec. 22115 ) clarifies that
changes to base hours apply to the entire class of employees
of community colleges.
David Felderstein
Date: 4/9/09 Page 2
2) STRS permissive elections
Substitute teachers and part-time employees otherwise
excludes from STRS membership are allowed to elect membership
in the STRS Defined Benefit (DB) Program. Prior to 2003,
this election was irrevocable.
The problem :
Ed. Code Section 22515 was mistakenly modified by previous
legislation to remove language stating that the election of
membership in the DB Program by substitute teachers and
part-time employees was irrevocable. Prior to that
legislation, the election was irrevocable and conformed to
all other such elections.
The solution :
Section 2 of this bill (Ed. Code Sec. 22515) clarifies that
this election is irrevocable and remains in effect until the
member terminates employment.
3) Refund of accumulated retirement contributions for
divorced ex-spouses of STRS member
A divorced ex-spouse of a STRS member has the right to a
refund of the accumulated retirement contributions in his or
her separate account conferred as part of the divorce decree.
"Nonmember spouses," as these persons are called in the STRS
Law, may also choose to rollover the accumulated retirement
contributions to a qualified plan under Section 402 of the
Internal Revenue Code.
The problem :
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 previous legislation that conformed the STRS Law to the
PPA, registered domestic partners were authorized to rollover
the balance of their segregated accounts. However, under
David Felderstein
Date: 4/9/09 Page 3
federal law, registered domestic partners are "nonspouses"
and the PPA did not authorize a nonspouse to rollover a
distribution of a segregated account.
The solution :
Section 3 of this bill (Ed. Code Sec. 22661) replaces the
language that was removed by the previous legislation, so
that registered domestic partners are again prohibited from
rolling over the balance of their segregated accounts to
bring CalSTRS back into compliance with federal law.
David Felderstein
Date: 4/9/09 Page 4
4) STRS reduced workload program
STRS employers (school or community college districts) may
offer a reduced workload program under which a member works
part-time but receives service credit as though the member
was working full-time. Under this program, the STRS member
and employer make contributions based on creditable
compensation the member would have received were the member
working full-time.
The problem :
One of the restrictions of the reduced workload program is
the requirement that a STRS member be employed to perform
creditable service for at least 10 years full-time, and that
at least 5 of those years immediately precede the reduction
in workload.
It has been brought to STRS' attention that this requirement
is not clear when parsed grammatically in the existing
statute.
The solution :
Section 4 of this bill (Ed. Code Sec. 22713) corrects this
grammatical error to clarify the requirement.
5) STRS permissive and additional service credit
A STRS member may purchase service credit in addition to what
he or she has earned.
Existing STRS law allows a member to purchase additional
service credit for prior service performed under conditions
specified in statute, such as teaching service performed in
another state.
The problem :
When a request to purchase additional service credit is
received, STRS follows several processing procedures to
determine that eligibility requirements have been met by the
member making the request and that the costs of purchase are
accurate. Various sections of the Ed. Code are used as the
David Felderstein
Date: 4/9/09 Page 5
primary tools to make this determination. However, some of
the current terminology and language are vague, open to
interpretation, or obsolete.
The solution :
Sections 5-13 of this bill (Ed. Code Secs. 22801, 22802,
22803, 22805, 22820, 22821, 22822, 22823, 22826) make
corrections to clarify the terminology and language for the
purchase of additional service credit.
David Felderstein
Date: 4/9/09 Page 6
6) Redeposit of withdrawn STRS contributions
A STRS member may request a refund of their accumulated
retirement contributions after terminating STRS-covered
employment.
A person who subsequently again becomes a STRS member, or a
"nonmember spouse" (discussed in #3 above) who withdrew
contributions and decides to redeposit, may redeposit all or
a portion of the withdrawn STRS contributions. The member is
required to pay interest from the date of the refund to the
date the contributions are fully redeposited.
The problem:
Some of the language relating to the redeposit of
contributions is vague.
The solution :
Sections 14 and 15 of this bill (Ed. Code Secs 23200 and
23201 ) make corrections to the terminology to reduce this
vagueness with language that is clear.
7) " Coverage B" active member survivor benefits
STRS provides survivor benefits to the beneficiaries of
members who die before retiring under "Coverage B" (the
members have a choice of coverage levels that they elect if
the member joined STRS after 10/15/92), an active member's
surviving spouse or children may qualify to receive a monthly
benefit in addition to the one-time death benefit.
The problem :
Part 13, Chapter 23 of the Education Code (Sections 23850 -
23859) addresses death benefits and survivor benefits paid
upon the death of active members with Coverage B.
Section 23856 allows STRS to pay a survivor benefit allowance
to a surviving spouse or to eligible dependent children of a
deceased member if there is no surviving spouse.
David Felderstein
Date: 4/9/09 Page 7
Section 23859 further requires that upon termination of a
survivor benefit pursuant (for example, death of the
surviving spouse), if the total allowance paid or payable is
less than the amount of the member's accumulated retirement
contributions at the time of death, the remaining balance
shall be paid to the estate of the spouse.
Section 23859 does not, however, specify what is to happen to
the remaining balance when the eligible dependent children
described above are no longer eligible for the child's
allowance.
David Felderstein
Date: 4/9/09 Page 8
The solution :
Section 16 of this bill (Ed. Code Sec 23859 ) clarifies that
the balance of a deceased member's account may be paid to the
member's designated beneficiary upon termination of all
children's allowances.
This action parallels the action taken under Coverage A
(which provides that upon termination of family allowance
prior to the payment of allowances equal to the member's
accumulated contributions, the balance shall be paid to the
member's beneficiary).
8) STRS disability benefit
A STRS member may apply for a disability benefit when they
are vested (have served 5 years of full-time service it
equivalent) and meets the disability eligibility requirements
(i.e. the STRS member has a physical or mental impairment
that prevents the member from performing their usual job or
comparable duties). The impairment must be expected to last
at least 12 continuous months.
The problem :
There is currently no statutory requirement that specifies
that a member applying for a disability benefit must submit a
disability application in order for STRS to determine whether
the member meets all eligibility requirements for the
benefit.
The solution :
Sections 17 and 18 of this bill (Ed. Code Secs 24001 and
24101 ) clarify that a member applying for disability must
submit a written application on a form provided by CalSTRS.
9) STRS post-retirement earnings limit exemptions
Generally, a retired STRS member who returns to work in
STRS-covered service may only earn up to an annually set
dollar limit (currently about $29,000 per calendar year,
adjusted annually for inflation). If the retired STRS member
David Felderstein
Date: 4/9/09 Page 9
earns above that limit, his or her STRS benefit payments for
that year are reduced on a dollar-for-dollar basis by the
amount the member exceeds the earnings limit.
Over the years, however, the Legislature has created specific
exemptions to this rule to permit employers to hire retired
members to meet specific educational needs. If a retired
STRS member returns to work under one of these
occupation-specific exemptions, the member and employer must
provide documentation to STRS in order to avoid the member's
benefit payment being reduced when his or her reported
earnings go above the earnings limit.
David Felderstein
Date: 4/9/09 Page 10
The problem :
There is currently no statutory requirement for the timeframe
in which an employer must provide documentation that a
retired member is working under an exemption to the
post-retirement earnings limit.
As a result, employers may not provide this documentation
until significantly after the end of the applicable school
year, delaying the determination as to whether portions of
member's benefits should be paid or withheld.
The solution :
Sections 19, 20 and 21 of this bill (Ed. Code Secs 24216,
24216.5, and 24216.6 ) would simplify administration of these
exemptions, this measure requires the employer to provide
STRS with appropriate documentation by the end of the school
year for which it applies.
10) Disability retirement election of survivor options
A STRS member receiving disability retirement may elect to
receive an actuarially modified disability allowance in order
to provide a survivor benefit to their chosen beneficiary or
beneficiaries if the disabled STRS member dies first.
Existing STRS law states that the option may not be revoked
or changed after the later of the effective date of the
disability retirement allowance or 30 days after the mailing
of the acknowledgment notice.
The problem :
Although existing STRS law states that the option elected by
a member receiving disability retirement may not be revoked
or changed after the later of the effective date of the
disability retirement allowance or 30 days after the mailing
of the acknowledgment notice, there are certain exceptions.
The solution :
Section 22 of this bill (Ed. Code Sec 24301 ) clarifies these
David Felderstein
Date: 4/9/09 Page 11
exceptions by referring to specific sections of the Ed. Code.
David Felderstein
Date: 4/9/09 Page 12
11) Preretirement election of a survivor option
A STRS 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 the system, but
the form must be received within 30 days of the date of the
member's signature.
The problem :
Under some circumstances a spouse's signature may be required
to change or cancel a preretirement option. However, Ed.
Code Sec 24309 only specifies that a change or cancellation
must be received by STRS 30 days after the member's
signature.
The solution :
Section 23 of this bill (Ed. Code Sec 24309 ) specifies that
the change or cancellation must be received by STRS 30 days
after the member's signature, or spouse's, signature, if
applicable.
12) STRS Defined Benefit Supplement (DBS) program
Under the DBS Program, STRS automatically establishes an
account for each Defined Benefit Program member who performs
creditable service. Currently, of the required 8% of
salary employee contribution to STRS (i.e. 2% of the member's
STRS-covered salary) is deposited in a DBS Program account
established for that member.
Additionally, employer and employee contributions for any
service performed in excess of 1.000 years in a given school
year (for example, if the member teaches an extra class or
leads an extracurricular activity) are credited to the
member's DBS account.
The DBS Program has a guaranteed interest rate , which is
determined annually by the Teachers' Retirement Board. In
addition, the Board may grant an additional earnings credit
David Felderstein
Date: 4/9/09 Page 13
every year to DBS participants and an additional annuity
credit to retired members receiving a DBS annuity. Since the
start of the DBS Program, the Board has awarded an additional
earnings credit and an additional annuity credit twice .
STRS members are required to receive their DBS benefit when
they begin to receive they retire.
David Felderstein
Date: 4/9/09 Page 14
The problem :
The DBS Program was designed to mirror the Cash Balance
Benefit Program and to distribute contributions made by each
member back to that member. Due to oversight, however, the
current method for distributing an additional annuity credit
does not meet either of these criteria. At present, the Ed.
Code requires that the additional annuity credit a member
receives be based on the initial value of the member's
annuity, rather than the current value of the member's
annuity. As a result, the longer a member has been receiving
annuity payments, the higher proportion of that annuity's
current value the member receives when the Board declares an
additional annuity credit, effectively redistributing some of
the newer annuitants' accounts' earnings to older annuitants
The solution :
Section 24 of this bill (Ed. Code Sec 25007 ) changes the DBS
additional annuity credit to mirror the Cash Balance Benefit
Program and to provide that the additional annuity credit
paid to a member is based on the current value of the
member's annuity, not the initial value of the member's
annuity.
The problem :
The DBS Program is designed such that a member who retires
from service must also retire from the DBS program. However,
when the DBS Program was first created, these two retirement
application forms were separate documents. As a result, some
members have retired from service, but not yet received DBS
funds.
The solution :
Sections 25 - 30 of this bill (Ed. Code Secs 25008.5, 25010,
25011.1, 25017, and 25020) clarify the requirement that a
member must submit a completed benefit application-which
currently includes DBS program forms-in order to receive a
retirement or disability benefit.
Additionally, to address the outstanding accounts of those
David Felderstein
Date: 4/9/09 Page 15
members and beneficiaries receiving benefits as of January 1,
2010, who have not submitted a DBS Program form, this measure
requires STRS to distribute the balance of those DBS accounts
to each applicable member or beneficiary in a lump-sum by
March 31, 2010.
FISCAL IMPACT :
According to STRS, none .
COMMENTS :
1) OPPOSITION :
None to date #####
David Felderstein
Date: 4/9/09 Page 16