BILL ANALYSIS
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THIRD READING
Bill No: SB 634
Author: Senate Public Employment and Retirement Committee
Amended: As introduced
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 7-0, 4/20/09
AYES: Correa, Ashburn, Benoit, Ducheny, Liu, Padilla,
Wiggins
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
SUBJECT : State Teachers Retirement System: annual
omnibus bill
SOURCE : State Teachers Retirement System
DIGEST : This bill is the annual omnibus bill to provide
technical housekeeping changes in the State Teachers
Retirement System Law to facilitate efficient
administration of the teachers retirement system.
(See analysis below for a point by point description of the
bill's provisions as provided by the Senate Public
Employment and Retirement Committee.)
ANALYSIS :
1. State Teachers' Retirement System (STRS) "compensation
earnable"
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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.
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 compute the correct benefit for part-time
community college instructors employed prior to July 1,
1996.
Solution :
Section 1 of this bill (Section 22115 of the Education
Code) clarifies that changes to base hours apply to the
entire class of employees of community colleges.
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.
Problem :
Section 22515 of the Education Code 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.
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Solution :
Section 2 of this bill (Section 22515 of the Education
Code) 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.
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 federal law, registered domestic partners
are "nonspouses" and the PPA did not authorize a
nonspouse to rollover a distribution of a segregated
account.
Solution :
Section 3 of this bill (Section 22661 of the Education
Code) 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 STRS back
into compliance with federal law.
4. STRS reduced workload program
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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.
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 five 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.
Solution :
Section 4 of this bill (Section 22713 of the Education
Code) 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/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.
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
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Education Code are used as the primary tools to make
this determination. However, some of the current
terminology and language are vague, open to
interpretation, or obsolete.
Solution :
Sections 5-13 of this bill (Section 22801, 22802, 22803,
22805, 22820, 22821, 22822, 22823, and 22826 of the
Education Code) make corrections to clarify the
terminology and language for the purchase of additional
service credit.
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.
Problem :
Some of the language relating to the redeposit of
contributions is vague.
Solution :
Sections 14 and 15 of this bill (Sections 23200 and
23201 of the Education Code) 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
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if the member joined STRS after October 15, 1992), an
active member's surviving spouse or children may qualify
to receive a monthly benefit in addition to the one-time
death benefit.
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.
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.
Solution :
Section 16 of this bill (Section 23859 of the Education
Code) 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).
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8. STRS disability benefit
A STRS member may apply for a disability benefit when
they are vested (have served five 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.
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.
Solution :
Sections 17 and 18 of this bill (Sections 24001 and
24101 of the Education Code) clarify that a member
applying for disability must submit a written
application on a form provided by STRS.
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 earns above that limit, his/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
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his/her reported earnings go above the earnings limit.
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.
Solution :
Sections 19, 20 and 21 of this bill (Sections 24216,
24216.5, and 24216.6 of the Education Code) simplify
administration of these exemptions. This bill 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.
11.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.
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,
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there are certain exceptions.
Solution :
Section 22 of this bill (Section 24301 of the Education
Code) clarifies these exceptions by referring to
specific sections of the Education Code.
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.
Problem :
Under some circumstances a spouse's signature may be
required to change or cancel a preretirement option.
However, Section 24309 of the Education Code only
specifies that a change or cancellation must be received
by STRS 30 days after the member's signature.
Solution :
Section 23 of this bill (Section 24309 of the Education
Code) 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 DB Program member who performs
creditable service. Currently, one-fourth of the
required eight percent of salary employee contribution
to STRS (i.e. two percent of the member's STRS-covered
salary) is deposited in a DBS Program account
established for that member.
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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 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 their retirement.
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 Education 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.
Solution :
Section 24 of this bill (Section 25007 of the Education
Code) 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.
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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.
Solution :
Sections 25-30 of this bill (Sections 25008.5, 25010,
25011.1, 25017, and 25020 of the Education Code) 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 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 EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 5/1/09)
State Teachers' Retirement System (source)
DLW:mw 5/4/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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