BILL ANALYSIS
SB 634
Page 1
Date of Hearing: July 8, 2009
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Ed Hernandez, Chair
SB 634 (P.E.& R. Com.) - As Amended: June 4, 2009
SENATE VOTE : 36-0
SUBJECT : State Teachers' Retirement System.
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 that employer changes to base hours apply to the
entire class of employees of community colleges.
2)Clarifies that a member of the California Public Employees'
Retirement System (CalPERS) who is subsequently employed to
perform creditable service "requiring," instead of being
"subject to," coverage of the Defined Benefit (DB) program may
elect to remain under CalPERS coverage.
3)Clarifies that the election of membership by substitute
teachers and part-time employees is irrevocable and remains in
effect until the member terminates employment.
4)Prohibits, as required under federal law, a registered
domestic partner from rolling over the balance of their
segregated accounts.
5)Corrects a grammatical error that exists in the provisions
governing the reduced workload program to clarify
participation requirements.
6)Clarifies the terminology and language for the purchase of
additional service credit.
7)Clarifies the language relating to the redeposit of
contributions.
8)Clarifies that the balance of a deceased member's account
under Coverage B may be paid to the member's designated
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beneficiary upon termination of all children's allowances
making it consistent with the action taken under Coverage A.
9)Clarifies that a member applying for disability must submit a
written application on a form provided by CalSTRS.
10)Makes clarifying changes to the provisions governing the new
Service Retirement Pending Disability program to facilitate
implementation. Specifically, these changes:
a) Clarify that if the member does receive a service
retirement benefit payment, the effective date of the
service retirement benefit shall be the same as the
effective date of the disability benefit;
b) Clarify that a member who dies while awaiting a
disability determination who has also applied for service
retirement will be considered retired for service at the
time of death if the member dies prior to the determination
of the disability application; and,
c) Clarify that a member who dies after the Teachers'
Retirement Board (TRB) has determined the member is
disabled will be considered disabled at the time of death,
even if the member dies prior to receiving notification
from CalSTRS of this determination.
11)Requires an employer that hires a retired CalSTRS member to
work under an exemption to the post-retirement earnings limit
to submit the required documentation to CalSTRS by the end of
the applicable school year.
12)Clarifies the exception under which an option elected by a
member receiving a disability retirement allowance may be
revoked.
13)Clarifies that changes to or cancellation of a preretirement
election of an option must be received by CalSTRS within 30
days of the date of the member's signature, or spouse's
signature if applicable.
14)Revises provisions governing the Defined Benefit Supplement
(DBS) program to specify 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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15)Requires CalSTRS to distribute the balance of DBS accounts of
members and beneficiaries who have not submitted a DBS program
form, as specified, to each applicable member or beneficiary
in a lump-sum by March 31, 2010.
EXISTING LAW :
1)Defines compensation earnable as creditable compensation for
creditable 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.
2)Allows a CalPERS member to elect coverage in CalPERS or
CalSTRS, if the member performs service subject to coverage by
CalSTRS' DB program.
3)Allows substitute teachers and part-time employees otherwise
excluded from membership to elect membership in the DB
program, while employed to perform service subject to coverage
under that program.
4)Provides a nonmember spouse 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.
5)Authorizes school employers to offer a reduced workload
program under which a member works part-time but receives
credit in the defined benefit program as though the member
were 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.
6)Allows a member to purchase service credit in addition to what
he or she has earned. A member may purchase additional
service credit for prior service performed under specified
conditions, such as when a member purchases service credit for
service performed while teaching in another state.
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7)Allows a member to request a refund of his or her accumulated
retirement contributions after terminating his or her
employment covered by the DB program. A person who once again
becomes a member of the DB program, or a nonmember spouse who
withdrew contributions and decides to redeposit, may redeposit
all or a portion of the contributions. The member is required
to pay interest from the date of the refund to the date the
contributions are redeposited.
8)Authorizes CalSTRS to provide survivor benefits to the
beneficiaries of members who die before retiring under
Coverage B if the member joined CalSTRS after October 15, 1992
or elected this coverage during the subsequent election
period. Under Coverage B, an active member's surviving spouse
or children may qualify to receive a monthly benefit in
addition to the one-time death benefit.
9)Allows a member to apply for a disability benefit when he or
she is vested and meets eligibility requirements, and has a
physical or mental impairment that prevents the member from
performing his or her usual job or comparable duties. The
impairment must be expected to last at least 12 continuous
months.
10)Allows a member to receive a service retirement benefit if
that member is eligible to retire, while waiting for a
disability benefit application to be evaluated. In the event
that the member receives approval of his or her disability
benefit application, the member becomes a disabled member and
is paid a disability benefit in place of a service retirement
benefit.
11)Provides, generally, that 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. Over the years, however, specific exemptions to this
rule have been established to permit employers to hire retired
members to meet specific educational needs. If a retired
member returns to work under one of these occupation-specific
exemptions, the member and employer must provide documentation
to CalSTRS in order to avoid the member's benefit payment
being reduced when his or her reported earnings go above the
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earnings limit.
12)Allows a member receiving a disability retirement to elect to
receive an actuarially modified disability allowance. 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 acknowledgement notice.
13)Allows a member to 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.
14)Establishes the DBS program. Under the DBS program, CalSTRS
automatically establishes an account for each defined benefit
program member who performs creditable service and makes
contributions to CalSTRS on creditable compensation earned for
that service. Currently, one quarter of each member's
contribution to CalSTRS (i.e., 2%of the member's
CalSTRS-covered salary) is allocated to 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 TRB. In addition, the TRB 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 TRB has
awarded an additional earnings credit and an additional
annuity credit twice. Members are required to receive their
DBS benefit when they begin to receive the defined benefit
allowance.
FISCAL EFFECT : According to CalSTRS, minor and absorbable.
COMMENTS : The following information was provided to the
Committee by CalSTRS:
Compensation Earnable
Employers sometimes make retroactive changes to base hours and
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apply these changes to individual employees rather than the
entire class of employees. This causes problems for CalSTRS to
correctly compute the correct benefit for part-time community
college instructors employed prior to July 1, 1996. This
measure clarifies that changes to base hours apply to the entire
class of employees of community colleges.
CalPERS/CalSTRS Election
Education Code Section 22508 refers to Government Code Section
20309 to describe the circumstances under which an eligible
CalPERS member can elect CalSTRS coverage. This measure
clarifies that a member of CalPERS who is subsequently employed
to perform creditable service "requiring," instead of being
"subject to," coverage of the DB program may elect to remain
under CalPERS coverage.
Permissive Elections
Education Code Section 22515 was modified by AB 2982 (PER&SS
Committee), Chapter 375, Statutes of 2002, to remove the
language stating that the election of membership by substitute
teachers and part-time employees in the DB program was
irrevocable. Prior to that modification, the election was
irrevocable and conformed to all other DB elections. This
measure clarifies that this election is irrevocable and remains
in effect until the member terminates employment.
Refund of Accumulated Retirement Contributions
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 TRL 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 replaces the language that was removed by AB 1432,
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.
Reduced Workload Program
One of the restrictions of the reduced workload program is the
requirement that a member be employed to perform creditable
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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 CalSTRS' attention that this requirement is
not clear when parsed grammatically. This measure corrects this
grammatical error to clarify the requirement, and adds a
reference to other code sections that also include reduced
workload provisions.
Permissive and Additional Service Credit
When CalSTRS receives a request to purchase additional service
credit, CalSTRS 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 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. This measure makes corrections to
clarify the terminology and language for the purchase of
additional service credit.
Redeposit of Contributions
Some of the language relating to the redeposit of contributions
is vague. This measure makes corrections to the terminology to
reduce this vagueness with language that is clear.
Coverage B: Active Member Survivor Benefits
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 CalSTRS 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.
This measure 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
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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).
Disability Benefit
There is currently no statutory requirement that specifies that
a member applying for a disability benefit must submit a
disability application in order for CalSTRS to determine whether
the member meets all eligibility requirements for the benefit.
This measure clarifies that a member applying for disability
must submit a written application on a form provided by CalSTRS.
Retirement Benefits Pending an Evaluation of Disability
SB 634 clarifies that:
1)If the member does receive a service retirement benefit
payment, the effective date of that benefit is the same as the
effective date of the disability benefit.
2)A member who dies while awaiting a disability determination
who has also applied for service retirement will be considered
retired for service at the time of death if the member dies
prior to the determination of the disability application.
3)A member who dies after the TRB has determined the member is
disabled will be considered disabled at the time of death,
even if the member dies prior to receiving notification from
CalSTRS of this determination.
Post-Retirement Earnings Limit Exemptions
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. To
simplify administration of these exemptions, this measure
requires the employer to provide CalSTRS with appropriate
documentation by the end of the school year for which it
applies.
Disability Retirement Election of Options
Although existing law states that the option elected by a member
receiving disability retirement may not be revoked or changed
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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. This
measure clarifies these exceptions by referring to specific
sections of the Education Code.
Preretirement Election of an Option
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 CalSTRS 30 days after the
member's signature. This measure specifies that the change or
cancellation must be received by CalSTRS 30 days after the
member's signature, or spouse's, signature, if applicable.
Defined Benefit Supplement Program (DBS)
The DBS program was designed to mirror the Cash Balance (CB)
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 TRB declares an additional annuity
credit, effectively redistributing some of the newer annuitants'
accounts' earnings to older annuitants. This measure changes
the DBS additional annuity credit to mirror the CB 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 DBS program is designed such that a member who retires from
the DB program 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 under the DB program but not yet received
DBS funds. To remedy this situation, this bill clarifies 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
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not submitted a DBS program form, this measure requires CalSTRS
to distribute the balance of those DBS accounts to each
applicable member or beneficiary in a lump-sum by March 31,
2010.
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