BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 349
Gloria Negrete McLeod, Chair Hearing date: May 2, 2011
SB 349 (Negrete McLeod) as amended 4/27/11
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
SUMMARY :
This bill would make 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 federal law :
a) known as the Heroes Earnings Assistance and Relief
Tax Act (HEART) Act of 2008, requires, among other
provisions, that public pension systems treat
participants who die on or after January 1, 2007 while
performing qualified military service, as being
reemployed and then dying while employed for purposes of
survivor and death benefits.
1)Existing state law :
a) allows CalSTRS to designate one or more of its
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
allows CalSTRS members to submit documents to CalSTRS
through benefits counselors;
b) allows the CalSTRS Board to establish a $10 minimum
threshold for the processing of benefit payments or the
collection of overpayments to a member;
c) establishes the Defined Benefit (DB) and Cash Balance
Benefit (CB) programs administered by CalSTRS as
separate benefit programs for full-time public school
administrators and instructors, and part-time or
seasonal instructors who are not eligible for the DB
program, respectively.
d) requires CalSTRS to assess penalties and interest on
late remittances of contributions for both the DB
Program and the CB Program in accordance with
regulations established by the CalSTRS Board;
e) allows a member to designate a beneficiary to receive
the member's benefits upon death of the member; allows a
member to make a preretirement election, change or
cancellation of an option, as specified, that designates
a beneficiary to receive a lifetime monthly benefit upon
the death of the member, and provides that upon death of
a member, beneficiaries or survivors may receive
specified benefits depending on the coverage that the
member was under, and eligibility of the member;
f) allows a member to transfer all or a specified
portion of his or her contributions eligible for a
direct trustee-to-trustee transfer to another qualified
plan under Section 402 of the Internal Revenue Code of
1986; to cancel the transfer, and to refund the system
with the withdrawn funds;
g) provides that upon proper application, a vested
member can receive disability benefits while the member
is either employed, on compensated leave of absence,
physically or mentally incapacitated, or on leave of
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absence without compensation, as specified, and for
CalSTRS members who became members after October 16,
1992, allows a portion of the benefit to be paid to a
dependent child until the age of 21;
h) requires a member to provide medical documentation to
substantiate an impairment qualifying the member for a
disability allowance, and allows CalSTRS to order a
medical examination of a member to determine whether the
member is incapacitated for performance of service;
i) provides that a member may retire, as specified,
change, or modify the effective date of retirement from
the System if the application for retirement is
appropriately filed with the System;
j) allows a member to who retires between the ages of 55
and 60 under the Early Retirement Limited Term Reduction
Program (ERLTRP), to elect to receive half of the amount
of his or her monthly retirement benefit for a limited
time and then revert to the full retirement allowance
for normal retirement age, and
aa) provides specified postretirement earnings
limitations on members who return to CalSTRS-covered
employment after retirement, including a limited time
for members who retire under normal retirement age;
prohibits a retired member in the DB Program from making
contributions to the program, and provides for different
limitations on retired DB members and CB Program
participants who return to work in CalSTRS-covered
service;
3) This bill :
Would make several technical, clarifying and
non-controversial changes to various sections of the
Education Code administered by CalSTRS to improve and
continue effective administration of the System.
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Specifically, this bill would :
a) amend the Education Code to comply with the
requirements of the federal HEART Act;
b) would provide additional options to CalSTRS members
by allowing them to submit CalSTRS forms and documents
to designated CalSTRS representatives during counseling
office hours or in the course of receiving counseling
services, regardless of whether the counseling takes
place in a counseling office;
c) broaden the language in the Education Code to include
"other" payments and collection of overpayments that
would be subject to the $10 threshold;
d) allow a member to terminate a retirement or
disability benefit and be eligible for a refund of the
remaining contributions and interest when properly
executed on a CalSTRS form;
e) remove the $500 late reporting penalty for the DB and
CB programs, leaving the regular interest penalty, and
make the penalties consistent for both the DB and CB
programs, among other related changes, as specified;
f) clarify that the beneficiary and option beneficiary
designations are invalidated when a member completes a
refund of his or her accumulated retirement
contributions;
g) clarify that an amount equal to the refund that is
returned to CalSTRS, would be treated the same as if the
actual refund warrant had been returned;
h) clarify that the basis for eligibility of Family
Allowance and Survivor benefits lies with the member,
and not with the member's beneficiaries;
i) clarify that a member may not apply for a disability
benefit if the basis for the disability is an impairment
that began prior to the member's membership in CalSTRS;
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j) clarify CalSTRS' authority to order a review of
medical documentation in lieu of a physical examination;
aa) clarify provisions allowing members to specify when
their retirement benefits start, following termination
of employment;
bb) make technical, non-controversial changes to provide
consistency and ease of administration of the Early
Retirement Limited Term Reduction Program (ERLTRP);
cc) specify that retired DB members are not allowed to
make contributions to the CB program, to provide
consistency among the two programs;
dd) specify that the zero-dollar earnings limit applies
to a member's age at the most recent retirement;
ee) make conforming changes to reconcile the differences
between the DB and the CB post-retirement employment
limitations; provide consistency in the post-retirement
limitations that are imposed on educators who retire
under CalSTRS, and also removes citations to provisions
related to two obsolete programs;
ff) align provisions, as specified, to allow an option
election to be made as part of the retirement
application process, or by the end of the month in which
the retirement takes effect;
gg) allow payment of a portion of disability retirement
to the member's dependent child, as specified, and
hh) make other minor, technical changes to the Teachers'
Retirement Law.
COMMENTS :
According to CalSTRS:
1)Federal HEART Act Compliance
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Currently, under the Defined Benefit (DB) Program, unless a
member dies within four months of CalSTRS-covered service,
or their survivors can show that the member was
continuously disabled since the last day of service, their
survivors are not eligible for the one-time death benefit
or for an ongoing survivor benefit or family allowance. In
the event a member dies prior to retirement, CalSTRS
provides a distribution of the member's remaining
contributions and interest in their DB, CB, or Defined
Benefit Supplement (DBS) account upon notification of
death. These distributions are made in all cases as long
as there are funds in the respective account.
This amendment would bring CalSTRS into conformity with
federal law to pay survivor and death benefits for military
members who die while performing military service, if they
would otherwise have been eligible for benefits had they
remained in CalSTRS-covered employment.
2)Receipt of Documents
Currently, the Board may designate 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, and
allows CalSTRS members to submit documents to CalSTRS
through benefits counselors, even if the counselors were
not at a counseling office at the time the documents were
submitted.
A counseling session with a member may take place at a
location other than a counseling office, such as at the
member's school.
3)$10 Threshold
If the amount of the processing a benefit payment or
collection of overpayment is below the $10 minimum, CalSTRS
is not required to issue the payment or collect the
overpayment. This allows CalSTRS to avoid the expense of
issuing a benefit payment or collecting an overpayment when
the amount of the payment is relatively small.
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By including unspecified "other" payments and collections,
the number of payments or collections for relatively small
amounts would be reduced by not limiting the application of
that threshold amount to benefit payments or overpayment
collections.
4)Refund of Contributions After Retirement
Previously, CalSTRS allowed a retired member to elect to
stop his or her retirement benefit and collect a refund of
remaining contributions, until being advised that this was
an incorrect interpretation of the law. Currently, a
retired member must terminate his or her retirement and
return to work for at least one day, and then separate from
employment, to collect a refund of his or her remaining
contributions.
The proposed change would allow a member to terminate a
retirement or disability benefit and be eligible for a
refund of the remaining employee contributions and
interest, without the technicality of returning to active
employment for a day.
5)Penalties and Interest
Current law requires CalSTRS to assess interest on late
remittances of contributions for both the DB and CB
Programs, and penalties on late contribution reports in
accordance with regulations to be established by the
CalSTRS Board. Regular interest would be charged on any
delinquent contributions. Penalties would be assessed
based on the total employer and employee contributions at
the regular interest rate from the time the report was due
to when the report is received by CalSTRS, with a minimum
fee of $500.
Among other things, this change would also allow for the
drafting of regulatory language for the CB Program late
contribution penalty that would parallel the DB draft
penalties and interest regulations that are now going
through CalSTRS' rulemaking process.
6)Beneficiary Designation Invalidation
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Historically, if a member chose to receive a refund of his
or her contributions and subsequently returned to
membership without completing a new beneficiary designation
form, the beneficiary designation in effect prior to the
refund would continue to be in effect after returning to
membership. Under recent updates to its information
technology system, CalSTRS maintains on record, the
beneficiary designations after the member's more recent
membership date and deems a prior designation as invalid.
However, the law does not clearly state whether a member's
designation is invalidated when he or she terminates
service and receives a refund of his or her contributions.
This change clarifies the law so that CalSTRS may use
up-to-date beneficiary designations that are made after the
member's most recent membership date.
7)Return of Refund
Under current law, a former CalSTRS member who has
requested a rollover to another qualified retirement plan
and returns the refund warrant to CalSTRS within 30 days of
when the refund was originally mailed by CalSTRS, may be
reinstated as a member of the DB program. However, in
cases where a warrant is sent directly to a financial
institution and is deposited, the member may not be able to
return the original warrant to CalSTRS. Under that
circumstance, CalSTRS cannot accept the member back into
the DB Program.
This proposed change would clarify that an amount equal to
the refund that is returned to CalSTRS would be treated the
same as if the actual refund warrant had been returned.
8)Family Allowance and Survivor Benefits
Upon the death of a member, beneficiaries or survivors may
receive specified benefits. The benefits received depend
on the coverage that the member was under, which is based
on whether the member started his or her membership on or
after October 16, 1992 (Coverage A or Coverage B).
Eligibility for those benefits depends on the eligibility
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of the member.
This proposed change clarifies that the basis for
eligibility of Family Allowance and Survivor benefits lies
with the member, and not with the member's beneficiaries.
9)Disability Allowance Application
CalSTRS members are eligible for disability benefits after
they are vested and meet other requirements. Current law
specifies time periods in which a member can apply for a
disability benefit.
This proposed change makes a technical change in the code,
and would clarify an existing provision that states that a
member may not apply for a disability benefit if the basis
for the disability is an impairment that began prior to the
member's membership in CalSTRS.
10)Independent Medical Examinations
Currently, CalSTRS can request a medical examination
performed by a licensed physician to determine whether a
member is incapacitated for performance of service to
substantiate an application for a disability benefit. In
most cases where a medical examination is requested,
CalSTRS also requests a review of medical documentation to
determine whether a member is incapacitated for performance
of service. There are some instances where CalSTRS would
only request a review of medical documentation and would
not require the member to participate in an examination.
The majority of the costs associated with the medical
examination are paid directly by CalSTRS, while additional
costs related to travel and meals are paid by the member
who is subsequently reimbursed by CalSTRS.
11)Service Retirement Benefit Effective Date
Currently, a member may submit an application for service
retirement during a period that begins six months prior to
the chosen retirement date and extends to the last day of
the month in which the retirement is to take effect. Each
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year, a number of members fail to submit their retirement
application within that period to receive a service
retirement benefit after their employment terminates.
This change would allow a member to backdate his or her
service retirement benefit effective date to as early as
the day following the date the member terminated his or her
employment regardless of whether the service retirement
application is received after the employment termination
date, and specifies that the value of annuities payable
under the DBS program is to be calculated based on the
member's retirement date, in conformity with the change to
the service retirement benefit effective date, which may be
earlier than when the annuity is paid, among other
technical changes.
12) Early Retirement Limited Term Reduction Program (ERLTRP)
Due to the different calculations used to determine a
member's monthly benefit, CalSTRS encounters problems
administering the program when a member either reinstates
to active service and subsequently retires with a
multiple-retirement calculation; retires for service after
terminating a disability retirement or disability
allowance; or retires for service after reinstating to
active service from a disability allowance.
13) DB Retiree Contributions
Current law is inconsistent between the DB and CB programs
when specifying that retired members do not make
contributions for CalSTRS-covered employment. A retired
member in the DB program may not make contributions to the
DB program. However, current law does not specifically
state whether or not a retired DB member cannot participate
in the CB program.
This proposed change would specify that retired DB members
are not allowed to make contributions to the CB program, to
provide consistency among the two programs.
14) Post Retirement Earnings Limit (Under Age 60)
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Members who retire under the normal retirement age of 60,
and subsequently work in any CalSTRS-related service fall
under a zero-dollar earnings limit for the first six
calendar months after they retire. During those six
calendar months, the zero-dollar earnings limit reduces the
member's retirement benefit by the amount of compensation
earned during that period. Members may retire for service,
reinstate to active membership and subsequently retire
again. This post-retirement earnings limit, as well as
other earnings limits, applies to a member's most recent
retirement.
15) Post Retirement Earnings Limit
Federal regulations governing tax-qualified pension
programs prohibit paying a pension to a person who is under
the normal retirement age of that pension system (i.e., age
60) unless the employment that brought about the pension
has been terminated. CalSTRS addresses this prohibition by
limiting the yearly amount of money that can be earned by
DB members and CB participants after retirement from
CalSTRS-covered service. The DB and CB programs have
different limitations on retired members and participants
who return to work in CalSTRS-covered service. Under
certain circumstances, postretirement earnings may be
exempt from the limit, as specified.
This change would reconcile differences in the DB and CB
post-retirement employment limitations and provides
consistency in the post-retirement limitations that are
imposed on educators who retire under CalSTRS.
16) Option Elections
A CalSTRS member may elect an option that designates a
beneficiary to receive a lifetime monthly benefit upon the
death of the member. If a preretirement election of an
option is changed or cancelled, or the option beneficiary
dies before the member retires, the member's retirement
benefit may be permanently reduced.
This proposed change would align the provisions to allow
the election to be made as part of the retirement
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application process, or by the end of the month in which
the retirement takes effect.
17) Child's Portion of Disability Retirement or Survivor
Benefit
The disability retirement allowance for CalSTRS members who
became members on or after October 16, 1992, includes a
portion of the benefit that is paid to a dependent child
until the age of 21. Under the provisions of law at the
time, CalSTRS paid the dependent child portion of the
benefit even if the member died while receiving the
disability retirement allowance. The law governing payment
of a disability retirement benefit to a dependent child was
incorrectly amended in 1997, and since then, has not
allowed payment of a child benefit after the disabled
member dies. This change was unintentional and no basis
for the change can be found.
This change would correct that error.
18) SUPPORT :
California State Teachers' Retirement System
(CalSTRS), sponsor
19) OPPOSITION :
None to date
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