BILL ANALYSIS �
SB 349
Page 1
Date of Hearing: June 22, 2011
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Warren T. Furutani, Chair
SB 349 (Negrete McLeod) - As Amended: May 26, 2011
SENATE VOTE : 35-0
SUBJECT : State Teachers' Retirement Plan.
SUMMARY : Makes 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.
Specifically, this bill :
1)Amends the Education Code to comply with the requirements of
the federal Heroes Earnings Assistance and Relief Tax (HEART)
Act of 2008.
2)Provides 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.
3)Broadens the language in the Education Code to include "other"
payments and collection of overpayments that would be subject
to the $10 threshold.
4)Clarifies the funding of the Medicare Premium Payment Program
(MPP Program) to ensure that the MPP Program may only be
extended to the extent that surplus employer contributions of
the Defined Benefit (DB) Program are available.
5)Allows 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.
6)Removes the $500 late reporting penalty for the DB and Cash
Balance Benefit (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.
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7)Clarifies that the beneficiary and option beneficiary
designations are invalidated when a member completes a refund
of his or her accumulated retirement contributions.
8)Clarifies 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.
9)Clarifies that the basis for eligibility of Family Allowance
and Survivor benefits lies with the member, and not with the
member's beneficiaries.
10)Clarifies 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.
11)Clarifies CalSTRS' authority to order a review of medical
documentation in lieu of a physical examination.
12)Clarifies provisions allowing members to specify when their
retirement benefits start, following termination of
employment.
13)Makes technical, non-controversial changes to provide
consistency and ease of administration of the Early Retirement
Limited Term Reduction Program (ERLTRP).
14)Specifies that retired DB members are not allowed to make
contributions to the CB Program, to provide consistency among
the two programs.
15)Specifies that the zero-dollar earnings limit applies to a
member's age at the most recent retirement.
16)Makes 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.
17)Aligns 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.
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18)Allows payment of a portion of disability retirement to the
member's dependent child, as specified.
19)Makes other minor, technical changes to the Teachers'
Retirement Law.
EXISTING FEDERAL LAW :
Establishes the HEART Act which 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.
EXISTING STATE LAW :
1)Allows CalSTRS to designate one or more of its 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.
2)Allows the Teachers' Retirement Board to establish a $10
minimum threshold for the processing of benefit payments or
the collection of overpayments to a member.
3)Allows, under the MPP Program, CalSTRS to pay the Medicare
Part A premiums for eligible retired members of the DB
Program, effective July 1, 2001. The Teachers' Retirement
Board is authorized to extend this eligibility date. To
qualify for CalSTRS payment of the premium, the member must be
at least 65 years of age, enrolled in Medicare Parts A and B
at the age of 65 or on July 1, 2001, whichever is later, and
not eligible for Medicare Part A without payment of a premium.
CalSTRS also pays the Medicare Parts A and B late enrollment
surcharges for DB members who retired prior to January 1,
2001, provided they enrolled in Medicare by July 1, 2001. To
fund this program, CalSTRS established a special trust fund
known as the Teachers' Health Benefits Fund (THBF), into which
an amount from employer contributions that otherwise would be
credited to the DB Program would instead pay the premium of
Medicare Part A.
4)Establishes the DB Program and the CB Program administered by
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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.
5)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.
6)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.
7)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.
8)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 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.
9)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.
10)Provides that a member may retire, as specified, change, or
modify the effective date of retirement from CalSTRS if the
application for retirement is appropriately filed with
CalSTRS.
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11)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.
12)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.
FISCAL EFFECT : According to the Senate Appropriations
Committee, pursuant to Senate Rule 28.8, negligible state costs.
COMMENTS : According to CalSTRS:
1)Federal HEART Act Compliance:
Currently, under the 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 bill 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
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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.
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)Medicare Premium Payment Program:
Currently, CalSTRS pays the Medicare Part A premiums for 6,700
retired DB Program members, and the Medicare Part B surcharges
to 1,050 DB Program members. However, the MPP Program has a
diminishing eligible population and finite duration, and
CalSTRS expect a predicted decline beginning in 2016, with a
peak enrollment that year of 7,700 members.
This bill clarifies the funding of the MPP Program to reflect
the original intent. When the existing language was enacted,
which funded the MPP Program, the amount to be spent for the
MPP Program, including any extensions authorized by the
Teachers' Retirement Board, could not exceed the amount of
surplus assets identified in the DB valuation and set aside in
the subsequent DB Program valuations. Since that time, it
became apparent that more funds were set aside than needed to
fully fund the MPP Program, even if everyone, regardless of
when they retired, could be eligible for the benefit. As a
result, the Teachers' Retirement Board changed its approach to
set aside only the amount needed to fund the program for the
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group that retires by the date at which the Teachers'
Retirement Board sets as the eligibility deadline (currently
7/12/12), and any extensions of the eligibility would be paid
from resources identified at the time of the extension that
exceeded the amount needed to fully fund the DB Program over
the board's funding period. This measure is consistent with
the current approach, and maintains the original intent that
the MPP Program only be extended to the extent that employer
contributions that are surplus to a full funding plan are
available.
5)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.
This bill allows 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.
6)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 bill allows 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.
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7)Beneficiary Designation Invalidation:
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 bill clarifies the law so that CalSTRS may use up-to-date
beneficiary designations that are made after the member's most
recent membership date.
8)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 bill clarifies that an amount equal to the refund that is
returned to CalSTRS will be treated the same as if the actual
refund warrant had been returned.
9)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 of the member.
This bill clarifies that the basis for eligibility of Family
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Allowance and Survivor benefits lies with the member, and not
with the member's beneficiaries.
10)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 bill makes a technical change in the code, and clarifies 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.
11)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.
12)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 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 bill allows a member to backdate his or her service
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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.
13)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.
14)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 bill specifies that retired DB members are not allowed to
make contributions to the CB program, to provide consistency
among the two programs.
15)Post Retirement Earnings Limit (Under Age 60):
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.
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16)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 bill reconciles 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.
17)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 bill aligns the provisions to allow the election to be made
as part of the retirement application process, or by the end
of the month in which the retirement takes effect.
18)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
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child benefit after the disabled member dies. This change was
unintentional and no basis for the change can be found.
This bill will correct that error.
REGISTERED SUPPORT / OPPOSITION :
Support
California State Teachers' Retirement System (Sponsor)
California Federation of Teachers
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957