BILL ANALYSIS �
SB 349
Page 1
SENATE THIRD READING
SB 349 (Negrete McLeod)
As Amended May 26, 2011
Majority vote
SENATE VOTE :35-0
PUBLIC EMPLOYEES 6-0 APPROPRIATIONS 16-0
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|Ayes:|Furutani, Mansoor, Allen, |Ayes:|Fuentes, Harkey, |
| |Harkey, Ma, Wieckowski | |Blumenfield, Bradford, |
| | | |Charles Calderon, Campos, |
| | | |Donnelly, Gatto, Hall, |
| | | |Hill, Lara, Mitchell, |
| | | |Nielsen, Norby, |
| | | |Solorio,Wagner |
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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.
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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.
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
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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.
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 (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
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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
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
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modify the effective date of retirement from CalSTRS if the
application for retirement is appropriately filed with CalSTRS.
11)Allows a member 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
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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.
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 group that retires by the date at which
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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.
7)Beneficiary Designation Invalidation:
Historically, if a member chose to receive a refund of his or her
contributions and subsequently returned to membership without
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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
Allowance and Survivor benefits lies with the member, and not with
the member's beneficiaries.
10)Disability Allowance Application:
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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 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
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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.
16)Post Retirement Earnings Limit:
Federal regulations governing tax-qualified pension programs
prohibit paying a pension to a person who is under the normal
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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 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.
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Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0001849