Amended in Assembly June 12, 2014

Senate Bill No. 864

Introduced by begin delete Committee on Budget and Fiscal Review end delete begin insert Senator Torres end insert

begin insert

(Principal coauthor: Assembly Member Bonta)

end insert

January 9, 2014

begin delete An act relating to the Budget Act of 2014. end delete begin insert An act to amend Sections 22140, 22141, 22905, 22955, and 22955.5 of, to add Sections 22002.5, 22901.7, 22957, and 22958 to, and to add and repeal Sections 22311.9, 22950.5, and 22955.1 of, the Education Code, relating to state teachers’ retirement, and making an appropriation therefor, to take effect immediately, bill related to the budget. end insert

LEGISLATIVE COUNSEL’S DIGEST

SB 864, as amended, begin delete Committee on Budget and Fiscal Review end delete   begin insert Torres end insert . begin delete Budget Act of 2014. end delete begin insert State teachers’ retirement: Defined Benefit Program: funding. end insert

begin insert

The State Teacher’s Retirement Law (STRL) creates the Defined Benefit Program of the State Teachers’ Retirement Plan for the provision of benefits to members of the plan, which is administered by the Teachers’ Retirement Board (board). The Defined Benefit Program is funded by employer and employee contributions as well as investment returns and state appropriations. Employee and employer contributions are deposited in the Teachers’ Retirement Fund, which is continuously appropriated. The Defined Benefit Program provides for an improvement factor, as defined, to be applied to monthly allowances or benefits of retired members of the system, as specified. STRL specifies that the Legislature reserves the right to adjust the amount of the improvement factor as economic conditions dictate, provided that an adjustment is prohibited from reducing the retirement allowance, annuity, or benefit below that which would have been payable to the recipient. Existing case law holds that the right to a pension is a contractually protected vested right and that the specific provisions of a pension system that a member earns through employment may be modified to the detriment of the member only if a comparable new advantage is provided.

end insert begin insert

This bill, beginning July 1, 2014, would vest the improvement factor, as described above, as a benefit for an active member in any calendar year in which active members paid increased member contributions, pursuant to specified provisions. The bill would condition this vesting on the increased member contributions and if those contributions cease to be required, the Legislature would reserve the right to adjust the improvement factor, as specified. The bill would state that the vesting of the improvement factor is a comparable new advantage provided in exchange for the contribution increases and is contractually enforceable.

end insert begin insert

The bill would also increase employer and state contributions to the Defined Benefit Program according to prescribed schedules, to be operative until July 1, 2046, or until the Director of Finance makes a certain determination of the status of these increases in connection with constitutionally required funding for schools or reimbursable mandates for local entities and provides notice of that determination, as specified. By increasing amounts deposited in a continuously appropriated fund, this bill would make an appropriation.

end insert begin insert

This bill would prescribe requirements for any action or proceeding challenging the validity of any matter authorized by its provisions, including that any challenge be filed within 60 days. The bill would require, until July 1, 2046, that the Teachers’ Retirement Board report to the Legislature on or before July 1, 2019, and every 5 years thereafter, on the fiscal health of the Defined Benefit Program and the unfunded actuarial obligation with respect to the service of certain members and funding adjustments needed to eliminate by June 30, 2046, those obligations, among other things. The bill would prescribe how excess contributions to the Defined Benefit Supplement account are to be returned. The bill make certain findings and declarations and conforming changes. The bill would provide that its provisions are not severable.

end insert begin insert

This bill would declare that it is to take effect immediately as a bill providing for appropriations related to the Budget Bill.

end insert begin delete

This bill would express the intent of the Legislature to enact statutory changes relating to the Budget Act of 2014.

end delete

Vote: majority. Appropriation:  begin delete no end delete begin insert yes end insert . Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

begin insert

begin insert SECTION 1. end insert   

end insert

begin insert Section 22002.5 is added to the end insert begin insert Education Code end insert begin insert ,
to read: end insert

begin insert

begin insert 22002.5. end insert   

The Legislature finds and declares all of the
following:

(a) The current and projected assets of the State Teachers’
Retirement Plan administered by the State Teachers’ Retirement
System with respect to the Defined Benefit Program are insufficient
to meet the obligations of that program already accrued or
projected to be accrued in the future with respect to service
credited to members of that program before July 1, 2014.

(b) Various legal rulings have determined that vested
contractual rights of existing members generally cannot be changed
without providing a comparable new advantage.

(c) The improvement factor currently provided under the Defined
Benefit Program pursuant to Sections 22140 and 22141, as those
sections read before July 1, 2014, is not a contractually enforceable
promise.

(d) The Legislature hereby increases the contributions of active
members by an amount not to exceed the normal cost of the
improvement factor, providing a comparable new advantage by
removing the statutory right to adjust the improvement factor, and
thereby establishing the improvement factor as a contractually
enforceable promise.

(e) The statutory changes adopted by the act that added this
section address the long-term funding needs of the Defined Benefit
Program in a manner that allocates increased contributions among
members of the system and school employers, consistent with the
contractual rights of existing members.

(f) The provisions of the act that added this section were based
on various legal understandings and would not have been adopted
without those understandings. The new obligations and benefits
provided in Sections 7 and 9 of the act adding this section are
contingent on those legal understandings being accurate. Thus if
there is a final unappealable judicial decision that holds that the
increased contributions in Section 22950.5 constitute a new
functional responsibility for schools and community colleges
pursuant to subdivision (c) of Section 41204, and correspondingly
require an adjustment pursuant to subdivision (b) of Section 8 of
Article XVI of the California Constitution, or a final unappealable
administrative or judicial decision that holds that the increased
contributions in Section 22950.5 constitutes a reimbursable
mandate pursuant to Article XIII B of the California Constitution,
then it is the intent of the Legislature that the provisions added by
the act adding this section shall cease to be effective.

(g) It is in the public interest and a matter of urgency to
authorize, and to implement as soon as possible, a remedy to the
funding problem of the system. This remedy is necessary to ensure
that funds will be available to support a pension system upon which
hundreds of thousands of teachers rely and for which the current
funding structure raises significant fiscal policy concerns.

(h) It is of great importance to the state, the system, and school
districts that there not be long term doubt about the feasibility of
the solutions provided in the act that added this section. In order
to fulfill the important objective of facilitating the system’s and
school districts’ financial transactions the legality of the act that
added this section must be quickly affirmed. The system, school
districts, and teachers need to settle promptly all questions about
the validity of each other’s duties and obligations under this
statute.

(i) It is well-established that the terms and conditions of public
retirement plans generally are established by statute or other
comparable enactment rather than by contract. Statutes governing
the terms of compensation and deferred compensation of public
employees are thus significant financial obligations contemplated
and covered by Chapter 9 (commencing with Section 860) of Title
10 of Part 2 of the Code of Civil Procedure.

end insert

begin insert

begin insert SEC. 2. end insert   

end insert

begin insert Section 22140 of the end insert begin insert Education Code end insert begin insert is amended to
read: end insert

22140.  

(a) “Improvement factor,” with respect to the Defined
Benefit Program, means an increase of 2 percent in monthly
allowances. The improvement factor shall be added to a monthly
allowance each year on September 1, commencing on September
1 following the first anniversary of the effective date of retirement,
or the date on which the monthly allowance commenced to accrue
to any beneficiary, or other periods specifically stated in this part.

(b) The improvement factor may not be compounded nor shall
it be applicable to annuities payable from the accumulated annuity
deposit contributions or the accumulated tax-sheltered annuity
contributions. begin delete The end delete

begin insert

(c) Beginning July 1, 2014, the improvement factor shall vest
for an active member in any calendar year in which active members
paid increased member contributions pursuant to Section 22901.7.

end insert begin insert

(d) If, for any reason, the increased employee contribution
referenced in subdivision (c), and as required by subdivisions (a)
and (b) of Section 22901.7, ceases to be legally required to be
made pursuant to the act that added this subdivision, then the
Legislature reserves the right to adjust the amount of the
improvement factor up or down as the economic conditions dictate
for all members who retire on or after January 1, 2014. No
adjustments of the improvement factor shall reduce the monthly
retirement allowance or benefit below that which would be payable
to the recipient under this part had this section not been enacted.

end insert

begin insert (e) end insert begin insert   end insert begin insert For members who retired before the calendar year in which
Section 22901.7 was added end insert begin insert the end insert Legislature reserves the right to
adjust the amount of the improvement factor up or down as
economic conditions dictate. Any adjustment of the improvement
factor may not reduce the monthly retirement allowance or annuity
below that which would be payable to the recipient under this part
had this section not been enacted.

begin insert

begin insert SEC. 3. end insert   

end insert

begin insert Section 22141 of the end insert begin insert Education Code end insert begin insert is amended to
read: end insert

22141.  

begin insert (a) end insert begin insert   end insert Notwithstanding Section 22140, “improvement
factor” means an increase of 2 percent in benefits provided under
Sections 24408 and 24409 for each year commencing on September
1, 1981, and under Section 24410.5 for each year commencing
September 1, 2001, and under Sections 24410.6 and 24110.7 for
each year commencing September 1, 2002. The factor shall not
be compounded nor shall it be applicable to annuities payable from
the accumulated annuity deposit contributions or the accumulated
tax-sheltered annuity contributions. The Legislature reserves the
right to adjust the amount of the improvement factor up or down
as the economic conditions dictate. No adjustments of the
improvement factor shall reduce the monthly retirement allowance
or benefit below that which would be payable to the recipient under
this part had this section not been enacted.

begin insert

(b) Beginning July 1, 2014, the improvement factor shall vest
for an active member in any calendar year in which active members
paid increased member contributions pursuant to Section 22901.7.

end insert begin insert

(c) If, for any reason, the increased employee contribution
referenced in subdivision (b), and as required by subdivisions (a)
and (b) of Section 22901.7, ceases to be legally required to be
made pursuant to the act that added this subdivision, then the
Legislature reserves the right to adjust the amount of the
improvement factor up or down as the economic conditions dictate
for all members who retire on or after January 1, 2014. No
adjustments of the improvement factor shall reduce the monthly
retirement allowance or benefit below that which would be payable
to the recipient under this part had this section not been enacted.

end insert begin insert

(d) For members who retired before the calendar year in which
Section 22901.7 was added, the Legislature reserves the right to
adjust the amount of the improvement factor up or down as the
economic conditions dictate. No adjustments of the improvement
factor shall reduce the monthly retirement allowance or benefit
below that which would be payable to the recipient under this part
had this section not been enacted.

end insert

begin insert

begin insert SEC. 4. end insert   

end insert

begin insert Section 22311.9 is added to the end insert begin insert Education Code end insert begin insert , to
read: end insert

begin insert

begin insert 22311.9. end insert   

(a) The board shall report to the Legislature on or
before July 1, 2019, and every five years thereafter, on the fiscal
health of the Defined Benefit Program and the unfunded actuarial
obligation with respect to service credited to members of that
program before July 1, 2014. The first report shall include the
unfunded actuarial obligation and funded ratio as of the date of
enactment of this section and compare that with the unfunded
actuarial obligation and funded ratio as of June 30, 2018, and the
projected unfunded actuarial obligation and funded ratio as of
June 30, 2046, based on contributions, and economic and
demographic assumptions identified in the June 30, 2018, actuarial
valuation. The report shall also identify adjustments required in
contribution rates in order to eliminate by June 30, 2046, the
unfunded actuarial obligation of the Defined Benefit Program with
respect to service credited to members of that program before July
1, 2014. Subsequent reports shall include the unfunded actuarial
obligation and the funded ratio of the Defined Benefit Program
based on the actuarial valuation of the preceding year, and shall
identify adjustments required in contribution rates in order to
eliminate by June 30, 2046, the unfunded actuarial obligation of
the Defined Benefit Program with respect to service credited to
members of that program before July 1, 2014. These reports shall
be provided consistent with the requirements of Section 9795 of
the Government Code.

(b) This section shall become inoperative on July 1, 2046, and
as of January 1, 2047, is repealed.

end insert

begin insert

begin insert SEC. 5. end insert   

end insert

begin insert Section 22901.7 is added to the end insert begin insert Education Code end insert begin insert , to
read: end insert

begin insert

begin insert 22901.7. end insert   

(a) Commencing July 1, 2014, the amount of
contributions required under subdivision (a) of Section 22901 and
Section 22901.3 as it applies to a member who is not subject to
the Public Employees’ Pension Reform Act of 2013 shall increase
by the percentage of the member’s compensation that is creditable
to the Defined Benefit Program as follows:

(1) On July 1, 2014, by 0.15 percent.

(2) On July 1, 2015, by 1.20 percent.

(3) On July 1, 2016, by 2.25 percent.

(b) Commencing July 1, 2014, the amount of contributions
required under subdivision (b) of Section 22901 and Section
22901.3 as it applies to members who are subject to the Public
Employees’ Pension Reform Act of 2013 shall increase by the
following percentages of the member’s compensation that is
creditable to the Defined Benefit Program as follows:

(1) On July 1, 2014, by 0.15 percent.

(2) On July 1, 2015, by 0.56 percent.

(3) On July 1, 2016, by 1.205 percent.

(c) The act adding this section establishes the improvement
factor provided pursuant to Sections 22140 and 22141 as a vested
benefit pursuant to a contractually enforceable promise and a
comparable new advantage in exchange for the contribution
increases made pursuant to this section.

end insert

begin insert

begin insert SEC. 6. end insert   

end insert

begin insert Section 22905 of the end insert begin insert Education Code end insert begin insert is amended to
read: end insert

22905.  

(a) Member contributions pursuant to begin delete Section end delete begin insert Sections end insert
22901, begin insert 22901.3, and 22901.7, end insert employer contributions pursuant to
Section 22903 or 22904, and member contributions made by an
employer pursuant to Section 22909 shall be credited to the
member’s individual account under the Defined Benefit Program
or the Defined Benefit Supplement Program, whichever is
applicable pursuant to the provisions of this part.

(b) Except as provided in subdivision begin delete (f), end delete begin insert (g), end insert member and
employer contributions, exclusive of contributions pursuant to
begin delete Section end delete begin insert Sections 22901.7, 22950.5, and end insert 22951, on a member’s
compensation under the following circumstances shall be credited
to the member’s Defined Benefit Supplement account:

(1) Compensation for creditable service that exceeds one year
in a school year.

(2) Compensation that is consistent with subdivision (b) of
Section 22119.2.

(3) Compensation that is paid for a limited number of times as
specified by law, a collective bargaining agreement, or an
employment agreement.

(c) A member may not make voluntary pretax or posttax
contributions under the Defined Benefit Supplement Program,
except as provided in subdivision (d), nor may a member redeposit
amounts previously distributed based on the balance in the
member’s Defined Benefit Supplement account.

(d) Member and employer contributions pursuant to paragraph
(1) of subdivision (b) under the Defined Benefit Supplement
Program shall be credited to the accounts of members as of July
1 each year following a determination by the system under the
provisions of this part that those contributions should be credited
to the Defined Benefit Supplement Program. Any other
contributions under the Defined Benefit Supplement Program
pursuant to paragraph (2) or (3) of subdivision (b), shall be credited
to the individual account of the member upon receipt by the system.
Contributions to a member’s Defined Benefit Supplement account
shall be identified separately from the member’s contributions
credited under the Defined Benefit Program.

begin insert

(e) Any contributions on compensation that is creditable to the
Defined Benefit Supplement account shall be limited to the
contributions made pursuant to Sections 22901, 22901.3, 22950,
and 22951. Any excess member contributions, as determined by
the system, shall be returned to the member through the employer
and any excess employer contributions shall be returned to the
employer.

end insert begin delete

(e)

end delete

begin insert (f) end insert  The provisions of this section shall become operative on July
1, 2002, if the revenue limit cost-of-living adjustment computed
by the Superintendent of Public Instruction for the 2001-02 fiscal
year is equal to or greater than 3.5 percent. Otherwise this section
shall become operative on July 1, 2003.

begin delete

(f)

end delete

begin insert (g) end insert  Paragraphs (2) and (3) of subdivision (b) shall not apply to
a member subject to the California Public Employees’ Pension
Reform Act of 2013.

begin insert

begin insert SEC. 7. end insert   

end insert

begin insert Section 22950.5 is added to the end insert begin insert Education Code end insert begin insert , to
read: end insert

begin insert

begin insert 22950.5. end insert   

(a) Commencing July 1, 2014, the amount of
contributions required under subdivision (a) of Section 22950
shall increase by the following percentages of the creditable
compensation upon which members’ contributions under the
Defined Benefit Program are based:

(1) On July 1, 2014, by 0.63 percent.

(2) On July 1, 2015, by 2.48 percent.

(3) On July 1, 2016, by 4.33 percent.

(4) On July 1, 2017, by 6.18 percent.

(5) On July 1, 2018, by 8.03 percent.

(6) On July 1, 2019, by 9.88 percent.

(7) On July 1, 2020, by 10.85 percent.

(b) (1) For fiscal year 2021-22 and each fiscal year thereafter,
the board shall increase or decrease the percentages paid specified
in this section from the percentage paid during the prior fiscal
year to reflect the contribution required to eliminate by June 30,
2046, the remaining unfunded actuarial obligation with respect
to service credited to members before July 1, 2014, as determined
by the board based upon a recommendation from its actuary.

(2) If a rate adjustment is required, the percentages authorized
in paragraph (1) shall not change in any single fiscal year by more
than 1.00 percent of the creditable compensation upon which
members’ contributions to the Defined Benefit Program are based.
The percentages described in subdivision (a) and as may be
adjusted pursuant to this subdivision shall not exceed 12.00 percent
of the creditable compensation upon which members’ contributions
to the Defined Benefit Program are based, inclusive of the
percentages identified in subdivision (a).

(3) The board shall not increase the rates in order to supplant
the state’s obligation pursuant to Section 22955.1.

(c) (1) Except as described in paragraph (2), this section shall
become inoperative on July 1, 2046, and as of January 1, 2047,
is repealed.

(2) Notwithstanding paragraph (1), on July 1 of the first fiscal
year after a 30-day notice has been sent to the Joint Legislative
Budget Committee and the Controller in compliance with
subdivision (d) of Section 22957, this section shall become
inoperative and, as of the following January 1, is repealed.

end insert

begin insert

begin insert SEC. 8. end insert   

end insert

begin insert Section 22955 of the end insert begin insert Education Code end insert begin insert is amended to
read: end insert

22955.  

(a) Notwithstanding Section 13340 of the Government
Code, commencing July 1, 2003, a continuous appropriation is
hereby annually made from the General Fund to the Controller,
pursuant to this section, for transfer to the Teachers’ Retirement
Fund. The total amount of the appropriation for each year shall be
equal to 2.017 percent of the total of the creditable compensation
of the fiscal year ending in the immediately preceding calendar
year upon which members’ contributions are based, as reported
annually to the Director of Finance, the Chairperson of the Joint
Legislative Budget Committee, and the Legislative Analyst
pursuant to Section 22955.5, and shall be divided into four equal
payments. The payments shall be made on, or the following
business day after, July 1, October 1, December 15, and April 15
of each fiscal year.

(b) Notwithstanding Section 13340 of the Government Code,
commencing October 1, 2003, a continuous appropriation, in
addition to the appropriation made by subdivision (a), is hereby
annually made from the General Fund to the Controller for transfer
to the Teachers’ Retirement Fund. The total amount of the
appropriation for each year shall be equal to 0.524 percent of the
total of the creditable compensation of the fiscal year ending in
the immediately preceding calendar year upon which members’
contributions are based, as reported annually to the Director of
Finance, the Chairperson of the Joint Legislative Budget
Committee, and the Legislative Analyst pursuant to Section
22955.5, and shall be divided into four equal quarterly payments.
The percentage shall be adjusted to reflect the contribution required
to fund the normal cost deficit or the unfunded obligation as
determined by the board based upon a recommendation from its
actuary. If a rate increase is required, the adjustment may be for
no more than 0.25 percent per year and in no case may the transfer
made pursuant to this subdivision exceed 1.505 percent of the total
of the creditable compensation of the fiscal year ending in the
immediately preceding calendar year upon which members’
contributions are based. At any time when there is neither an
unfunded obligation nor a normal cost deficit, the percentage shall
be reduced to zero. The funds transferred pursuant to this
subdivision shall first be applied to eliminating on or before June
30, 2027, the unfunded actuarial liability of the fund identified in
the actuarial valuation as of June 30, 1997.

(c) For the purposes of this section, the term “normal cost
deficit” means the difference between the normal cost rate as
determined in the actuarial valuation required by Section 22311
and the total of the member contribution rate required under Section
22901 and the employer contribution rate required under Section
22950, and shall exclude (1) the portion for unused sick leave
service credit granted pursuant to Section 22717, and (2) the cost
of benefit increases that occur after July 1, 1990. The contribution
rates prescribed in Section 22901 and Section 22950 on July 1,
1990, shall be utilized to make the calculations. The normal cost
deficit shall then be multiplied by the total of the creditable
compensation upon which member contributions under this part
are based to determine the dollar amount of the normal cost deficit
for the year.

(d) Pursuant to Section 22001 and case law, members are
entitled to a financially sound retirement system. It is the intent of
the Legislature that this section shall provide the retirement fund
stable and full funding over the long term.

(e) This section continues in effect but in a somewhat different
form, fully performs, and does not in any way unreasonably impair,
the contractual obligations determined by the court in California
Teachers’ Association v. Cory, 155 Cal.App.3d 494.

(f) Subdivision (b) shall not be construed to be applicable to
any unfunded liability resulting from any benefit increase or change
in contribution rate under this part that occurs after July 1, 1990.

(g) The provisions of this section shall be construed and
implemented to be in conformity with the judicial intent expressed
by the court in California Teachers’ Association v. Cory, 155
Cal.App.3d 494.

(h)  begin delete This section end delete begin insert Subdivisions (a) through (g), inclusive, end insert shall
begin delete become operative end delete begin insert be inoperative end insert on begin insert and after end insert July 1, begin delete 2003, if the
revenue limit cost-of-living adjustment computed by the
Superintendent of Public Instruction for the 2001-02 fiscal year
is equal to or greater than 3.5 percent. Otherwise this section shall
become operative on July 1, 2004. end delete begin insert 2014, and shall become
operative beginning the earlier of July 1, 2046, or July 1 of the
first fiscal year after a 30-day notice has been sent to the Joint
Legislative Budget Committee and the Controller in compliance
with subdivision (d) of Section 22957. end insert

begin insert

begin insert SEC. 9. end insert   

end insert

begin insert Section 22955.1 is added to the end insert begin insert Education Code end insert begin insert , to
read: end insert

begin insert

begin insert 22955.1. end insert   

(a) Notwithstanding Section 13340 of the Government
Code, commencing July 1, 2003, a continuous appropriation is
hereby annually made from the General Fund to the Controller,
pursuant to this section, for transfer to the Teachers’ Retirement
Fund. The total amount of the appropriation for each year shall
be equal to 2.017 percent of the total of the creditable
compensation of the fiscal year ending in the immediately
preceding calendar year upon which members’ contributions are
based, as reported annually to the Director of Finance, the
Chairperson of the Joint Legislative Budget Committee, and the
Legislative Analyst pursuant to Section 22955.5, and shall be
divided into four equal payments. The payments shall be made on,
or the following business day after, July 1, October 1, December
15, and April 15 of each fiscal year.

(b) (1) Commencing July 1, 2014, the amount of the
appropriation required under subdivision (a) shall increase by the
following percentages of the creditable compensation upon which
that appropriation is based:

(A) On July 1, 2014, by 1.437 percent.

(B) On July 1, 2015, by 2.874 percent.

(C) On July 1, 2016, by 4.311 percent.

(2) For fiscal year 2017-18 and each fiscal year thereafter, the
board shall increase or decrease the percentage specified in this
subdivision from the percentage paid during the prior fiscal year
to reflect the contribution required to eliminate the remaining
unfunded actuarial obligation, as determined by the board based
upon a recommendation from its actuary. If a rate increase is
required, the adjustment may be for no more than 0.50 percent
per year of the total of the creditable compensation of the fiscal
year ending in the immediately preceding calendar year upon
which members’ contributions are based. At any time when there
is not an unfunded actuarial obligation as determined by the board,
the percentage specified in this subdivision shall be reduced to
zero.

(c) Pursuant to Section 22001 and case law, members are
entitled to a financially sound retirement system. It is the intent of
the Legislature that this section shall provide the retirement fund
stable and full funding over the long term.

(d) This section continues in effect but in a somewhat different
form, fully performs, and does not in any way unreasonably impair,
the contractual obligations determined by the court in California
Teachers’ Association v. Cory, 155 Cal.App.3d 494.

(e) Subdivision (b) shall not be construed to be applicable to
any unfunded actuarial obligation resulting from any benefit
increase or change in member or employer contribution rate under
this part that occurs after July 1, 1990.

(f) The provisions of this section shall be construed and
implemented to be in conformity with the judicial intent expressed
by the court in California Teachers’ Association v. Cory, 155
Cal.App.3d 494.

(g) (1)  Except as described in paragraph (2), this section shall
become inoperative on July 1, 2046, and as of January 1, 2047,
is repealed.

(2) Notwithstanding paragraph (1), on July 1 of the first fiscal
year after a 30-day notice has been sent to the Joint Legislative
Budget Committee and the Controller in compliance with
subdivision (d) of Section 22957, this section shall become
inoperative and, as of the following January 1, is repealed.

end insert

begin insert

begin insert SEC. 10. end insert   

end insert

begin insert Section 22955.5 of the end insert begin insert Education Code end insert begin insert is amended
to read: end insert

22955.5.  

(a) For purposes of Sections begin delete 22954 end delete begin insert 22954, 22955, end insert
and begin delete 22955, end delete begin insert 22955.1, end insert “creditable compensation” shall include only
creditable compensation for which member contributions are
credited under the Defined Benefit Program.

(b) On or after October 1 and on or before October 25 of each
year, beginning in 2008, the board shall calculate the total amount
of creditable compensation for the fiscal year that ended on the
immediately preceding June 30. For the purpose of informing the
Department of Finance and the Legislature of the amount of the
state’s appropriations pursuant to Sections begin delete 22954 end delete begin insert 22954, 22955, end insert
and begin delete 22955 end delete begin insert 22955.1 end insert in the next fiscal year, the system shall
immediately submit a report that includes this calculation to the
Director of Finance, the Chairperson of the Joint Legislative Budget
Committee, and the Legislative Analyst.

(c) After submission of the report described in subdivision (b),
on or before the April 15 after submission of the report described
in subdivision (b), the system shall notify the Director of Finance,
the Chairperson of the Joint Legislative Budget Committee, and
the Legislative Analyst of any revisions in its calculation of the
total amount of creditable compensation for the fiscal year that
ended on the immediately preceding June 30.

(d) The last revised calculation submitted pursuant to subdivision
(c) on or before April 15 of each year or, if no such revised
calculation is submitted, the calculation in the report submitted
pursuant to subdivision (b) shall be the calculation of creditable
compensation upon which the state’s appropriations pursuant to
Sections begin delete 22954 end delete begin insert 22954, 22955, end insert and begin delete 22955 end delete begin insert 22955.1 end insert will be based
in the next fiscal year. On or after April 15 and on or before May
1 of each year, the system shall submit to the Controller a copy of
this calculation, along with a requested schedule of transfers to be
made pursuant to the appropriations in Sections begin delete 22954 end delete begin insert 22954,
22955, end insert and begin delete 22955 end delete begin insert 22955.1 end insert in the next fiscal year beginning on the
next July 1. The system shall also provide a copy of this schedule
to the Director of Finance and the Legislative Analyst.

begin insert

begin insert SEC. 11. end insert   

end insert

begin insert Section 22957 is added to the end insert begin insert Education Code end insert begin insert , to
read: end insert

begin insert

begin insert 22957. end insert   

(a) The Legislature hereby finds and declares that the
provisions of Section 22950.5 do not constitute a new functional
responsibility for schools and community colleges pursuant to
subdivision (c) of Section 41204, and do not require an adjustment
pursuant to subdivision (b) of Section 8 of Article XVI of the
California Constitution. The Legislature further finds and declares
that the provisions of Section 22950.5 do not constitute a
reimbursable mandate for school districts pursuant to Article
XIII B of the California Constitution. Any challenge to these
findings shall be filed in Sacramento Superior Court within 60
days of the effective date of the act adding this section. Any action
so filed shall be consolidated with any action filed pursuant to
Section 22958.

(b) On or before June 1 of each year, the Director of Finance
shall determine if an adjustment to the constitutional minimum
guarantee of funding for schools shall be made pursuant to a final,
unappealable judicial decision holding that the increased
contributions in Section 22950.5 constitute a new functional
responsibility for schools and community colleges, pursuant to
subdivision (c) of Section 41204, or any other final, unappealable,
judicial decision holding that the increased contributions in Section
22950.5 require an adjustment in funding provided to schools and
community colleges pursuant to subdivision (b) of Section 8 of
Article XVI of the California Constitution. If the Director of
Finance estimates that an adjustment will require increased
General Fund expenditures of more than ten million dollars
($10,000,000), then the determination described in this subdivision
shall be considered to have been met. This estimate shall be
calculated solely within the discretion of the Director of Finance.

(c) On or before June 1 of each year, the Director of Finance
shall determine if any amounts are needed to fund school districts
or other local governments due to a final unappealable
administrative or judicial decision holding that the increased
contributions in Section 22950.5 constitute a reimbursable mandate
pursuant to Article XIII B of the California Constitution. If the
Director of Finance estimates that the cost of the mandate is more
than ten million dollars ($10,000,000), then the determination
described in this subdivision shall be considered to have been met.
This estimate shall be solely within the discretion of the Director
of Finance, and the director need not wait for a final cost estimate,
nor any other administrative determination, from the Commission
of State Mandates prior to making this determination.

(d) If, before June 1 of each year, the Director of Finance
determines that the determinations described in subdivisions (b)
or (c) have been met, then the Director of Finance shall
immediately notify, in writing, the Joint Legislative Budget
Committee and the Controller of this determination.

end insert

begin insert

begin insert SEC. 12. end insert   

end insert

begin insert Section 22958 is added to the end insert begin insert Education Code end insert begin insert , to
read: end insert

begin insert

begin insert 22958. end insert   

(a) Any action or proceeding challenging the validity
of any matter authorized by the act adding this section by any
person or entity shall be brought in accordance with, and within
the time specified in, Chapter 9 (commencing with Section 860)
of Title 10 of Part 2 of the Code of Civil Procedure.

(b) This section provides the authorization for all entities
referenced in the act adding this section as required by Section
860 of the Code of Civil Procedure.

(c) Any action initiated pursuant to this section shall be brought
in the Superior Court of the County of Sacramento.

end insert

begin insert

begin insert SEC. 13. end insert   

end insert begin insert

(a) None of the provisions of this act are severable.
All of the sections together are the complete operative expression
of legislative intent. The Legislature inextricably connects the
policies and goals of these sections together and would not enact
the provisions separately.

end insert begin insert

(b) If any provision of this act or application of any section of
this act to a person or circumstances is held by a court of
competent jurisdiction to be invalid, unenforceable, or not binding
on any person then this finding shall invalidate the other provisions
and applications of this act in its entirety.

end insert begin insert

(c) The provisions of this act were based on various legal
understandings and would not have been adopted without those
understandings. Thus, if a final unappealable judicial decision
holds that the increased contributions set out in Section 22950.5
constitute a new functional responsibility for schools and
community colleges pursuant to subdivision (c) of Section 41204,
and correspondingly require an adjustment pursuant to subdivision
(b) of Section 8 of Article XVI of the California Constitution, then
Sections 5, 7, and 9 of this act shall be inoperable.

end insert begin insert

(d) The provisions of this act were based on various legal
understandings and would not have been adopted without those
understandings. Thus, if a final unappealable administrative or
judicial decision holds that the increased contributions set out in
Section 22950.5 constitutes a reimbursable mandate pursuant to
Article XIII B of the California Constitution, then Sections 5, 7,
and 9 of this act shall be inoperable.

end insert

begin insert

begin insert SEC. 14. end insert   

end insert begin insert

This act is a bill providing for appropriations related
to the Budget Bill within the meaning of subdivision (e) of Section
12 of Article IV of the California Constitution, has been identified
as related to the budget in the Budget Bill, and shall take effect
immediately.

end insert

begin delete

SECTION 1.  

It is the intent of the Legislature to enact statutory
changes relating to the Budget Act of 2014.

end delete