Amended in Senate March 19, 2014

Senate Bill No. 984

Introduced by Senator Walters

February 11, 2014

begin delete An act to amend Section 22950 of the Education Code, relating to state teachers’ retirement. end delete begin insert An act relating to the State Teachers’ Retirement System, making an appropriation therefor, and declaring the urgency thereof, to take effect immediately. end insert

LEGISLATIVE COUNSEL’S DIGEST

SB 984, as amended, Walters. begin delete State teachers’ retirement law. end delete begin insert State Teachers’ Retirement System: Defined Benefit Program. end insert

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Existing law creates the Defined Benefit Program of the State Teachers’ Retirement System for the purpose of providing pension benefits to members of the system. The Defined Benefit Program is funded by employer and employee contributions as well as investment returns and state appropriations.

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This bill would appropriate $1,000,000,000 from the General Fund for transfer to the Teachers’ Retirement Fund to reduce the unfunded liability of the Defined Benefit Program of the State Teachers’ Retirement System. The bill would also appropriate another $1,000,000,000 to the Teachers’ Retirement Fund if the Legislative Analyst determines in the May Revision of the 2014-15 Budget that the state has collected more than $1,000,000,000 in unanticipated General Fund revenue. The bill would require the Governor to form a working group of specified parties to propose long-term funding solutions for the unfunded liability of the Defined Benefit Program of the State Teachers’ Retirement System and to report those solutions to the Legislature by January 1, 2015. The bill would make a statement of legislative findings and declarations.

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This bill would declare that it is to take effect immediately as an urgency statute.

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The Teachers’ Retirement Law (TRL) 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. 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.

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This bill would make a nonsubstantive change to TRL provisions prescribing employer contributions and their deposit.

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Vote:  begin delete majority end delete begin insert ²⁄₃ end insert . 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:

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begin insert SECTION 1. end insert   

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The Legislature finds and declares the following:

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(a) The Defined Benefit Program of the California State
Teachers’ Retirement System (CalSTRS) currently has an unfunded
liability of seventy-one billion dollars ($71,000,000,000). CalSTRS
indicates the need for an additional four billion five hundred
million dollars ($4,500,000,000) annually for the next 30 years to
fund the Defined Benefit Plan.

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(b) CalSTRS indicates that without an infusion of money, the
unfunded liability increases at a rate of twenty-two million dollars
($22,000,000) per day, which is equivalent to almost one million
dollars ($1,000,000) per hour or two hundred fifty dollars ($250)
per second.

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(c) The Legislature has held multiple informational hearings
regarding the unfunded liability of the Defined Benefit Program
of CalSTRS, but has yet to implement a solution.

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(d) According to CalSTRS, if funding solutions are not provided,
the Defined Benefit Program will be bankrupt by 2043, leaving
every current and prospective teacher without a beneficial part of
their personal retirement plans.

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(e) As the unfunded liability grows, the cost of extinguishing it
will severely affect funding for other government programs, such
as education, public safety, the court system, health care, and the
social safety net.

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(f) Failing to fund the teacher’s retirement program now places
an undue burden on California families, school districts, teachers,
and generations of future Californians.

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(g) The California Teachers Association supports state action:
“Making sure educators have a secure retirement is critical to
attracting and keeping quality educators in the profession. The
state must ensure that the retirement commitments made to our
hard-working teachers and other education professionals are
fulfilled.”

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(h) Governor Brown, Assembly Speaker John A. Pérez, Senate
President pro Tem Darrell Steinberg, Treasurer Bill Lockyer, and
Controller John Chiang have all publicly expressed concerns about
finding a funding solution.

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(i) The Governor’s budget stresses a need for action, but delays
that action until the 2015-16 fiscal year.

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(j) At a time when the state is generating windfall revenues, it
makes sense to dedicate a portion of that revenue to mitigate the
ever-growing unfunded liability in the Defined Benefit Program
of CalSTRS and keep the promises made to teachers.

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(k) Given the severity of the issue and the far-reaching impact
upon students, teachers, and all state government services,
addressing the impending bankruptcy of the Defined Benefit
Program of CalSTRS should be one of the state’s top priorities
now.

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begin insert

begin insert SEC. 2. end insert   

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The sum of two billion dollars ($2,000,000,000) is
hereby appropriated to the Controller for transfer to the Teachers’
Retirement Fund according to the following schedule:

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(a) An appropriation of one billion dollars (1,000,000,000) is
hereby made from the General Fund to the Controller for transfer
to the Teachers’ Retirement Fund to be applied for the purpose of
reducing the unfunded liability of the Defined Benefit Program of
the State Teachers’ Retirement System.

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(b) If the Legislative Analyst determines in the May Revision of
the 2014-15 Budget that the state has collected more than one
billion dollars ($1,000,000,000) in unanticipated General Fund
revenue, an appropriation of one billion dollars ($1,000,000,000)
is hereby made from the General Fund to the Controller for
transfer to the Teachers’ Retirement Fund to be applied for the
purpose of reducing the unfunded liability of the Defined Benefit
Program of the State Teachers’ Retirement System.

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begin insert SEC. 3. end insert   

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(a) The Governor shall form a working group to
propose long-term funding solutions for the unfunded liability of
the Defined Benefit Program of the State Teachers’ Retirement
System and to evaluate specifically the role of the state as a direct
contributor to the Teachers’ Retirement Fund for the purpose of
supporting the Defined Benefit Program. The working group shall
include, but not be limited to, representatives from the Governor’s
office, the Legislature, school districts, teachers, and the California
State Teachers’ Retirement System.

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(b) The solutions proposed by the working group described in
subdivision (a) shall be included in a report to be submitted to the
Legislature on or before January 1, 2015, so that the solutions
may be included in the proposed 2015-2016 Budget. The report
shall be submitted in compliance with Section 9795 of the
Government Code.

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begin insert SEC. 4. end insert   

end insert begin insert

This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:

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In order that the unfunded liability of the Defined Benefit
Program of the California State Teachers’ Retirement System may
be addressed at the earliest possible time and to avoid the
potentially dire consequences to the Defined Benefit Programs as
well as other government programs that could be severely affected,
it is necessary that this act go into immediate effect.

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begin delete

SECTION 1.  

Section 22950 of the Education Code is amended
to read:

22950.  

(a) Employers shall contribute monthly to the system
8 percent of the creditable compensation upon which members’
contributions under this part are based.

(b) From the contributions required under subdivision (a), there
shall be deposited in the Teachers’ Retirement Fund an amount,
determined by the board, that is not less than the amount,
determined in an actuarial valuation of the Defined Benefit
Program pursuant to Section 22311.5, necessary to finance the
liabilities associated with the benefits of the Defined Benefit
Program over the funding period adopted by the board, after
accounting for the contributions made pursuant to Sections 22901,
22951, and 22955.

(c) The amount of contributions required under subdivision (a)
that is not deposited in the Teachers’ Retirement Fund pursuant
to subdivision (b) shall be deposited directly into the Teachers’
Health Benefits Fund, as established in Section 25930, and shall
not be deposited into or transferred from the Teachers’ Retirement
Fund.

(d) (1) Notwithstanding subdivisions (b) and (c), there may be
deposited into the Teachers’ Retirement Program Development
Fund, as established in Section 22307.5, from the contributions
required under subdivision (a), an amount determined by the board,
not to exceed the limit specified in paragraph (2).

(2) The balance of deposits into the Teachers’ Retirement
Program Development Fund, minus the subsequent transfer of
funds, with interest, into the Teachers’ Retirement Fund pursuant
to subdivision (e) of Section 22307.5, shall not exceed 0.01 percent
of the total of the creditable compensation of the fiscal year ending
in the immediately preceding calendar year upon which member’s
contributions to the Defined Benefit Program are based.

(3) The deposits described in this subdivision shall not be
deposited into, or transferred from, the Teachers’ Retirement Fund.

end delete