BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1220
Norma Torres, Chair HEARING DATE: April 21, 2014
SB 1220 (Torres) as amended 4/10/14 FISCAL: YES
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM: ANNUAL
HOUSEKEEPING BILL
HISTORY :
Sponsor: California State Teachers' Retirement System
(CalSTRS)
Other legislation: AB 1381 (Asm. PER&SS Committee),
Chapter 559, Statutes of 2013
AB 340 (Furutani),
Chapter 296, Statutes of 2012
SUMMARY :
SB 1220 makes various technical, conforming, or
non-controversial changes to the Teachers' Retirement Law to
facilitate efficient administration of the State Teachers'
Retirement Plan (Plan), which includes the Defined Benefit
Program (DB), the Defined Benefit Supplement Program (DBS),
and the Cash Balance Benefit Program (CB).
BACKGROUND AND ANALYSIS :
1)Existing law :
a) establishes CalSTRS, which provides retirement,
death, and disability benefits to over 868,000 members
and retirees who are or were educators in California
K-12 schools and community colleges.
b) creates three retirement benefit programs in CalSTRS:
1) the DB, which covers all eligible members and
provides a retirement benefit based on age at
retirement, years of service, and the member's final
compensation; 2) the CB, which primarily is for
part-time educators who do not participate in, or are
not eligible for, the DB; and 3) the DBS, which takes
contributions from members and employers for service
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performed that is not eligible for coverage in the DB
(such as teaching classes in excess of a full-time load,
coaching, or other designated activities).
Unlike the DB, the CB and DBS are cash balance plans
that, upon retirement, provide a lump-sum or an annuity
to the member based on the balance in the member's
account at the time of retirement.
c) due to enactment of the Public Employees' Pension
Reform Act of 2013 (PEPRA), creates two distinct groups
of employees: 1) those first hired to perform CalSTRS
creditable activities prior to January 1, 2013-the 2% at
age 60 members; and 2) those first hired to perform
CalSTRS creditable activities on or after that date-the
2% at age 62 members.
d) provides for periodic increases to a retired member's
base allowance to mitigate inflation and ensure adequate
purchasing power; however, the term "base allowance" is
not always consistently cited.
This bill defines the term "base allowance" and corrects
various references to a member's base allowance.
Sections affected: 22106.1, 22106.2, 24412, 24415
e) defines the length of a year of service for the
purpose of determining final compensation-usually based
on a traditional fiscal or academic year; however, the
law is not clear with regard to educators who work in
year-round schools.
This bill clarifies that months not included in the
normal school year will not be considered a break in
service and ensures that members are treated
consistently when calculating final compensation.
Sections affected: 22106.1, 22106.2, 24412, 24415
f) makes various technical corrections and conforming
changes to align the Teachers' Retirement Law (TRL) with
the provisions of PEPRA; however, the TRL continues to
have minor grammatical and drafting errors.
This bill makes minor punctuation corrections and
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specifies the Consumer Price Index for all Urban
Consumers: City Average, which is used to adjust the
compensation cap for members subject to PEPRA (2% at
62), is the U.S. City Average.
This bill also clarifies that the definition of CalSTRS
members subject to PEPRA excludes individuals who are
employed to perform creditable service within six months
of performing service in a concurrent retirement system
even if they do not become members of the DB Program
within those six months. Sections affected: 22119.3,
24214.5, 22146.2, Section 1 of Chapter 559 of the
Statutes of 2013
g) defines "creditable service" for the DB and CB by
providing a list of activities that are considered
creditable service, including employment in a charter
school that is eligible for state apportionment.
This measure repeals an obsolete section and clarifies
the definition of creditable service and that the clause
related to state apportionment is only meant to be
applicable to charter schools. Sections affected:
22119.5, 26113
h) defines "credited service" as service for which the
required contributions have been paid; however, for 2%
at 62 members, there is a limit on the amount of
compensation that can count toward a pension, and after
reaching that limit, members and employers cease making
contributions on compensation earned above the limit.
This bill defines "credited service" for 2% at 62
members so that even though no contributions are made on
compensation earned above the limit (and therefore not
eligible for a resulting benefit) the member still earns
appropriate service credit for the amount of time
worked. Section affected: 22121
i) allows two or more public agencies to join together
and operate collectively under a joint powers authority
(JPA); however, JPAs are not explicitly included in the
current definition of employer in the TRL.
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This bill specifies that JPAs are among the entities
considered to be employers so long as the JPA meets
specified criteria. Section affected: 22131
j) defines the time period used to calculate final
compensation, in general, as either a 12-
consecutive-month period for 2% at age 60 members with
25 or more years of service, or a
3-consecutive-schoolyear period for all other members;
however, the law is not always consistent in referencing
the time periods used to calculate final compensation.
Example 1): For the 12-month calculation, since
teachers generally do not earn pay during interims
between school years (such as in July and August),
CalSTRS does not consider those months as a break in
service and averages the compensation over the full 12
months. CalSTRS will include the 12 most recent
consecutive months without a break in service in this
12-month calculation.
Example 2): For the 3-consecutive-schoolyear
calculation, CalSTRS uses the same methodology as the
12-month calculation but averages the compensation over
the full 36 months without at break in service.
Example 3): Members who would otherwise be subject to
the 3-consectuive-schoolyear calculation who experienced
a salary reduction due to a decrease in state school
funding may use any three highest years. CalSTRS
averages any 36 months without a break in service or a
reduction in school funds in this calculation.
This bill clarifies that the time periods used to
calculate final compensation for the 3-year timeframes
are equal to 36 months in order to be consistent with
the 12-month calculation and requires employer
certification that a member's salary was reduced because
of a reduction in school funds in order to use 36
non-consecutive months to calculate final compensation.
Sections affected: 22134, 22134.5, 22135, 22136, 22516,
24600
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aa) gives CalSTRS the authority to select, purchase, or
acquire an office building for the purposes of
establishing a permanent headquarters facility for the
system. In 2009, construction of the current
headquarters building was completed. However, various
code sections continue to unnecessarily refer to
Education Code section 22375, which formerly authorized
the current headquarters office.
This bill removes unnecessary references to Education
Code section 22375.
Sections affected: 22662, 22663, 22664, 22801, 22826,
23828, 23104, 24306.7
bb) specifies which employer and member contributions on
compensation are to be credited to the DBS, including
contributions on compensation not eligible for credit in
the DB.
This bill inserts a reference to the principles
supporting the integrity of the Teachers' Retirement
Fund with regard to determining which compensation is
not eligible for credit in the DB and instead is
credited to the DBS. Section affected: 22905
cc) restricts an employer from paying member
contributions to the DB, as specified.
This bill clarifies that written employment agreements
are included in the provisions that restrict employers
from paying the member's portion of contributions to the
DB. Section affected: 22909
dd) allows a retired member to terminate his or her
retirement and reinstate to active, creditable service.
After at least one year of additional active service,
the member, if eligible, may apply for disability
benefits. Termination of the retirement benefit is
required prior to applying for a subsequent disability
benefit.
This bill clarifies that a member cannot currently be
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receiving a retirement benefit when he or she
subsequently applies for a disability benefit. Sections
affected: 24001, 24101
ee) allows a member to submit an application for service
retirement during a period either before or after the
chosen retirement date, within specified parameters,
including limited backdating of the chosen retirement
date. In addition, an individual awaiting a disability
determination may apply for service retirement, as
specified and if so eligible. However, the term
"retiring" as used in these provisions is not clearly
defined and may cause confusion.
This bill removes the unclear term "retiring" and
clarifies that the limit on backdating applies to a
member who submits an application to retire on or after
the statutorily applicable date. Sections affected:
24201.5, 24204
ff) provides CalSTRS 2% at 60 members with 30 years of
service credit by December 31, 2010, a longevity bonus
when they retire for service, which adds a flat dollar
amount to their monthly benefits based on the total
years of service. In addition, 2% at 60 members
retiring with 30 or more years of service are eligible
for a career factor, which provides an additional
two-tenths of a percent of salary, up to the total
maximum available of 2.4%.
This bill adds references to code sections authorizing
retirement that were previously left out of the
provisions of law pertaining to the longevity bonus and
the career factor. Sections affected: 24203.5, 24203.6
gg) allows a member receiving a disability retirement
benefit to terminate the disability benefit and later
retire for service. Upon subsequent service retirement,
the member may be eligible for the longevity bonus;
however, the law omits reference to that benefit
enhancement from the service retirement calculation. In
addition, existing law inconsistently applies the
longevity bonus and career factor when a member moves
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from disability allowance to service retirement.
Moreover, the age factor and the exclusion of the
children's portion of the disability allowance are
missing from the calculation of service retirement when
a member moves directly from disability allowance to
service retirement.
In addition, when a member terminates a disability
allowance and subsequently retires for service, the
service retirement benefit may or may not reflect
service credit granted for additional service (such as
for paid leave, sick leave, and certain types of
permissible service credit), depending on how many years
of creditable service are performed before the
subsequent retirement, because of discrepancies in the
law.
Finally, existing law does not consistently allow a
member who retires for service after receiving a
disability allowance to elect an option on or before the
effective date of the member's retirement. This affects
members retiring in any situation, including after
terminating a disability allowance, regardless of
whether the member performed creditable service after
the disability or the amount of time that elapses
between the disability allowance and the retirement.
This bill :
i) includes a reference to the longevity bonus for
members who terminate a disability retirement and
subsequently retire for service, adds a reference to
the age factor where it is missing, clarifies that the
longevity bonus and career factor can be used as
appropriate; and clarifies that the children's portion
of the disability allowance is excluded from
retirement benefit determinations;
ii) clarifies that the language that provides specified
additional service credit applies to certain, eligible
members who retire after receiving a disability
allowance; and
iii) corrects an inconsistency in the provisions allowing
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members to elect an option beneficiary after
terminating a disability allowance and retiring for
service by adding the ability to elect an option when
members terminate disability and go immediately to
service retirement. Sections affected: 24210, 24211,
24212, 24213
a) contained in federal and state statues was previously
inconsistent with regard to tax treatments for same sex
spouses or registered domestic partners. These
discrepancies created certain restrictions with regard
to selecting an option beneficiary for same sex spouses
or registered domestic partners.
On June 26, 2013, the Supreme Court issued a decision in
the case of United States v. Windsor in which it held
that section 3 of DOMA amending the Dictionary Act's
definition of "spouse" and "marriage" to refer only to
heterosexual unions is unconstitutional. To comply with
the decision, government benefit providers are to treat
same-sex married couples equally in all areas of benefit
administration, including taxes and survivor benefits.
This bill opens a window period in which a member who
was married to a same-sex spouse and who elected a
beneficiary option prior to June 26, 2013, can change
his or her option election if the member was prevented
from selecting the option of his or her choice due to
the federal age restrictions previously in place that
applied to same-sex spouse beneficiaries. Sections
affected: 24347, 24348
b) allows a member to name one or more option
beneficiaries at the time of retirement and provides
various options from which to choose. In addition, an
option election may be changed pursuant to certain
occurrences, such as death of the option beneficiary,
divorce, or reinstatement of the retiree into active
service for a specified length of time. There are
safeguards in the statutes that prevent a change of
option beneficiary in derogation of the rights of a
spouse or former spouse or to allow a deathbed transfer
of assets. Moreover, a new option cannot result in an
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increased cost to the system. Finally, the available
options have been changed and amended from time to time,
and currently, the statutes do not provide for ease of
understanding.
This bill comprehensively reorganizes the sections of
Chapter 28 of the TRL pertaining to option beneficiary
elections, repeals obsolete sections and references,
aligns references to the new section numbers, and
clarifies the provisions of law related to survivor
benefit options, including the following:
i) with regard to the option beneficiary pre-deceasing
the member, clarifies resulting changes to the
member's benefit and when and how a member may elect a
new option beneficiary.
ii) for retired members who reinstate into active
service, specifies the requirements for naming a new
option beneficiary upon re-retirement, and the
situations in which a new beneficiary election may
become invalid.
iii) with regard to a dissolution of marriage, a judgment
of nullity, or an order of separate maintenance made
within one year of the termination of benefits and
reinstatement, CalSTRS will remove or change the
option election in accordance with the court order,
and any additional changes cannot be made until one
year from the termination effective date. Sections
affected: 22655, 24105, 24107, 24205, 24300, 24300.1,
24300.2, 24300.5, 24300.6, 24301, 24302, 24303, 24304,
24305, 24305.3, 24305.5, 24306, 24306.5, 24306.7,
24307, 24308, 24309, 24310, 24311, 24312, 24312.1,
24313, 24402, 25015
jj) requires a member who designates any person as his or
her option beneficiary under the DB, if that member
elects to receive a DBS benefit as a joint and survivor
annuity, to designate the same beneficiary for the DBS
annuity. However, certain federal rules place
restrictions on the amount of age difference there can
be between the member and non-spousal beneficiaries if
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the member elects a non-spousal beneficiary after
January 1, 2007.
This bill clarifies that when a member has elected a
compound option under the DB, and also elects a DBS
annuity, the DBS annuity is subject to specified age
restrictions imposed by federal law. Section affected:
25015
aaa) requires CalSTRS to administer an impartial website
information bank for vendors wishing to sell 403(b)
products in the state of California. Vendors must
register with the website and provide certain
information on their companies and the products offered.
The website, known as 403bCompare, provides CalSTRS
members and participants, classified employees and
eligible state employees the ability to review and
compare information about tax-deferred retirement
investment 403(b) products provided by the registered
vendors.
In addition, the law provides the definition of a vendor
who would be able to register an investment product on
the website; however, over the years, the definition has
become outmoded and unnecessarily restrictive.
This bill simplifies the definition of "vendor" to
include any organization qualified to do business in
California that offers 403(b) products, and deletes two
unnecessary definitions of 403(b) vendor types. Section
affected: 25100
bbb) allows DB members and CB participants to refund their
contributions and interest once they terminate their
creditable service. Under the DB, if no contributions
have been reported for 12 months, the member is
considered to have terminated his or her employment.
However, if the member has performed creditable service
in the previous 12 months, the employer, or employers,
must certify that employment has been terminated. Under
the CB, every employer the participant has ever worked
for must certify the termination of employment when the
participant applies for a retirement or termination
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benefit.
This bill allows a CB participant to apply for a
retirement or termination benefit without requiring
employer certification that employment has been
terminated if no contributions are reported by the
employer within the previous 12 months, consistent with
the requirements in the DB Program. Sections affected:
26803, 27201
ccc) the State Board of Education has the authority to
waive portions of the Education Code, so they do not
apply to school districts that request a waiver.
However, there are several provisions of the Education
Code that cannot be waived. Part 13 of the Education
Code, which governs the DB and DBS, is included among
those provisions that cannot be waived. Part 13.5,
which relates to health care benefits programs, and Part
14, which relates to the CB Benefit Program, were added
to the Education Code after the enactment of the waiver
authority.
This bill adds Parts 13.5 and 14 to the provisions that
cannot be waived. Section affected: 33050
FISCAL :
According to CalSTRS, administrative costs in the range of
$55,000 to $63,000.
COMMENTS :
1)Argument in Support :
According to CalSTRS, "This bill is necessary to permit
continued effective administration of the State Teachers'
Retirement System. Any administrative costs associated with
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this bill are minor and absorbable, and there are no program
costs resulting from this bill."
CTA "supports necessary clarification in previously enacted
legislation that is contained in their measure."
2)SUPPORT :
California State Teachers' Retirement System (CalSTRS),
Sponsor
California Teachers Association (CTA)
3)OPPOSITION :
None on file.
#####
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