BILL ANALYSIS                                                                                                                                                                                                    



                                                          AB 429
                                                          Page  1

Date of Hearing:   May 26, 1999

              ASSEMBLY COMMITTEE ON APPROPRIATIONS 
                    Carole Migden, Chairwoman

          AB 429 (Correa) - As Amended: April 29, 1999 

Policy Committee:                               
P.E.R.&S.S.Vote:7-0

Urgency:     No                   State Mandated Local  
Program:NoReimbursable:            

  SUMMARY  :

This bill, as proposed to be amended, establishes a  
"gain-sharing" program within the State Teachers' Retirement  
System (CalSTRS) to establish priorities for the allocation of  
excess investment earnings generated by the CalSTRS defined  
benefit program.  Specifically, this bill:

1)Defines "gain-sharing revenue" for purposes of this bill as  
  the amount by which the actual return on investments,  
  interest, and other earnings exceeds the expected earnings for  
  the same period.

2)Authorizes the Teachers' Retirement Board to allocate  
  gain-sharing revenue in the following priority order:

   a)   An amount necessary to eliminate any unfunded actuarial  
     accrued liability in association with benefits in effect  
     prior to July 1, 1990.

   b)   An amount necessary to protect the fund from investment  
     returns below the actuarially assumed rate.

   c)   Any remaining gain-sharing revenue will be used to  
     provide improvements in benefits or credits for  
     contributions pursuant to future legislation.

   d)   Specifies that the gain-sharing revenue would be  
     allocated proportionately to active members and retired  
     members in percentages that correspond to the percentage of  
     liabilities applied to each group in the valuation of the  
     plan.








                                                          AB 429
                                                          Page  2


  FISCAL EFFECT  :

The bill establishes a process for allocating the $3.5 billion  
surplus in the CalSTRS trust fund, but it does not allocate  
these funds.  Any benefit increase would require special  
legislation.

  COMMENTS  :

  Purpose  .  The bill is intended to provide an orderly process for  
determining how CalSTRS should dispense with its current $3.5  
billion surplus.  The bill essentially codifies the CalSTRS  
policy using excess funds to (1) eliminate any unfunded  
liability for pre 1990 benefits and (2) fund a reserve.  (In  
1990, the state assumed financial responsibility for new CalSTRS  
benefits; the existing surplus is derived from interest earned  
on contributions made for pre 1990 benefits.)   But by codifying  
this policy, CalSTRS takes a portion of the surplus off the  
table with respect to new benefit proposals that would be on par  
with these priorities in the absence of this legislation.  The  
Legislature is considering several CalSTRS benefit bills this  
session that collectively impose a cost far in excess of the  
available CalSTRS surplus.


  Analysis Prepared by  :    Stephen Shea / APPR. / (916) 319-2081