BILL ANALYSIS                                                                                                                                                                                                    






SENATE PUBLIC EMPLOYMENT & RETIREMENT     BILL NO: AB 429
Deborah V. Ortiz, Chair       Hearing date: July 12, 1999
AB 429 (Correa)  as amended 5/20/99         FISCAL:   YES

  STRS "GAIN-SHARING":  USE OF SURPLUS ASSETS  


  HISTORY  :            

    Sponsor: STRS Board of Administration

    Prior legislation: none


  ASSEMBLY VOTES  :

    PER & SS                    7 - 0        5/12/99
    Appropriations            21 - 0         5/26/99
    Assembly Floor            79 - 0         6/01/99
  

SUMMARY  : 

Would establish a "gain-sharing" program within the State  
Teachers' Retirement System (STRS) to establish priorities  
for the allocation of excess investment earnings generated by  
the STRS Fund.
  

ANALYSIS  : 

  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 STRS 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,
David Felderstein                                     AB 429
Date:  6/22/99                                         Page 1  










    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, and 

    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.
  
FISCAL EFFECT  :
 
  This bill  establishes a process for allocating surplus monies  
in the STRS trust fund.   However, any benefit increase would  
require special legislation  .

  COMMENTS  :

1)  The committee is advised that STRS generally has an  
actuarial valuation performed  every other year  to determine  
the funding status of the plan.  The last valuation of STRS  
was performed using June 30, 1998 data.  This valuation  
indicates that the Teachers' Retirement Fund has reached  
fully funded status and may have a surplus in excess of $3  
billion.

  This bill  would allow for a portion of the surplus to be used  
to provide benefit increases to active and retired STRS  
members.

2)  Supporters state that STRS research concluded that the  
pre-1999 retirement program did not provide an adequate  
retirement allowance and, therefore, the allowances of  
current retirees are inadequate.

Additionally, supporters point out that  this bill  would allow  
the Legislature and STRS to:

  "?consider benefit improvements for these retirees with the  
  least benefits.  The bill does not guarantee a benefit  
David Felderstein                                     AB 429
Date:  6/22/99                                         Page 2  









  increase and does not commit the state taxpayers to funding  
  contractually guaranteed benefits."
 
3)   SUPPORT  :

     California Teachers Association (CTA)
     California Retired Teachers Association (CRTA)
     Association of California School Administrators (ACSA)
     Small School Districts Association (SSDA)

4)   OPPOSITION  :

     None to date.




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David Felderstein                                     AB 429
Date:  6/22/99                                         Page 3