BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 429|
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THIRD READING
Bill No: AB 429
Author: Correa (D)
Amended: 5/20/99 in Assembly
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 3-0, 7/12/99
AYES: Ortiz, Baca, Karnette
NOT VOTING: Haynes, Lewis
SENATE APPROPRIATIONS COMMITTEE : 10-1, 9/3/99
AYES: Johnston, Alpert, Bowen, Burton, Escutia, Johnson,
Karnette, McPherson, Perata, Vasconcellos
NOES: Kelley
NOT VOTING: Leslie, Mountjoy
ASSEMBLY FLOOR : 79-0, 6/1/99 - See last page for vote
SUBJECT : State Teachers' Retirement System:
gain-sharing revenue
SOURCE : STRS Board of Administration
DIGEST : This bill 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.
ANALYSIS : Under the Teachers' Retirement Law, interest
earned on assets of the retirement fund that is not
credited to accounts maintained pursuant to the Defined
CONTINUED
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Benefit Program, as defined, and other income with respect
to the program, is allocated to provide benefits under the
program. Existing law requires that an actuarial valuation
of the assets and liabilities of the State Teachers'
Retirement Plan be performed at least once every six years.
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. An amount determined by the board, based on a
recommendation from the actuary, that would provide
additional revenue for allocation pursuant to
paragraph D. (below) in fiscal years in which no
additional gain-sharing revenue is generated.
D. Any remaining gain-sharing revenue will be used to
provide improvements in benefits or credits for
contributions pursuant to future legislation.
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.
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
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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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 1999-2000 2000-01 2991092 Fund
Admin costs -----------less than $150-----------STRF
SUPPORT : (Unable to verify at time of writing)
STRS Board of Administration (source)
Association of California School Administrators
California Retired Teachers Association
Small School Districts Association
California Teachers Association
OPPOSITION : (Unable to verify at time of writing)
State Department of Finance
ARGUMENTS IN SUPPORT : 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
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increase and does not commit the state taxpayers to funding
contractually guaranteed benefits."
ARGUMENTS IN OPPOSITION : The State Department of Finance
is opposed to this bill for the following reasons:
1."This bill is unnecessary since any benefit improvements
for both STRS' active members, inactive members, and
retirees must be approved through subsequent legislation.
Any future legislation could provide the funding
mechanism for the improved benefits.
2."This bill would designate a formula, as specified, to
allocate gain-sharing revenue between active, inactive,
and retired members of STRS. As a result of this formula,
this bill would potentially limit the flexibility needed
to adequately address other immediate priorities, such as
teacher retention and recruitment.
3."This bill would allow STRS to fund benefit enhancements,
as specified, before fully funding the existing $1.7
billion actuarial associated with enhanced benefits
enacted in 1998.
4.This bill would allow the allocation of the return on
investments, interest, and other earnings with respect to
the Defined Benefit Program received in any fiscal year
in excess of the expected earnings for the same period.
However, this bill would not require STRS to perform an
actuarial valuation on an annual basis to accurately
recognize all assets and liabilities of the retirement
system. Existing law requires that an actuarial
valuation of the assets and liabilities of the State
Teachers' Retirement Plan be performed at least once
every six years; in practice, STRS performs an actuarial
valuation every other year."
ASSEMBLY FLOOR : 79-0, 6/1/99
AYES: Aanestad, Ackerman, Alquist, Aroner, Ashburn,
Baldwin, Bates, Battin, Baugh, Bock, Briggs, Calderon,
Campbell, Cardenas, Cardoza, Cedillo, Corbett, Correa,
Cox, Cunneen, Davis, Dickerson, Ducheny, Dutra,
Firebaugh, Florez, Floyd, Frusetta, Gallegos, Granlund,
Havice, Hertzberg, Honda, House, Jackson, Kaloogian,
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Keeley, Knox, Kuehl, Leach, Lempert, Leonard, Longville,
Lowenthal, Machado, Maddox, Maldonado, Margett, Mazzoni,
McClintock, Migden, Nakano, Olberg, Oller, Robert
Pacheco, Rod Pacheco, Papan, Pescetti, Reyes, Romero,
Runner, Scott, Shelley, Soto, Steinberg, Strickland,
Strom-Martin, Thompson, Thomson, Torlakson, Vincent,
Washington, Wayne, Wesson, Wiggins, Wildman, Wright,
Zettel, Villaraigosa
NOT VOTING: Brewer
TSM:kb 9/7/99 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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