BILL ANALYSIS
AB 821
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Date of Hearing: April 7, 1999
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Lou Correa, Chair
AB 821 (PER&SS) - As Introduced: February 24, 1999
SUBJECT : Retirement.
SUMMARY : Changes the period to be used for computing "final
compensation" for retirement benefits for school employees from
the average of the three highest years' compensation to the
highest compensation earnable by a member during a 12-month
period. Specifically, this bill :
1)Changes the definition of final compensation from a three-year
average to one year for all members of the State Teachers'
Retirement System (CalSTRS).
2)Changes the definition of final compensation from a three-year
average to one year for all classified school employees who
are members of the Public Employees' Retirement System
(CalPERS).
EXISTING LAW defines "final compensation" for members of CalSTRS
as the highest average annual compensation earnable by a member
during any period of three consecutive years of paid employment
covered by CalSTRS. Additionally, for CalSTRS members whose
salary has been reduced because of a reduction in school funds,
final compensation may be defined as the highest average annual
compensation earnable during any three non-consecutive 12-month
periods.
One-year final compensation is also available for CalSTRS
members if it has been included in a written collective
bargaining agreement. The written agreement must also include a
mechanism to pay CalSTRS the actuarial difference between the
one-year final compensation and the three-year final
compensation plus CalSTRS' administrative costs.
Current law defines "final compensation" for classified school
employees who are members of CalPERS as the highest average
annual compensation earnable during any three consecutive years
of a member's CalPERS employment.
AB 821
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FISCAL EFFECT : According to CalSTRS, the estimated additional
program cost to use one-year final compensation for all CalSTRS
members would be 1.639% of payroll, which, given current payroll
levels, would equal $282.7 million annually. CalSTRS states
that any costs associated with administering the bill could be
absorbed.
According to CalPERS, the cost of providing this change for
school classified employees is currently being developed by
their actuaries. However, CalPERS does state that based on the
1997 actuarial valuation for schools, there was a surplus of
assets amounting to $3.56 billion which could be used to fund
this benefit increase or other benefit increases for school
employees.
COMMENTS : Under both CalPERS and CalSTRS, benefit payments are
computed based upon various factors, including the employee's
final compensation. For example, the retirement allowance for a
CalSTRS member is calculated using the following formula: years
of service credit multiplied by the age factor (generally 2% at
age 60) multiplied by final compensation equals the persons
unmodified retirement allowance.
Supporters state that this bill would create a basis of
determining final compensation comparable to that used for
CalPERS state employees. Additionally, proponents contend that
this bill would help improve the adequacy of school employee
retirement benefits which have traditionally lagged behind those
of other public employees.
REGISTERED SUPPORT / OPPOSITION :
Support
California Federation of Teachers (co-sponsor)
California Teachers' Association (co-sponsor)
United Teachers' of Los Angeles (co-sponsor)
Association of California School Administrators
California Independent Public Employees Legislative Council
California School Employees Association
Opposition
None on file.
AB 821
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Analysis Prepared by : Karon Green / P.E., R. & S.S. /
(916)319-3957