BILL ANALYSIS                                                                                                                                                                                                    



                                                          AB 821
                                                          Page  1

Date of Hearing:   May 12, 1999

              ASSEMBLY COMMITTEE ON APPROPRIATIONS 
                    Carole Migden, Chairwoman

          AB 821 (Correa) - As Amended: April 13, 1999 

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

Urgency:     No                   State Mandated Local  
Program:NoReimbursable:           

  SUMMARY  :

This bill changes the period for computing "final compensation"  
for the purpose of determining the retirement benefits for  
school employees from the highest average annual compensation  
earned during any three year consecutive period to the highest  
compensation earned in any 12-month period.  Specifically, this  
bill:
 
1)Changes the definition of final compensation from the highest  
  three-year average to the highest one- year compensation  
  earned for all members of the State Teachers' Retirement  
  System (CalSTRS).

2)Changes the definition of final compensation from the highest  
  three-year average to the highest one- year compensation  
  earned for all classified school employees who are members of  
  the Public Employees' Retirement System  (CalPERS).
 
  FISCAL EFFECT  :

Changing the method of computing final compensation based on the  
highest one-year compensation earned instead of the highest  
three-year average will increase benefit costs to CalSTRS and  
CalPERS. 

  1)CalSTRS  .  CalSTRS estimates the present value of the benefit  
  increase to be about $4 billion.  This translates into a  
  payroll increase of about 1.639%, or about $282.7 million  
  annually.  The bill requires, however, that CalSTRS pay the  
  increased benefit out of existing funds.  The CalSTRS Board  
  has not taken a position on the bill or indicated whether this  
  plan of finance is feasible.







                                                          AB 821
                                                          Page  2

  2)CalPERS .  CalPERS indicates that due to the large surplus in  
  its school employees fund, about $3.5 billion, it can pay the  
  increased benefit to classified school employees for 19 years  
  without increasing its contribution rates.  

  COMMENTS  :

  Background  .  By changing the method of computing final  
compensation, this bill would afford school employees the same  
retirement benefit provided state employee members of CalPERS,  
which has used the 12 month computation period since 1991 (AB  
3041, Elder, Chapter 1251, Statutes of 1990). There are a number  
of similar bills before the committee this session that provide  
significant benefit enhancements to CalPERS and CalSTRS members.  
 The cumulative fiscal impact of these bills should be assessed  
before the committee takes final action. 

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