BILL ANALYSIS
AB 1733
Page 1
Date of Hearing: May 3, 2000
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
AB 1733 (Wildman) - As Amended: March 30, 2000
Policy Committee:
P.E.R.&S.S.Vote:7-0
Urgency: No State Mandated Local
Program:NoReimbursable:
SUMMARY :
This bill eliminates the postretirement earnings limitation for
members of the State Teachers' Retirement System (CalSTRS).
FISCAL EFFECT :
1)CalSTRS indicates that the Teachers' Retirement Fund (TRF)
would lose $1.2 million in revenues annually in benefit
deductions from retirees who presently exceed the earnings
limitation.
2)The cost to the TRF of funding the CalSTRS defined benefit
program would increase by an unknown amount to the extent that
the elimination of the earnings limitation induces members to
retire earlier than they would otherwise.
COMMENTS :
1)CalSTRS Earnings Limitation . Current law allows retired
members of CalSTRS to earn up to $19,050 in 1999-2000 for
public school employment without a reduction in their
retirement allowances. The earnings limitation is adjusted
annually to reflect changes in the Consumer Price Index.
Earnings in excess of this amount result in a
dollar-for-dollar reduction in the member's retirement
allowance.
1)Earnings Limitation Exemptions . Existing law provides an
exemption to the retirement limit for members hired pursuant
to the Class Size Reduction Program:
AB 1733
Page 2
a) AB 18 (Mazzoni), Chapter 1 of 1997 , exempted from the
earnings limit members who retired on or before July 1,
1996 and were rehired pursuant to the Class Size Reduction
Program in Grades K-3.
b) AB 2765 (Assembly P.E.R.&S.S. Committee), Chapter 965 of
1998 , extended this earnings limitation exemption to
members who retired on or before July 1, 1998.
c) SB 12 (O'Connell), Chapter 334 of 1998 , expanded the
earnings limitation exemption to members hired pursuant to
the Class Size Reduction Program in Grade 9.
d) AB 335 (Mazzoni), Chapter 40 of 1999, extended the
earnings exemption to all future expansions of the Class
Size Reduction Program, making further legislation for this
purpose unnecessary.
1)Related Legislation . Three bills pending before the
Legislature would provide additional exemptions to the CalSTRS
earnings limitation. AB 1736 (Ducheny) that would exempt
teachers providing remedial instruction to pupils in grades
K-12. AB 141 (Knox) would exempt members filling
administrative positions on an emergency basis. SB 1505
(Alarcon) would exempt members who retired prior to January 1,
2000 and return to provide direct classroom instruction or to
support specified programs. SB 1505 is part of the governor's
education package.
1)Federal Tax Law Compliance . CalSTRS indicates that AB 1733
could jeopardize the tax-qualified status of the CalSTRS
defined benefit plan under federal tax law, which restricts
tax-qualified plans from paying retirement benefits to members
employed in positions covered by the same retirement system.
If the defined benefit program were to lose its tax-qualified
status, both CalSTRS and its members would be liable for
income tax on the program's investment earnings. To address
this problem, CalSTRS indicates that the bill should be
amended to either (1) require the members to reach the normal
retirement age of 60 before returning to work, or (2) require
a one-year break in service between the time of retirement and
the time of return to service.
AB 1733
Page 3
Analysis Prepared by : Stephen Shea / APPR. / (916) 319-2081