BILL ANALYSIS
AB 1933
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Date of Hearing: May 3, 2000
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Carole Migden, Chairwoman
AB 1933 (Strom-Martin) - As Introduced: February 15, 2000
Policy Committee:
P.E.R.&S.S.Vote:6-0
Urgency: No State Mandated Local
Program:NoReimbursable:
This bill enhances retirement benefits for members of the State
Teachers' Retirement System (CalSTRS), as follows:
1)Authorizes a member who is 55 years of age or older to retire
on or after July 1, 2001, with full retirement benefits if the
member's age plus years of credited service is equal to or
greater than 85 (i.e., the "Rule of 85" service retirement
plan). Current law requires that retirement benefits be
reduced for CalSTRS members who retire prior to age 60.
2)Provides an additional "career bonus" to members with 29 or 30
years of service of .1%, and an additional .2% to members with
31 or more years of service, that is added to the age factor
component of the CalSTRS retirement formula. Current law
provides a .2% career bonus to members with 30 or more years
of service.
3)Allows a member to reach a maximum age factor of 2.5%, an
increase of .1% over the current maximum age factor of 2.4%.
4)Finally, requires CalSTRS to conduct a study on the
feasibility of basing pensions on years of service and final
compensation with no age factor, except for a minimum
retirement age, and to report its findings to the Legislature
on or before July 1, 2001.
FISCAL EFFECT :
1)Rule of 85 Plan . CalSTRS indicates that it has approximately
22,600 members between the ages of 55 and 63 that would be
eligible for the Rule of 85 retirement benefit. The present
value costs to the Teachers' Retirement Fund (TRF) of
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providing the Rule of 85 plan would be about $4 billion, with
a first-year cost of $244 million.
2)Enhanced Career Bonus . CalSTRS indicates it has approximately
26,992 members eligible for the enhanced career benefit. The
present value costs to the TRF of the enhanced career bonus
would be about $4 billion, with a first-year cost of $248
million.
3)Service Based Retirement Study . CalSTRS would incur minor,
absorbable costs to conduct the study required by this bill.
COMMENTS :
1)Background . Under current law, retirement benefits for
CalSTRS members are based upon (1) an age factor, multiplied
by (2) years of credited service, and (3) the average of the
member's three highest consecutive years of compensation. The
age factor is 2% at age 60, and reaches a maximum of 2.4% at
age 63. (For early retirement, the age factor is reduced by
one-half of 1% for each month the member is less than 60, and
an additional one-quarter of 1% for each month the member is
less than 55. However, members with 30 years of service may
receive a career bonus of .2%, thereby allowing the member to
reach the maximum age factor of 2.4% at age 61 and six months.
This bill would allow a member with 30 years experience at
age 55 to retire at the 2.4% age factor. Alternatively, the
member could work an additional year and increase the age
factor to 2.5%.
2)Purpose . The sponsor, the California Teachers' Association
(CTA) believes that the current retirement formula places too
much emphasis on age, to the detriment of career teachers. A
teacher that begins service right after college must work for
four decades before he or she can retire at the maximum age
factor of 2.4 percent; whereas a teacher that begins service
later in life can retire at the maximum age factor with as few
as five years of service.
3)CalSTRS Surplus . The TRF presently has an unencumbered
surplus of roughly $8.5 billion. In addition, the combined
employer/employee contribution rate of 16% exceeds the "normal
cost" of providing the CalSTRS defined benefit program of
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13.4%. The present value of the 2.6% "normal cost surplus" is
about $7.5 billion. This bill alone would cost the TRF about
$8 billion. There are an additional 23 CalSTRS bills active
in the Legislature. The Legislature has an opportunity to
prioritize these bills and develop a benefit enhancement
package for CalSTRS along the lines of the CalPERS package
enacted last year.
4)Prior Legislation . A similar bill, AB 1213 (Strom-Martin),
was held in the Assembly Appropriations Committee in January
2000. Previous versions of the Rule of 85 were passed by the
Legislature but vetoed by the Governor: (AB 88 (Baca) in 1998;
AB 449 (Horcher) in 1993; and AB 276 (Filante) in 1991).
5)Policy Considerations . By creating an incentive for teachers
to retire, AB 1933 may be at odds with the efforts to retain
qualified teachers to implement class size reduction and meet
enrollment growth projected over the next decade. However, if
the Governor's proposal to eliminate the cap on income that
retired teachers may earn without a reduction in benefits
become law, teachers in the 55 to 63 age group could simply
retire (with full benefits) and be rehired back into their old
jobs. Additionally, the enhanced retirement benefits
provided by this bill would enhance the attractiveness of the
teaching profession.
Analysis Prepared by : Stephen Shea / APPR. / (916) 319-2081