BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 2456
Deborah V. Ortiz, Chair Hearing date: June 26, 2000
AB 2456 (Wright) as amended 5/26/00 FISCAL: YES
STRS: D.R.O.P. PLAN PROPOSED
HISTORY :
Sponsor: Faculty Association of California Community
Colleges (FACCC)
United Teachers Los Angeles (UTLA)
Prior legislation: SB 1312 (Baca)
On Senate Floor (Inactive File)
ASSEMBLY VOTES :
PER & SS 7 - 0 4/12/00
Appropriations 21 - 0 5/24/00
Assembly Floor 77 - 0 6/01/00
SUMMARY :
Would establish the Deferred Retirement Option Program (DROP)
as a supplemental program for members of the Defined Benefit
Program of the State Teachers' Retirement System (STRS) who
are at least 60 years of age.
BACKGROUND :
1) The committee is advised that DROP is intended to
encourage experienced teachers to continue teaching beyond
their normal retirement age in return for the opportunity to
receive a lump sum payment (or an additional annuity) upon
retirement, in addition to their normal retirement allowance.
2) The DROP would appeal to teachers who already have
reached the maximum age factor of 2.4%. In
return for the DROP benefit, however, a member would forgo
earning additional years of service credit to be applied to
his or her retirement allowance.
Additionally, benefit enhancements and pay increases enacted
after the member elects to participate in DROP would not
David Felderstein AB 2456
Date: 6/13/00 Page 1
apply to the calculation of the member's retirement benefit.
ANALYSIS :
1) Existing STRS law establishes within STRS two distinct
benefit structures:
a) a "defined benefit plan" for persons employed on
full-time basis, and
b) a "cash balance benefit plan" for persons employed on a
part-time basis.
STRS does not contain a DROP.
2) This bill provides that:
a) DROP is being established in STRS to provide added
flexibility to the system by allowing DROP participants to
have access to a lump sum benefit or additional monthly
payments for a specified period of time in addition to
their normal retirement allowance,
b) STRS Board to implement DROP no later than January 1,
2002,
c) a STRS member may elect to participate in DROP once
they have five years of service credit and have reached age
60,
d) a member participating in DROP would continue to make
member contributions to be credited to their DROP account
and agree to participate in the program for at least one
calendar year,
e) a member's election to participate in DROP may be
David Felderstein AB 2456
Date: 6/13/00 Page 2
rescinded within 90 days after the date it is made,
f) members who participate in DROP are not eligible to
participate in the Reduced Workload Program,
g) members who have participated in DROP and reinstate to
active service are not eligible to participate in DROP
again, and
h) a member's DROP account will be credited monthly with
the retirement allowance the member would have received if
the member had retired on the date he or she began
participating in DROP and the normal employer and employee
contributions less an amount needed to offset the actuarial
and administrative costs of the program. Additionally, the
amounts will be credited with any applicable cost-of-living
adjustments and interest equal to the annual DROP interest
rate adopted by the STRS Board.
FISCAL EFFECT :
According to the Assembly Appropriations Committee analysis
STRS would incur administrative costs of approximately
$500,000 annually to develop and operate the DROP.
This bill contains provisions for STRS to recover
administrative costs from DROP participants.
COMMENTS :
1) SB 1312 (Baca), pending in the Senate, would establish
DROP as a supplemental benefit program in the Public
Employees' Retirement System (PERS) for state and school
members and for those local members whose employing agency
elects to be subject to the program.
David Felderstein AB 2456
Date: 6/13/00 Page 3
2) As proposed in this bill , DROP would give STRS members
the ability to take part of their retirement income as a lump
sum, in addition to receiving a monthly STRS retirement
allowance.
Supporters contend that:
a) establishing a DROP within STRS will encourage
qualified and experienced teachers to stay in the classroom
and continue teaching in order to receive DROP benefit, and
b) the state will need approximately 300,000 teachers in
grades K-14 within the next decade and that this
bill will provide an option that will encourage faculty to
teach longer and allow grades K-14 to retain quality
teachers.
3) SUPPORT :
Small School Districts' Association
Faculty Association of California Community Colleges
(FACCC)
4) OPPOSITION :
None to date.
# # # # #
David Felderstein AB 2456
Date: 6/13/00 Page 4