BILL ANALYSIS
Appropriations Committee Fiscal Summary
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| |AB 2456 (Wright) |
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|Hearing Date: 8/7/2000 |Amended: 5/26/2000 |
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|Consultant: Maureen Brooks |Policy Vote: P. E .& R. 5-0 |
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BILL SUMMARY: AB 2456 establishes the Deferred Retirement
Option Program (DROP) for members of the State Teachers'
Retirement System (STRS). Members are eligible to
participate after reaching age 60.
Fiscal Impact (in thousands)
Major Provisions 2000-01 2001-02
2002-03 Fund
Benefit costs $20,267 $42,262
$44,164 STRF
DROP admin costs $500 $250
$250 STRF
STAFF COMMENTS: This bill meets the criteria to be placed
on the Suspense file.
STRS estimates start-up costs of approximately $500,000 and
annual ongoing costs of $250,000 - $500,000. Cost
estimates are based upon 40% of the eligible members
electing to participate resulting in 9,000 members in the
first year. Additionally, the program costs for the
benefit will result if the beginning of the DROP period is
earlier than the member would have retired under current
law.
When a member elects to participate in the DROP, the
member's monthly retirement allowance is calculated using
age, service credit and final compensation at the time the
member enters the DROP period . Under the provisions of
AB 2456, a member will select a date 36 months prior to the
actual retirement date. During that three year period,
the calculated allowance is paid into a "nominal" account.
All member and employer contributions cease at that time.
Upon actual retirement, the member will receive the monthly
retirement benefit calculated at the time of entry into the
DROP program and will receive a lump sum or annuitized
payment from the DROP nominal account.
The intent of the DROP program is to provide a member with
the ability to take part of the retirement income as a lump
sum in addition to receiving a monthly allowance.
Staff notes that benefit enhancements and pay increases
enacted after the member enters the DROP will not apply to
the calculation of that member's retirement benefit.