BILL ANALYSIS
AB 2700
Page 1
ASSEMBLY THIRD READING
AB 2700 (Lempert)
As Amended May 26, 2000
Majority vote
PUBLIC EMPLOYEES 7-0 APPROPRIATIONS 21-0
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|Ayes:|Correa, Pescetti, Briggs, |Ayes:|Migden, Campbell, |
| |Dutra, Firebaugh, Honda, | |Ackerman, Alquist, |
| |Knox | |Aroner, Ashburn, Brewer, |
| | | |Cedillo, Corbett, Davis, |
| | | |Kuehl, Maldonado, Papan, |
| | | |Romero, Runner, Shelley, |
| | | |Thomson, Wesson, Wiggins, |
| | | |Wright, Zettel |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Makes all compensation received by a member of the
State Teachers' Retirement System (CalSTRS) creditable and
requires the Teachers' Retirement Board (TRB) to establish and
administer a supplemental benefit program in which contributions
for service performed by a members in excess of one year of
service credit per school year shall be placed. Specifically,
this bill :
1)Revises the definition of creditable compensation to include
all money payable in cash by an employer to all persons in the
same class of employees for performing creditable service.
Changes various other definitions to comply with the intent of
this bill.
2)Excludes, specifically, compensation that is not payable in
cash or is not payable to all persons who are in the same
class of employees from the definition of creditable
compensation.
3)Changes the method for calculating compensation earnable to be
based on the member's highest pay rate, if a minimum level of
service is performed at that rate. The minimum level of
service required to use the highest pay rate would be at least
.900 of a year of service.
4)Clarifies that extracurricular activities are creditable if
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performed as part of a member's contract duties such as
coaching and supervising student clubs, if performed by a
member who is otherwise performing creditable service.
5)Clarifies that contributions on compensation earned for
service that exceeds 1.000 in a school year or compensation
that represents a one-time, lump-sum payment would be credited
under the supplemental benefit program.
6)Requires TRB to establish and administer the Defined Benefit
Supplement (DBS) Program as a supplemental benefit program for
members of CalSTRS defined benefit program who perform service
in excess of one year of service credit per school year.
7)Patterns the administration of the DBS Program after the
CalSTRS Cash Balance Program and includes nominal accounts for
members, a guaranteed interest rate based on 30-year
Treasuries, immediate vesting for both employer and employee
contributions, a lump-sum or annuitized distribution upon
termination of employment, and a one-year waiting period to
receive a benefit under circumstances other than retirement,
disability or death.
8)Provides that the DBS Program, as well as the definitions
related to creditable compensation, would become effective
July 1, 2002.
EXISTING LAW :
) Specifies that CalSTRS calculate a member's retirement benefit
under the defined benefit program using:
a)The member's credited service;
b)A factor based on the member's age at retirement; and,
c)The member's final compensation. The member's service
credit is determined annually according to the creditable
service performed by the member.
2)Defines creditable service as specified service performed for
an employer in a position requiring a credential, certificate
or permit under the Education Code, or under standards adopted
by the Board of Governors of the California Community Colleges
or under the provisions of an approved charter for a charter
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school eligible to receive state apportionment.
3)Defines creditable compensation as money paid by an employer
to a member for creditable service. Specifically excludes
several types of payments from being considered as creditable
compensation such as:
a) Money paid for creditable service in excess of the
full-time equivalent for the position;
b) Money paid for overtime, overload, summer school and
intersession;
c) Stipends paid to department chairs when release time is
not granted by the employer; and,
d) Bonus payments, such as pay-for-performance.
FISCAL EFFECT : CalSTRS indicates that by making additional work
eligible for retirement service credit, this bill would
increase:
1)State General Fund contributions to the CalSTRS defined
benefit program and supplemental benefit account by $5-$15
million annually, beginning in 2002-2003.
2)School employer contributions to CalSTRS by $185 million
annually.
COMMENTS : According to CalSTRS, "In the early 1970's when the
current retirement plan was designed, K-12 education generally
was provided for nine months a year, and community college
instruction used full-time faculty to a greater degree. The
current method of determining what compensation is creditable
reflects the means by which education was provided at that time.
As a result, summer school and intersession service is not
creditable, and the plan assumes that members largely work only
one job, and on a full-time basis.
Since then, a number of changes have occurred in the provision
of education, including more year-around schools, summer school
and the shift in community colleges to more part-time based
instruction. In addition, administrators are increasingly being
compensated based in part on their performance. This bill would
make all compensation for creditable service creditable for
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purposes of determining a CalSTRS retirement benefit in order to
reflect the changes in education. By changing the current
definition of creditable compensation, it would allow activities
that currently are not creditable to be counted towards
determining a member's retirement."
CalSTRS also points out that the current process of excluding
certain types of service and compensation from what is
creditable for retirement increases the complexity of
administering the defined benefit program. CalSTRS indicates
that they spend considerable resources to monitor employer
compliance with creditable service and compensation
requirements. This bill would substantially reduce this
administrative workload.
Supporters contend that this bill will increase equity among
CalSTRS members by crediting all service performed and will
simplify reporting for employers as well as streamline CalSTRS'
administration of the defined benefit program.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0004965