BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 2700
Deborah V. Ortiz, Chair Hearing date: June 26, 2000
AB 2700 (Lempert) as amended 5/26/00 FISCAL: YES
STRS: "CREDITABLE" SERVICE MODIFICATIONS: NEW ACCOUNT FOR
SERVICE PERFORMED IN EXCESS OF THE FULL-TIME EQUIVALENT
DURING A 12-MONTH PERIOD
HISTORY :
Sponsor: California Teachers Association (CTA)
STRS Board of Administration
Palo Alto Unified School District
Prior legislation: none
ASSEMBLY VOTES :
PER & SS 7 - 0 4/12/00
Appropriations 21 - 0 5/24/00
Assembly Floor 75 - 1 6/01/00
SUMMARY :
Would:
a) make all compensation received by a member of the State
Teachers' Retirement System (STRS) creditable, and
b) require the STRS Board to establish and administer a
supplemental benefit program in which contributions for
service performed by a member in excess of one year of
service credit per school year shall be placed.
ANALYSIS :
1) Existing STRS law :
a) specifies that STRS calculate a member's retirement
benefit under the defined benefit program using:
i) the member's credited service,
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ii) a factor based on the member's age at retirement,
and,
iii) the member's final compensation. The member's
service credit is determined annually according to the
creditable service performed by the member.
b) defines "creditable service" as 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 school eligible to
receive state apportionment,
c) defines "creditable compensation" as money paid by an
employer to a STRS member for creditable service,
specifically excluding several types of payments from being
considered as "creditable compensation" such as:
i) money paid for creditable service in excess of the
full-time equivalent for the position,
ii) money paid for overtime, overload, summer school and
intersession,
iii) stipends paid to department chairs when release
time is not granted by the employer, and
iiii) bonus payments, such as pay-for-performance.
2) This bill :
a) 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, and changes various other definitions
to comply with the intent of this bill ,
b) specifically excludes compensation that is not payable
in cash or is not payable to all persons who are in the
same class of employees,
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c) changes the method for calculating compensation
earnable to be based on the member's highest pay rate, if a
minimum level of service of at least .900 of a year is
performed at the highest pay rate,
d) clarifies that extracurricular activities are
creditable compensation if performed as part of a member's
contract duties such as coaching and supervising student
clubs,
e) clarifies that contributions on compensation earned for
service that exceeds 1.000 (the full-time equivalent) in
any one school year or compensation that represents a
one-time, lump-sum payment would be credited under the
supplemental benefit program,
f) requires TRB to establish and administer the Defined
Benefit Supplement (DBS) Program as a supplemental benefit
program for members of STRS defined benefit program who
perform service in excess of one year of service credit per
school year,
g) patterns the administration of the DBS Program after
the STRS 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 annualized
distribution upon termination of employment, and a one-year
waiting period to receive a benefit under circumstances
other than retirement, disability or death, and
h) provides that the DBS Program would become operative on
the effective date of the bill, while the definitions
related to creditable compensation, would become effective
July 1, 2002.
FISCAL EFFECT :
STRS indicates that by making additional work eligible for
retirement service credit, this bill would increase:
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a) State General Fund contributions to the STRS defined
benefit program and supplemental benefit account by up to
$15 million annually, beginning in 2002-2003, and
b) School employer contributions to STRS by $175 million
annually.
COMMENTS :
1) According to STRS,
"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 purposes of determining a
STRS 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."
STRS 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. STRS indicates
that they spend considerable resources to monitor employer
compliance with creditable service and compensation
requirements. This bill would substantially reduce this
administrative workload.
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2) Supporters contend that this bill will increase equity
among STRS members by crediting all service performed and
will simplify reporting for employers as well as streamline
STRS' administration of the defined benefit
program.
3) SUPPORT :
Association of California School Administrators (ACSA)
Small School Districts Association
California Federation of Teachers (CFT)
4) OPPOSITION :
None to date.
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