BILL ANALYSIS                                                                                                                                                                                                    



                                                                    AB 2839
                                                                    Page  1

          Date of Hearing:   May 3, 2000

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS 
                              Carole Migden, Chairwoman

                  AB 2839 (Firebaugh) - As Amended: April 25, 2000 

          Policy Committee:                               
          P.E.R.&S.S.Vote:6-0

          Urgency:     No                   State Mandated Local  
          Program:NoReimbursable:           

           SUMMARY  :

          This bill provides a 2% at age 55 service retirement allowance  
          for members of the Califorinia State Teachers' Retirement System  
          (CalSTRS) who retire on or after January 1, 2001.  

           FISCAL EFFECT  :

          CalSTRS indicates that the bill would result in a present value  
          cost to the Teachers Retirement Fund (TRF) of $8.95 billion,  
          with a first-year cost of  $548 million.

           COMMENTS  :

           1)Background  . Current law provides CalSTRS members a 2% at age  
            60 retirement benefit formula.   To calculate a member's  
            retirement allowance, the age factor is multiplied by years of  
            credited service and the average of the member's three highest  
            consecutive years of compensation.   The age factor reaches a  
            maximum of 2.4% at age 63 and is reduced below 2% for members  
            retiring prior to age 60.  The current factor for members  
            retiring at age 55 is 1.4%.  

           2)Purpose  .  The sponsor, the California Federation of Teachers,  
            wants teachers to receive the same 2% at age 55 retirement  
            formula that classified school employee members of CalPERS  
            were granted last year by SB 400 (Ortiz), Chapter 555 of 1999.

           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  
            13.4%.  The present value of the 2.6% "normal cost surplus" is  







                                                                    AB 2839
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            about $7.5 billion.  This bill alone would cost the TRF nearly  
            $9 billion.  There are an additional 23 CalSTRS bills active  
            in the Legislature.  Thus, 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)Policy Considerations  . By creating an incentive for early  
            retirement, 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. On the other  
            hand, the enhanced retirement benefits provided by this bill  
            would facilitate teacher recruitment efforts.
           
          Analysis Prepared by  :    Stephen Shea / APPR. / (916) 319-2081