CalPERS Benefits Bill is on The Governor's Desk

September 17, 1999

CalPERS Benefits Bill is on the Governor's Desk

Senate Bill 400 (Ortiz, D-Sacramento), after receiving unanimous bipartisan support from the legislature, is on the Governor Davis' desk. This measure is sponsored by the Public Employees Retirement System (CaLPERS) and makes various improvements in the benefits provided to state and school members of the system.

According to CaLPERS, employer retirement costs have been declining over the last 10 years as the result of significant investment returns and changes in actuarial assumptions. The members and retirees of CaLPERS have not benefited from these returns. As a result, CaLPERS contends that the new retirement formulas provided by this bill mark the first significant improvement in retirement benefits for most state and school members' in approximately 30 years. It is anticipated that the increase in liability for these new benefits can be funded by the excess retirement assets that have been generated through investment income and changes in actuarial assumptions resulting in no immediate increase in costs to the employer.

What's in SB 400 for School Employees?

2% at age 55. Provides a new retirement formula for state miscellaneous, university, state industrial and school members who retire on or after January 1, 2000. The new formula would have a minimum retirement age of 50 and would provide a retirement benefit factor of 2% at age 55 increasing to 2.5% at age 63 and above. This formula will supercede the present 1/50th at age 60 formula state and school members.
Twelve-month period for final compensation. Changes the method of calculating the average monthly compensation used in computing retirement allowances for school members who retire on or after January 1, 2000 from an average of 36 consecutive months to the highest annual compensation that was earnable by the school member during the consecutive 12 month period of employment immediately preceding the effective date of his or her retirement, or during any other period of 12 consecutive months designated on the application for retirement.
Special retirement increase. Provides a 1% to 6% ad hoc retirement allowance increase, effective January 1, 2000, for state and school retirees who retired prior to 1998. This increase would be in addition to the annual cost-of-living allowance and supplemental payments from the Purchasing Power Protection Act. Retirees who retired in 1997 would receive a 1% increase, 1995-96 retirees would receive a 2% increase, 1990-94 retirees would receive a 3% increase, 1985-89 retirees would receive a 4% increase, 1975-84 retirees would receive a 5% increase, and retirees retiring in 1974 and prior would receive a 6% increase.
Higher surviving spouse benefits. Establishes a new "5th Level" of survivor benefits for state and school employees participating in the 1959 Survivor Benefit Program. Under the new program benefits are increased to $750 per month for a single recipient, $1,500 per month for two recipients and $1,800 per month for three or more recipients. The age at which a surviving spouse becomes eligible for benefits is decreased from 62 to 60. This new level requires the members and the employer, if necessary, to each pay $2 per month for the increased benefit.

None of the Provisions of SB 400 Apply to STRS Members

There may have been some confusion regarding whether or not academic employees (STRS members) were included in the provisions of SB 400 regarding calculating retirement benefits based on the highest average compensation earned during a consecutive 12-month period. STRS members are not included in SB 400. There was a separate bill, AB 821, which contained provisions that would have provided this benefit to STRS members. However, AB 821 was held in the Senate Appropriations Committee and will become a "two year bill." It is the intent of the Assembly PERS committee to move the bill when the Legislature returns in January, 2000. (See the following Update article.)

The primary reason AB 821 did not pass the legislature was due to cost. STRS estimated that the cost to use the highest 12 consecutive months for determing retirement allowances would be $5 to $7 billion. If Governor Davis signs SB 400 - as he is expected to do - there will likely be a great deal of pressure placed on the STRS board by the various teacher organizations to provide parallel benefits.

The governor has until October 10, 1999 to sign or veto legislation.

-- Arnold Bray