Copyright© 2000 by School Services of California, Inc.

June 23, 2000

STRS/PERS Retirement and Benefit Legislation Update

As evidence of the high interest in retirement and benefit issues germinating in the Legislature this year, the Budget Conference Committee, after considerable deliberation and before rejecting most, reviewed several initiatives that would enhance STRS member benefits.

Among the items rejected was the proposal to use single highest year compensation-as opposed to a three-year average-for calculating STRS benefits. This item may have been rejected because legislation that would authorize this provision, AB 821 (Committee on P.E.R. & S.S.), is still pending in the Senate Appropriations Committee. The element that did remain in the budget was a proposal to reduce the credentialed employees' contribution share to STRS from 8% to 6%. STRS will pay for the 2% reduction in employee contributions and that amount will be deposited into tax-sheltered annuities on behalf of each STRS member. This additional benefit for active STRS members is scheduled to continue for 10 years.

The following is an update on retirement legislation that is alive in the legislative process:

AB 50 (Migden, D-San Francisco): PERS Increased Death Benefits

This bill would require an increase from $600 to $2,000 of the "automatic" lump sum death benefit for retired school employee members of PERS and would continue the provisions of existing law allowing school districts to provide more than the proposed "automatic" lump-sum death benefit of $2,000, permitting payments of $3,000, $4,000, or $5,000 by PERS contract amendment. This bill is currently in the Senate Appropriations Committee.

AB 141 (Knox, D-Los Angeles): Retired School Administrators

Existing STRS law allows retired members to earn up to $19,500 in 1999-00 for public school employment. Existing STRS law also provides for one half-year exemption from this earnings limit if retired administrators return to service during the process of permanently filling a vacant administrative position. This bill (which was signed by the Governor (Chapter 22, Statutes of 2000) provides that retired administrators are permitted to serve for a second half-year and continue to be exempted from the STRS earning limitation.

AB 1733 (Wildman, D-Los Angeles): STRS Post-Retirement Earnings

This bill increases the current post-retirement earnings cap to $36,000 for members of STRS. Supporters believe that by increasing the post-retirement earnings limitation, experienced and credentialed retired teachers will be encouraged to return to the classroom. This bill is currently in the Senate Public Employment & Retirement Committee.

AB 1736 (Ducheny, D-San Diego): STRS Post-Retirement Compensation

This bill would exempt from the current STRS post-retirement earnings limitation STRS members who retired before July 1, 2000, and who are subsequently employed to provide direct remedial instruction to pupils in K-12 education. This bill is currently in the Senate Public Employment & Retirement Committee.

AB 1933 (Strom-Martin, D-Duncans Mills): State Teachers' Retirement Benefits

This bill would establish a "Rule of 85" retirement option (for STRS members who are at least 55 years of age, where their age plus years of credited service equals or exceeds 85) and improves the current career bonus incentive for members of STRS. In addition, the bill would increase from 2.4% to 2.5% the maximum age factor a person can receive when combining their actual age factor with the career bonus. This bill has been amended to provide that its implementation was subject to local option, and is now before the Senate Public Employment & Retirement Committee.

AB 2030 (Correa, D-Anahiem): PERS Member Contribution Rates

This bill would reduce the contribution rate for local miscellaneous members, including school employees of PERS from 7% to 6%. Supporters believe that members should benefit from the substantial reduction in employer contribution rates resulting from the increased value of investments. This bill is currently in the Senate Public Employment & Retirement Committee.

AB 2177 (Correa, D-Anahiem): Earnable Compensation, and Service Credit

This bill would clarify and standardize reporting of compensation and service for school employee members of PERS, and requires school employers to pay employer contributions in a timely manner. If a school employer fails or refuses to pay the required employer contributions in a timely manner, it will be required to pay all arrears costs for those contributions plus an administrative cost of $500 per member. This bill is currently in the Senate Public Employees & Retirement Committee.

AB 2383 (Keeley, D-Santa Cruz): PERS Health Benefits for Part-time Employees

This bill would allow employees who are employed less than half time with local agencies that contract with PERS to participate in the Public Employees' Medical and Hospital Care Act (PEMHCA). Supporters point out that, "While school district employees comprise the largest percentage of the PERS eligible groups, they make up the smallest percentage enrolling in PEMHCA. Currently, just over 100 of more than 1,100 school districts are enrolled in PEMHCA. One reason for the low school district participation is that PEMHCA does not cover employees who work less than half-time, limiting the ability of school districts to provide coverage for all employees." This bill is currently in the Senate Public Employment & Retirement Committee.

AB 2700 (Lempert, D-San Carlos): Creditable Compensation for STRS

This bill would make all compensation received by a member of STRS creditable and requires the State Teachers' Retirement Board to develop 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 be placed. Specifically, the bill revises and recasts the definition of creditable compensation to include all money paid by an employer to a STRS member for creditable service including overtime, summer school, and intercession. Also, compensation that is not payable in cash would be excluded from the definition of compensation. 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. This bill is currently in the Senate Public Employment & Retirement Committee.

Most of the retirement bills that increase benefits are not likely to be approved by the fiscal committees, or will be vetoed by the Governor due to significant cost increases. In spite of the large surplus that is enjoyed by both retirement systems, there is probably no way that all of these bills will be approved. For example, AB 2201 (Honda, D-San Jose), that would have provided a 2% at-age-55 service allowance, was held in the Assembly Appropriations Committee. However, there are several issues that have a possibility of being approved by the Legislature and Governor: final year compensation for STRS, exemptions from the earnings limitations, and purchasing power protection. Stay tuned for future updates as these bills move through the legislative process.

--Arnold Bray