The California Constitution grants the retirement board of a public pension or retirement system plenary authority and fiduciary responsibility for investment of moneys and administration of the system, as specified. Existing law, the Teachers’ Retirement Law, establishes the State Teachers’ Retirement System (STRS) and creates the Defined Benefit Program of the State Teachers’ Retirement Plan, which provides a defined benefit to members of the program, based on final compensation, credited service, and age at retirement, subject to certain variations. STRS is administrated by the Teachers’ Retirement Board (board). Existing law also creates the Cash Balance Benefit Program, which is administered by the board, to provide a retirement plan for the benefit of participating employees who provide creditable service for less than 50% of full time. Existing law authorizes the board to audit, or cause to be audited, the records of any public agency as often as it deems necessary.

This bill would prescribe various requirements and duties in connection with audits of public agencies by the board. The bill would require the board to provide written notice of an intended audit to the affected public agency and to the exclusive representative of the members affected by the audit. The bill would require this notice to apprise the public agency and the exclusive representative of the purpose and scope of the intended audit. The bill would define “exclusive representative” for purposes of STRS. The bill would require the public agency to provide information requested by the board in a timely manner and, at that time, to also provide the information to the exclusive representative of the members affected by the audit. The bill would authorize an audited public agency and the exclusive representative of affected members to provide the board information relevant to the audit, and would require the board to consider this information in preparing its audit findings. The bill would require the board to provide to the audited public agency and the exclusive representative of the affected members the preliminary audit findings, the statutes being addressed by the audit, and a list of every member known to be affected. The bill would authorize recipients to provide the board written responses to the preliminary audit findings and would require the board to consider the responses in preparing its final audit report. The bill would require the public agency to provide, as specified, the board and the exclusive representative a list of the names of any member affected by the audit not included in the board’s list.

This bill would require the board to provide the final audit report to an audited public agency, to the exclusive representative or representatives of members affected by the audit, and to the affected members, with an explanation of their appeal rights. The bill would authorize the public agency and the affected members to request administrative hearings if they disagree with the final audit and would prescribe a process for this purpose. The bill would require STRS to make all final employer audit reports available on its internet website, as specified.

Existing law prescribes various rights and duties of the board to administer STRS. Existing law generally prohibits adjustments in new rates of contribution adopted by the board on the basis of an investigation, valuation, and determination or because of an amendment to the Teachers’ Retirement Law with respect to the Defined Benefit Program, for time prior to the effective date of the adoption or amendment. Existing law prohibits an action of the board, other than for correction of errors in calculating the allowance or annuity at the time of retirement, disability, or death of a member, from changing the allowance or annuity payable to a retired member or beneficiary prior to the date the action is taken.

This bill would require STRS to provide resources, at least annually, that interpret and clarify the applicability of creditable compensation and creditable service laws. The bill would prohibit new interpretations, including those that would modify prior interpretations, from taking effect until after notice is issued to employers and exclusive bargaining representatives and would prohibit retroactive application to compensation reported prior to that notice, unless that is expressly required by state or federal law, or an executive order of the Governor, and would generally require application on July 1, following the notice. The bill would state that for audits and other actions, including actions and penalties relating to disallowed compensation reporting, employers are responsible for the rules in effect at time the compensation is reported, except when specified. If compensation reported in accordance with these provisions is later determined by the system to have been reported in error, the bill would require the resulting overpayment to be recovered, as specified.

The bill, beginning July 1, 2023, would authorize an employer or an exclusive representative to submit to STRS a request for an advisory letter, which would be defined as a written determination relating to compensation that is included or proposed for inclusion in a publicly available written contractual agreement for review by the system in order to provide formal written guidance for the proper reporting of such compensation, as specified. The bill would prescribe a process in this regard, which would include requiring the system to provide an advisory letter within 30 days of the receipt of all information requested by the system, except as specified. The bill would specify that an advisory letter may be superseded by state or federal law, an executive order of the Governor, or a system rule. If compensation reported in accordance with a system advisory letter given pursuant to these provisions is later determined by the system to have been reported in error, as specified, the bill would require any resulting overpayment or penalty to be deemed an error by the system and would require that it be recovered, pursuant to a specified process. The bill would limit the use, as specified, of an advisory letter to the employer or the member to whom an advisory letter expressly relates.

Existing law requires an employer to deduct from the creditable compensation of members who are employed by the employer the member contributions required by the Teachers’ Retirement Law and to remit them to the system plus required employer contributions. Existing law requires a county superintendent of schools, among others, that reports directly to the system to draw requisitions for required contributions, as specified, in favor of STRS, and the requisitions, when allowed and signed by the county auditor, are a warrant against the county treasury. Existing law requires the board to assess penalties if required contributions are not paid or if specified monthly reports are not made or are made in an improper form. Existing law creates the county school service fund and prescribes the expenses to which it may be applied. Existing law generally prohibits expending moneys in the fund for any purpose in excess of the latest proposed expenditures for a purpose as approved by the Superintendent of Public Instruction, as specified. Existing law generally requires a county auditor to approve warrants drawn on the service fund for expenses approved in the county school service fund budget.

This bill would authorize the county superintendent of schools to draw requisitions against the county school service fund and the funds of the respective employing agencies for the purpose of making certain payments to STRS, as specified, in amounts equal to employing agency payments or for the purpose of recovering specified amounts paid that are the responsibility of employers.

Existing law generally authorizes the board, in its discretion and upon any terms it deems just, to correct the errors or omissions of a member or beneficiary of the Defined Benefit Program, and of any participant or beneficiary of the Cash Balance Benefit Program, if specified facts exist. Under existing law, the failure by a member, participant or beneficiary to make an inquiry that would be made by a reasonable person in like or similar circumstances does not constitute an error or omission. Existing law requires that any overpayment made to, or on behalf of, any member, former member, or beneficiary be deducted from any subsequent benefit that may be payable, except as specified.

This bill would revise the requirement to deduct, as described above, to except from its application amounts overpaid in a variety of situations and instead require that overpaid amounts be recovered from the member, participant, former member, former participant, or beneficiary, subject to specified exceptions. The bill would prescribe requirements for the recovery of these amounts. Commencing July 1, 2024, the bill would require that amounts overpaid due to an error by the system be recovered pursuant to a continuous appropriation from the General Fund and from employers reporting to the system, as specified. In this regard, the bill would require that 85% of the amounts resulting from benefit adjustments that take place in the fiscal year ending in the immediately preceding calendar year, the specific amount of which would be determined by the board, be made as a continuous appropriation from the General Fund for transfer to the Teachers’ Retirement Fund. The bill would require that the remaining 15% of these amounts be collected from all employers that report directly to the system in amounts proportionate to their share of contributions, as specified, including the contributions of those employers for whom a county superintendent of schools reports. The bill would authorize a county superintendent of schools to recover certain funds from employers, as specified. The bill would require the amounts recovered to include regular interest, which is defined for purposes of the Teachers’ Retirement Law. The bill would require the Controller, in certain circumstances, upon the order of the board, to reduce payments from the State School Fund to a county for deposit in the county school service fund or, upon the request of a county superintendent of schools to the county auditor. The bill would require the Controller to reduce payments to a school district for deposit in the district general fund by the amount owed. The bill would require the Controller to then pay specified amounts owed for deposit in the Teachers’ Retirement Fund. The bill would except certain recoveries and benefit adjustments from these requirements.

Existing law requires STRS, if an employer reports erroneous information, to calculate the actuarial present value of the expected payments from the member, the former member, or beneficiary, as specified, and requires the employer to pay the difference between the total amount of the overpayment and the calculation of the actuarial present value of expected payments.

This bill would delete that provision.

Existing law limits the amounts by which STRS may reduce retirement allowances and benefit payments to recover an amount overpaid under the Defined Benefit Program, the Defined Benefit Supplement Program, or the Cash Balance Benefit Program to no more than 5% if the overpayment was due to an error by the system. In this context, existing law limits reductions to 15% for errors due to inaccurate information or nonsubmission of information by the recipient of the allowance or benefit.

This bill would delete the above-described limitation on reductions for overpayments due to errors by the system. The bill would also make various changes in these provisions to conform with other revisions the bill would make, as described above.

Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.