SB939 - Public employees’ retirement: service credit: payments.

Senate Bill No. 939 CHAPTER 110 An act to amend Sections 20776, 21037, 21039, 21050, and 21073.1 of the Government Code, relating to public employees’ retirement. [ Approved by Governor August 17, 2026. Filed with Secretary of State August 17, 2026. ] LEGISLATIVE COUNSEL'S DIGEST SB 939, Laird. Public employees’ retirement: service credit: payments. (1) The Public Employees’ Retirement Law (PERL) creates the Public Employees’ Retirement System (PERS), which provides a defined benefit to members of the system based on final compensation, credited service, and age at retirement, subject to certain variations. PERL vests management and control of PERS in the Board of Administration. Under that law, members may make certain elections, including elections to purchase service credit for various types of public service, upon payment of additional contributions. Existing law permits a member who retires before paying off the entire amount for service credit to pay the balance due by deductions from their retirement allowance equal to those authorized as payroll deductions, as specified. Under existing law, upon the death of that member, a survivor of the member, who is eligible for a monthly allowance, may elect to continue those deductions from the survivor’s allowance. Existing law authorizes the member, survivor, or beneficiary, as an alternative, on or after January 1, 2020, to elect to receive an allowance that is reduced by the actuarial equivalent of any balance remaining unpaid by the member. This bill would limit that alternative option to elections made on or after January 1, 2020, with an initial effective date prior to January 1, 2028. (2) Existing law provides that all elections taking effect on or after January 1, 2020, including elections for normal contributions, arrears contributions, absences, or public service become due and payable at the time of the member’s retirement or preretirement death. This bill would require, for all elections with an effective date on or after January 1, 2028, except as specified, the member’s payment to be received by the system no later than 90 days after the member’s retirement effective date, or the survivor or beneficiary’s payment to be received by the system no later than 90 days after the date the notification of balance due is mailed. For any balance not paid, the service credit included in the election would be reduced or eliminated, as specified. This bill would also require all contributions or service credit adjustments required by law or agreement with an effective date on or after January 1, 2028, to become due and payable at the time of retirement or preretirement death. The bill would require the member, survivor, or beneficiary to have their allowance reduced by the actuarial equivalent of any balance remaining unpaid by the member. (3) Existing law permits a member of PERS who has elected to receive credit for service and who retires for disability, including a safety member who retires due to industrial disability, to elect to cancel the installments prospectively, in accordance with certain provisions. Existing law specifies that, for an election taking place on or after January 1, 2020, the amount remaining for normal contributions, arrears, contributions, absences, or public service for the election becomes due and payable at the time of the member’s retirement or preretirement death and provides that in these circumstances the member, survivor, or beneficiary allowance is reduced by the actuarial equivalent of any balance remaining unpaid by the member. This bill would require, for any election with an effective date on or after January 1, 2028, except as specified, the member’s payment to be received by the system no later than 90 days after the member’s retirement effective date, or the survivor or beneficiary’s payment to be received by the system no later than 90 days after the date the notification of balance due is mailed. For any balance not paid, the service credit included in the election would be reduced or eliminated, as specified. (4) Existing law specifies that an election by a member to receive credit for service under PERL is effective only if accompanied by a lump-sum payment or an authorization for payments, in accordance with regulations of the board. Existing law authorizes a member paying for credit for service in after-tax installments to suspend these payments for a period not to exceed 12 months, with payments automatically resuming at the end of the period, or earlier, if requested by the member. Under existing law, a member who retires during the suspension period may, prior to retirement, either make a lump-sum payment for the recalculated balance due or cancel installment payments, as specified. Existing law also provides a 3rd option, under which a member, on or after January 1, 2020, may elect to reduce their allowance by the actuarial equivalent of the recalculated balance remaining unpaid by the member. Under existing law, a member’s failure to make an election results in the resumption of installment payments as of the member’s retirement date, or for elections with an initial effective date on or after January 1, 2020, results in the allowance being reduced by the actuarial equivalent of the recalculated balance remaining unpaid by the member. This bill would limit that 3rd option to elections made on or after January 1, 2020, with a initial effective date prior to January 1, 2028. The bill would provide that if a member fails to make an election, any balance remaining unpaid at the time of retirement would become due and payable, as specified. (5) The PERL establishes retirement formulas, known as the Second Tier, modified First Tier, and First Tier, which are applicable to specified members of the retirement system. Effective January 1, 2000, a member who received service credit subject to Second Tier benefits may elect to become subject to First Tier benefits and contribution rates. That law requires a member who elects to become subject to First Tier benefits to deposit accumulated contributions the member withdrew while they were subject to Second Tier benefits, plus interest, as specified, or alternatively, the deposit requirement may be satisfied by an election to reduce the member’s allowance by the actuarial equivalent of any balance remaining unpaid by the member at the time of the member’s retirement or preretirement death. This bill would make that alternative provision applicable only to elections made prior to January 1, 2028. Existing law specifies that, for a member who elects to receive First Tier credit on or after January 1, 2020, any unpaid balance of that member is due and payable at the time of the member’s retirement or preretirement death, with the member, survivor, or beneficiary’s allowance reduced by the actuarial equivalent of any balance remaining unpaid by the member. This bill would require for an election on or after January 1, 2028, the member’s payment to be received by the system no later than 90 days after the member’s retirement effective date, or the survivor or beneficiary’s payment to be received by the system no later than 90 days after the date the notification of balance due is mailed. For any balance not paid, the service credit included in the election would be adjusted, as specified. The bill would make other related and clarifying changes. Digest Key Vote: MAJORITY Appropriation: NO Fiscal Committee: YES Local Program: NO Bill Text The people of the State of California do enact as follows: SECTION 1. Section 20776 of the Government Code is amended to read: 20776. (a) If a basic death benefit becomes payable before the payment of the total amount the member elected to pay under any election with respect to normal contributions, arrears contributions, absences, or public service credit permitted under this part, the member’s entire compensation, or the service upon which that total amount was based, shall be included in the computation of the portion of the death benefit that is provided in subdivision (b) of Section 21532, and the unpaid balance of the total amount may not be paid to this system, nor may it be included in the member’s accumulated contributions that constitute a part of the basic death benefit. (b) Any balance of any total amount remaining unpaid at the death of the member on account of whom a special death benefit is payable or at the retirement of a member for industrial disability may be subject to Section 21037 or 21039 when payment of the balance would not increase the allowance payable. When the balance of the amount remaining unpaid would increase the allowance payable, the balance shall become due and payable immediately, except that the survivor of a member who died under circumstances under which a special death benefit is payable and who had authorized payroll deductions may elect to continue those deductions from the survivor allowance in lieu of the lump-sum payment. If the balance is not paid, the portion of the unpaid amount representing contributions on compensation earned in the membership applicable to the member at the time of injury resulting in death or disability shall be deducted from the benefit otherwise payable and this system shall be discharged from any liability for any annuity or benefit with respect to any remainder of the unpaid contribution. (c) Any balance of the total amount remaining unpaid at the time of retirement for service or disability, or at death, with respect to which a benefit is payable under Section 21546, may be subject to Section 21037 or 21039 when payment of the balance would not increase the allowance payable. When the balance of the amount remaining unpaid would increase the allowance payable, the balance shall become due and payable immediately, except that the survivor of a member who died under circumstances under which a benefit under Section 21546 is payable and who had authorized payroll deductions may elect to continue those deductions from the survivor allowance in lieu of a lump-sum payment of the balance due. If the balance is not paid, the service credit included in the election shall be reduced in proportion to the balance of the total amount remaining unpaid and any service credit dependent on completion of payments eliminated for purposes of computing the allowance but not for purposes of determining entitlement to an allowance. (d) Notwithstanding any provision of subdivision (b) or (c), a member who retires before payment of the total amount which the member elected to pay, may elect to pay the balance due, or the total amount if no payroll deductions had been made prior to retirement, by deductions from the member’s retirement allowance equal to those which the member authorized as payroll deductions. In that case, service credit included in the election may not be reduced, nor may any prior service dependent on completion of payments be eliminated for purposes of computing the allowance. Any balance of the total amount remaining unpaid upon the death of the member shall be treated in the same manner as unpaid balances are treated if a special death benefit is payable, except that the survivor of a retired member who had authorized deductions from their retirement allowance in accordance with this subdivision, and who is eligible for a monthly allowance, may elect to continue those deductions from the survivor’s allowance in lieu of the lump-sum payment otherwise required. Alternatively, on or after January 1, 2020, for elections with an initial effective date prior to January 1, 2028, the member, survivor, or beneficiary may elect to receive an allowance that is reduced by the actuarial equivalent of any balance remaining unpaid by the member. (e) Notwithstanding any other provision of this section, all elections with an effective date on or after January 1, 2020, and prior to January 1, 2028, including elections for normal contributions, arrears contributions, absences, or public service, shall become due and payable at the time of retirement or preretirement death. The member, survivor, or beneficiary shall have their allowance reduced by the actuarial equivalent of any balance remaining unpaid by the member. This subdivision does not apply to elections made under Section 21027 or 21029 for retired members. (f) Notwithstanding any other provision of this section, all contributions or service credit adjustments required by law or agreement with an effective date on or after January 1, 2028, shall become due and payable at the time of retirement or preretirement death. The member, survivor, or beneficiary shall have their allowance reduced by the actuarial equivalent of any balance remaining unpaid by the member. (g) Notwithstanding any other provision of this section, all elections with an effective date on or after January 1, 2028, including elections for normal contributions, arrears contributions, absences, or public service, shall become due and payable at the time of retirement or preretirement death. The member’s payment must be received by the system no later than 90 days after the member’s retirement effective date. The survivor or beneficiary’s payment must be received by the system no later than 90 days after the date the notification of balance due is mailed. If the balance is not paid, the service credit included in the election shall be reduced in proportion to the balance of the total amount remaining unpaid and any service credit dependent on completion of payments eliminated for purposes of computing the allowance. This subdivision does not apply to elections made under Section 21027 or 21029 for retired members. (h) Interest paid with respect to normal contributions, arrears contributions, absences, or public service credit permitted under this part, prior to date of retirement or death of the member, shall be credited to the member’s individual account. Interest paid after the date of retirement or death of the member shall be credited to the retirement fund pursuant to Section 20174. SEC. 2. Section 21037 of the Government Code is amended to read: 21037. Notwithstanding any other law, the following applies: (a) A member who has elected to receive credit for service by contributing in installments and who retires for disability on or after January 1, 2004, when the election for service credit does not increase the member’s allowance payable, may elect to cancel the installments prospectively. The member’s election may be received by the system no more than 30 days after the date on which the member’s retirement for disability is approved. The effective date of the member’s election shall be the effective date of the member’s retirement for disability. No refund of contributions paid in installments prior to the effective date of the member’s election may be payable to a member or retired member as a result of an election made by a member pursuant to this section. (b) [Text truncated for display. Full text available on Congress.gov.]