SB 538 amends Government Code section 20309 to expand which employees may elect to retain membership in the Public Employees’ Retirement System (PERS) when they later perform service covered by the State Teachers’ Retirement Plan. The change creates a targeted exception for substitute teachers so they are not forced into the teachers’ defined benefit program under certain conditions.
The bill matters to pension administrators, school HR offices, and payroll teams: it alters who counts as a school member for retirement purposes and adds an administrable exception that will affect contribution flows and recordkeeping between PERS and the teachers’ system.
At a Glance
What It Does
SB 538 creates an exception to the normal election paperwork deadline and allows persons serving as substitute teachers to elect to retain PERS coverage even if they miss the standard filing requirement. It defines "substitute teacher" for this purpose and caps eligible substitute teaching at 30 days per year.
Who It Affects
Current PERS members who take on substitute teaching assignments, K–12 and community college employers who hire substitutes, and the State Teachers’ Retirement Fund (CalSTRS) because some short-term teaching service can remain in PERS rather than entering the teachers’ plan. PERS and employer payroll/HR staff will handle altered enrollment and reporting.
Why It Matters
The bill preserves continuity of retirement coverage for short-term or intermittent teachers and reduces forced transfers between public pension systems. That choice alters contribution allocation, potentially shifts actuarial exposure, and raises practical questions about enforcing the 30‑day limit and tracking substitute assignments.
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What This Bill Actually Does
Current law lets a PERS member who later takes a job that would normally be covered by the State Teachers’ Retirement Plan choose to keep PERS instead of transferring into the teachers’ defined benefit program — but that election must be made in writing on a system form and submitted within 60 days of the hire. The employer keeps a copy and sends the original to PERS; when the election is valid the member is treated as a school member while working for the school employer.
SB 538 widens the set of employees who can make that election by adding a narrow class: persons serving as substitute teachers. Rather than create an open allowance for any late election, the bill limits eligibility to substitutes who hold a valid substitute teaching permit and who do not exceed 30 days of substitute teaching in a year.
The statute preserves all other existing eligibility requirements, so substitutes still must meet the other conditions in section 20309 to make the election.Mechanically, the bill keeps the underlying administrative structure: elections are still made on the prescribed form, employers still retain and forward forms, and any election that meets the statutory conditions becomes effective as of the first day of the employment that qualified the election. The text also retains an earlier emergency-teaching exception that had been time‑limited and is effectively lapsed; the new substitute-teacher exception is expressly stamped with its own effective date in the statute.For HR and benefits teams this means two practical shifts: short-term substitutes now have a statutory path to avoid automatic entry into the teachers’ system, and employers must track permit status and substitute days to determine eligibility.
For pension offices, the change preserves contribution flows into PERS for a subset of teaching service that previously would have gone to CalSTRS, with attendant accounting and actuarial implications.
The Five Things You Need to Know
Section (a) continues to require the member to submit a signed election on a system-prescribed form and directs the employer to retain a copy and send the original to PERS.
Section (b) limits who can use the election: it applies only to members who were employed by a school employer, the Board of Governors of the California Community Colleges, or the State Department of Education within 120 days before the qualifying hire, or to members with at least five years of credited PERS service.
Section (c) makes any valid election effective retroactively as of the first day of the employment that qualified the member to make the election.
Section (d) preserves an earlier emergency-teaching exception tied to Executive Order N-3-22 but notes that the exceptional eligibility window ended January 1, 2024.
Section (e) creates the new substitute-teacher exception effective on and after January 1, 2026 and defines "substitute teacher" as someone with a valid California substitute teaching permit who does not exceed 30 days of substitute teaching per year.
Section-by-Section Breakdown
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Election process and employer duties
This subsection sets the baseline mechanics: a member must submit a written election on a PERS-prescribed form within 60 days after the date of hire that triggers teacher-plan membership. The employer must keep a copy and send the original to PERS. Practically, employers remain the gatekeepers of election paperwork; missing or misfiled forms are the central administrative failure the statute’s exceptions address.
Who may make the election
The provision limits eligibility to two groups: members who had school‑sector employment within 120 days before the qualifying hire, or members who already have at least five years of PERS service. That dual path preserves access for recent school employees and for longer‑tenured PERS members, which affects how portable short teaching stints interact with a longer public‑sector career.
Effective date of election
Any election that satisfies the statute becomes effective on the first day of the employment that qualified the election. That retroactivity means contribution and service-credit treatment starts immediately, which has payroll and recordkeeping consequences: employers and pension administrators must reconcile contributions and service records from day one rather than at the point of filing.
Expired emergency-teaching exception
This subsection documents an earlier temporary exception for persons who taught under Executive Order N‑3‑22 and confirms that exception is time‑limited (ended January 1, 2024). While largely historical in effect, its presence in the text signals legislative willingness to allow limited, event‑driven exceptions — the model used for the new substitute-teacher rule.
New substitute-teacher exception and definition
The new language authorizes substitute teachers to make the PERS retention election regardless of the 60‑day filing deadline, but only under narrow terms: eligibility applies only on and after January 1, 2026; the substitute must hold a valid California permit to substitute teach; and the substitute cannot exceed 30 substitute-teaching days in a year. The subsection explicitly preserves all other eligibility requirements, so the waiver covers only the timing/formal‑filing requirement, not substantive membership qualifications.
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Who Benefits
- PERS members serving as short-term substitute teachers — they can keep their existing PERS membership and avoid being forced into the teachers’ defined benefit plan for brief assignments, preserving benefit continuity and avoiding a split career between systems.
- School employers and HR/payroll offices that hire substitutes — the exception reduces automatic enrollment churn into CalSTRS for very short assignments and limits the administrative task of moving employees between pension systems for brief work.
- PERS administrators — by retaining contributors who would otherwise enter CalSTRS for short stints, PERS preserves membership and contribution inflows for a subset of service that would have shifted out of the system.
Who Bears the Cost
- CalSTRS (the State Teachers’ Retirement Plan) — may receive fewer short-term contributors, which slightly reduces its future contribution inflows and could complicate actuarial projections for short-service members.
- School employers and HR staff — must track permit status and count substitute days precisely to determine eligibility and to comply with the 30‑day cap, increasing recordkeeping and monitoring burdens.
- PERS and its actuary — while PERS keeps contributors, it also inherits responsibility for teacher-covered service for a group that might have different employment patterns, creating the need to assess any actuarial impact and contribution-rate implications.
Key Issues
The Core Tension
The bill balances two legitimate aims — giving short‑term substitute teachers a practical choice to preserve retirement continuity versus preserving the integrity and actuarial segregation of the teachers’ retirement system — but offers a narrow, administratively tricky fix rather than a comprehensive solution; the result shifts operational burden to employers and pension administrators without settling the actuarial and crediting questions it raises.
The bill creates a narrow but operationally meaningful exception; the hard work comes at implementation. First, the 30‑day-per-year ceiling is administrable only if employers and PERS agree on the counting convention (calendar year, fiscal year, or rolling 12‑month period).
The statute does not prescribe which year definition controls, leaving ambiguity that employers and pension staff must resolve in policy or rulemaking. Second, the bill relies on the existence of a "valid permit to substitute teach," but California issues several types of emergency or limited permits; the statute does not say whether all permit categories qualify, which could produce inconsistent eligibility determinations.
A second set of questions concerns benefit accounting and contributions. The statute waives the filing deadline for this group but does not address how contributions already paid to CalSTRS (if any service was initially credited there) should be reconciled, nor does it provide explicit purchase, transfer, or crediting mechanics.
That gap could require administrative agreements between PERS and CalSTRS or additional legislation. Finally, there is a behavioral issue: employers, districts, or individuals could adjust assignments to stay under the 30‑day threshold, producing incentive effects the bill does not anticipate.
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