The balance of the assets delivered to the district pursuant to subdivision (c) of Section 24806, after the transfers, deposits and payments required by that section, or after establishment of reserves from which those deposits and payments shall be made, shall be allocated and distributed as follows:

(a) Sixty-five percent of the balance shall be distributed to the undistributed reserve of the general fund of the district to be reduced to cash as necessary and appropriated in any year by majority vote of the governing board. Until the balance of the assets has been reduced to cash, the governing board may invest and reinvest the assets in securities legal for the investment of funds of the State Teachers’ Retirement System when in the judgment of the governing board any sale and reinvestment is advisable. Ten percent of this amount shall be used only for maintenance operation.

(b) Twenty percent of the balance shall be transferred to a special account in the undistributed reserve of the district’s general fund to be reduced to cash as necessary in order to be used only for the purpose of reducing the tax collected pursuant to former Section 23401, as it read on January 1, 1979, in order to provide the contributions required by Section 22950 to the Teacher’s Retirement Fund. In the event that the special account is not wholly distributed for the purpose of making the contribution, the balance in the special account shall be released to the undistributed reserve. Until the balance of the assets has been reduced to cash, the governing board may invest and reinvest the assets in securities legal for the investment of funds of the State Teachers’ Retirement System when in the judgment of the governing board any sale and reinvestment is advisable.

(c) (1) Fifteen percent of the balance shall be held intact by the district in an annuity reserve fund from which shall be provided a supplementary annuity at time of retirement under any California public retirement system to or on behalf of those members of the local district retirement system who were on the active roll or members on the retired roll of such local district retirement system as of June 30, 1972, and those members added to the active and retired rolls between June 30, 1972, and any later date of discontinuance, and those probationary or permanent certificated employees of the district holding memberships in California public retirement systems other than the local district retirement system who are making contributions to those systems on June 30, 1972, or on any later date of discontinuance. The supplement annuity may be paid in lump sum or in installments for the life of the person eligible, or his or her beneficiary, after his or her retirement.

(2) No participant in the annuity reserve fund shall have vested rights to the benefits of this annuity reserve fund until he or she has continued in active service for a period of five years from the date of discontinuance of the local district retirement system, except participants who have separated from service by reason of retirement, including deferred retirement, or death.

(3) An account shall be opened in the name of each person eligible to participate in the benefits of the annuity reserve fund to which shall be credited his or her share of the annuity reserve fund. The individual participant’s share of this fund shall bear the same ratio to the total of this fund as his or her annuity savings contributions, including interest earned, to the retirement system, to which he or she is making annuity contributions as of June 30, 1972, or any later date of discontinuance, or, if a retired member, the date of retirement prior to June 30, 1972, bears to the total annuity savings contributions, including interest earned, of all such participants in the retirement systems to which they are making contributions at the date of discontinuance, including total contributions to the local district retirement system previously made by living members on the retired roll. The fund shall include principal and interest in the account of any participant forfeited because the participant separated from service, except by reason of retirement, including deferred retirement, or death, within five years from June 30, 1972, or other date of discontinuance. The forfeiture shall be treated as earnings of the fund.

(4) As of June 30 each year, and on any other dates the annuity reserve fund board may determine, the earnings of the fund less administrative expense shall be credited to the accounts of the remaining participants in the annuity reserve fund on the ratio that the participant’s individual account balance bears to the total balance of the annuity reserve fund. The cost of administering the fund shall be charged against the assets of the fund, as approved by the governing board of the school district.

(5) When a participant separates from service, the earnings since the preceding date on which the earnings of the fund, less administrative expenses, were credited to the accounts of the participants, shall remain in the fund. Any member whose accumulated contributions to the local retirement system exceed the amount required by law to be deposited by the member in the State Teachers’ Retirement System’s Annuity Fund upon discontinuance of the local system may deposit to his or her credit all or part of the excess amount in the annuity reserve fund.

(6) The governing board of the school district that maintained the discontinued local district retirement system shall establish an annuity reserve fund board of not more than seven members, the majority of whom shall be composed of certificated employees who are participants in the annuity reserve fund. The certificated employees on the annuity reserve fund board shall be elected by participants in the annuity reserve fund. The annuity reserve fund board shall have the authority to make rules and regulations necessary for the management of the annuity reserve fund in accordance with modern business practice. The local district retirement board shall continue to function as the annuity reserve board pending its establishment.

(7) Except as otherwise restricted by the California Constitution or by law, the annuity reserve fund board may, in its discretion, invest or reinvest the assets of the fund through the purchase, holding, or sale thereof of any investment, financial instrument, or financial transaction, if the investment, financial instrument, or financial transaction is prudent in the informed opinion of the annuity reserve fund board.

(8) All securities and cash of the annuity reserve fund shall be held in a trust fund in the county treasury. The county treasurer, as one of his or her official duties, shall be a member ex officio of the annuity reserve fund board established to invest the assets of this fund.

(9) Any funds raised for the support of the local district retirement system and not appropriated to any specific account shall be transferred to the annuity reserve fund. All payments from the district’s annuity reserve fund shall be made in the same manner as payments from school district funds. The annuity reserve fund board may, at its discretion, request the district governing board to hold an election among existing annuity reserve fund participants as to whether the board should distribute existing funds in the annuity fund. The annuity reserve fund board may prescribe all rules and regulations regarding such an election and may distribute the funds if a majority of the members so elect.

(Repealed and added by Stats. 1993, Ch. 893, Sec. 2. Effective January 1, 1994.)