BILL ANALYSIS
AB 1856
Page 1
Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Alberto Torrico, Chair
AB 1856 (Fong) - As Amended: March 25, 2010
SUBJECT : Public employees' retirement.
SUMMARY : Establishes a means for a member of the California
Public Employees' Retirement System (CalPERS) making after-tax
installment payments on a service credit purchase to suspend or
prospectively cancel their service credit purchase election.
Specifically, this bill :
1)Allows a member making after-tax service credit purchase
installment payments, as specified, to elect in writing to
suspend installment payments for up to one year.
a) Specifies that the installment payments will
automatically resume at the end of the suspension period,
or earlier if requested by the member.
b) Prohibits a member from electing an additional
suspension of the installment payments for the same service
for a period of three years after resumption of the
installment payments.
c) Requires the balance due at the end of the suspension
period to be recalculated to reflect interest is accrued
during the suspension period.
d) Allows a member who retires during the suspension period
to either make a lump sum payment for the balance due or to
cancel the installment payments, as specified.
2)Allows a member making after-tax service credit purchase
installment payments, as specified, to voluntarily cancel, on
a prospective basis, payment of the remaining balance of the
service credit purchase.
a) Specifies that service credited to the member's account
will be reduced proportionally to reflect the unpaid
balance.
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b) Prohibits service purchase installment payments from
being cancelled if the contribution or adjustment is
required by law or agreement, the purchase if for a tier
conversion, or is part of a court ordered community
property division or other court order or settlement
agreement.
3)Allows CalPERS to cancel, as specified, the remaining unpaid
balance of a member who elected to make after-tax installment
payments if those payments have not been made for a period of
12 months.
4)Allows a member to "re-purchase" the remaining credit from his
or her cancelled election at any time prior to retirement, as
specified.
EXISTING LAW allows eligible CalPERS members to purchase service
credit to enhance their retirement benefits. If full payment is
not received with the purchase election, an installment payment
plan is established on a pre-tax or after-tax basis. The full
amount of service credit purchased by the election is
immediately posted to the member's retirement account whether a
lump sum payment is submitted or an installment payment plan is
chosen.
Members choosing to pay with a pre-tax installment payment plan
must abide by Internal Revenue Code (IRC) restrictions. Under
the IRC, payments are considered to be made as an employer
'pick-up' with the member having no control over the payments
without a change in employment circumstances. If pre-tax
payroll deductions are chosen, an active member is unable to
alter a pre-tax payment schedule in any manner unless the member
separates from employment and retires, is reported through
another CalPERS employer which does not have a pre-tax employer
resolution on file, or is no longer employed with a CalPERS
contracting agency.
Members on an after-tax installment payment plan can change
payment schedules within the restrictions of state laws and
regulations. Partial payments can be accepted to reduce the
number or amount of the remaining payments. Payments may also
be suspended in qualifying hardship situations.
The California Code of Regulations allows an extension of
payments up to the maximum of 180 monthly payments, upon
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determination of hardship by the board. In addition a few
Government Code sections provide a form of 'cancellation' or
suspension of payments under limited conditions. However, many
members do not qualify under these suspension provisions, or do
not realize sufficient payment relief from them, so they seek a
more complete, long term solution through cancellation.
Under current law, CalPERS members who receive a Disability
Retirement (DR) and safety members who receive an Industrial
Disability Retirement (IDR) may elect to cancel their service
credit purchase installment payments on a prospective basis when
the purchase would not improve the member's retirement
allowance. Payments remain cancelled only as long as the member
stays retired. Reinstatement 'forces' the member to resume
payments where they left off, and requires them to pay the
accrued interest, thereby treating the cancellation of
installments as a temporary suspension of payments.
FISCAL EFFECT : Unknown.
COMMENTS : According to CalPERS, "In recent years, the number
of cancellation requests has increased with many members citing
the declining economy and financial hardship. Other common
reasons include second thoughts, job change, family obligations,
personal debt, declining health, and early retirements.
"Member cancellation requests are currently reviewed on a
case-by-case basis. While the election is considered
irrevocable, some cancellations have been allowed as long as no
payment has been received or when an error was found. After-tax
payment plans have been extended under the authority of the
California Code of Regulations, thereby providing relief by
lowering the actual payment amount. (Example: A member's
election of 100 payments is extendable to the maximum 180
monthly installment payments provided by the Code of
Regulations.) In some cases after-tax payments have been
suspended for a period (usually 6 to 12 months) when a hardship
is claimed and the member is ineligible for an extension
(already at the 180 month maximum) or is ineligible under the
election cancellation criteria.
"However, suspension of payments and election cancellation laws
and policies are very limited, so many members requesting relief
do not qualify. This proposal provides a means for the member
to obtain the desired relief from after-tax payments regardless
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of the reason and provides CalPERS staff with a process for
providing relief without having to make a hardship
determination."
REGISTERED SUPPORT / OPPOSITION :
Support
California Public Employees' Retirement System (Sponsor)
Opposition
None on file
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957