BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 1139
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          Date of Hearing:   June 23, 2010

            ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL  
                                      SECURITY
                               Alberto Torrico, Chair
                 SB 1139 (Correa) - As Introduced:  February 18, 2010

           SENATE VOTE  :   35-0
           
          SUBJECT  :   State retirement: benefit programs.

           SUMMARY  :   Makes several minor or technical amendments to  
          various sections of the Government Code administered by the  
          California Public Employees' Retirement System (CalPERS) that  
          are necessary for the continued efficient administration of the  
          system.  Specifically,  this bill  :

          1)Changes the month in which the Purchasing Power Protection  
            Adjustment (PPPA) is assessed from January to May in order to  
            coordinate the timing of the adjustment with the  
            Cost-of-Living Allowance (COLA).

          2)Clarifies that a judge may leave office without retiring and  
            still maintain health benefits under the conditions currently  
            specified in the Judges Retirement System II Law (JRS II).

          3)Changes references in existing law from "deferred  
            compensation" to "tax-preferred retirement savings," thereby  
            expanding the types of retirement savings programs the Board  
            may establish to include those with after-tax payments.

           FISCAL EFFECT :   None.

           COMMENTS  :   The following information regarding this bill has  
          been provided by CalPERS:

           Coordinate Timing of Annual COLA and PPPA Adjustments
           CalPERS pays two types of benefits to retirees to ensure that  
          retirement allowances maintain purchasing power despite  
          inflation: the PPPA and the COLA.  Many factors affect these  
          benefits, including retirement year, membership type, and former  
          employer's contract provisions.

          The COLA benefit is an annual cost-of-living increase that  
          begins in the second calendar year after retirement and is  








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          adjusted each May after that.  The PPPA is an added protection  
          against inflation for those members whose benefits fall below a  
          specified percent of their original purchasing power based on  
          the Consumer Price Index for all cities.  Unlike the COLA, there  
          is no specific timetable for when a retiree can become eligible  
          for the PPPA.  The PPPA adjustment occurs in January of each  
          year for eligible retirees.

          SB 1139 conforms the annual COLA adjustment and the PPPA in the  
          same month each year.  In the first year of implementation, the  
          PPPA adjustments will be deferred from January to May to  
          synchronize the two benefits, with retroactive application to  
          January to adjust for the delay.  Implementation must be  
          deferred to January 1, 2012 so that required automation changes  
          can be developed, built, and tested after CalPERS' new  
          automation system is installed and operating.

           Health Benefits for Judges That Leave Office Early
           The JRS II was established in 1994 to create a fully funded,  
          actuarially-sound retirement system for Supreme and Appellate  
          Court justices, Superior Court judges, and Municipal Court  
          judges appointed or elected on or after November 9, 1994.  As of  
          September 2009, it includes 1130 active members and 17 retirees.
            
          The JRS II offers a combination of two basic types of retirement  
          benefits: a defined benefit plan and a monetary credit plan.   
          The defined benefit plan provides a lifetime monthly benefit of  
          up to 75 percent of final annual salary (percentage is based on  
          age at retirement and years of service).  The monetary credit  
          plan allows for a refund of member contributions, a portion of  
          the employer contributions, and interest.  Lifetime benefits are  
          not provided under the monetary credit plan.  

          Under JRS II, a judge is eligible to retire upon attaining both  
          age 65 and 20 or more years of service, or upon attaining age 70  
           with a minimum of five years of service.  It also includes  
          early retirement provisions that outline retirement benefits for  
          a judge who "leaves judicial office" after specified numbers of  
          years.  The Public Employees Medical Hospital Care Act (PEMHCA)  
          outlines access to CalPERS health benefits after "retirement"  
          pursuant to JRS II.

          Currently, statutes in PEMHCA and JRS II use different  
          terminology to describe a judge who leaves office after accruing  
          five or more years of service and becomes eligible to receive  








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          JRS II benefits.  JRS II specifies the retirement benefits of "a  
          judge who leaves judicial office after accruing five or more  
          years of service."  PEMHCA outlines the health benefits of a  
          judge who "retires."  SB 1139 would change the language in  
          PEMHCA from "retires" to "leaves judicial office" to align it  
          with the language in JRS II and eliminate any ambiguity between  
          the two statutes. 

           The CalPERS Supplemental Income Program
           SB 2026 (Craven), Chapter 1659, Statutes of 1990, authorized  
          CalPERS to establish a deferred compensation program for CalPERS  
          members, and created the Public Employees' Deferred Compensation  
          Fund under the exclusive control of the CalPERS Board of  
          Administration.  The statute granted broad authority for CalPERS  
          to offer a 457 plan, 403(b) plan, or any other form of deferred  
          compensation arrangement authorized by the Internal Revenue Code  
          and approved by the CalPERS Board.  The program is self-funded  
          through fees assessed against participating employees and/or  
          contracting employers and invested and administered in a series  
          of accounts established within the Public Employees' Deferred  
          Compensation Fund.  

          Several changes in federal and state law have occurred since  
          enactment of the enabling statutes authorizing establishment of  
          the CalPERS Deferred Compensation Program in 1991.  The enabling  
          statutes for CalPERS' deferred compensation program predate many  
          of these changes, including the imposition of governmental plan  
          trust requirements for 457(b) plans, and the creation of certain  
          forms and features of deferred compensation arrangements now  
          authorized under federal law, including ROTH-type and other  
          after-tax or non-traditional deferred compensation savings  
          arrangements.

          By allowing the program to offer any form of after-tax  
          retirement savings arrangement, the enabling statutes provided  
          fairly broad authority. However, it has been fifteen years since  
          they were amended, and so, existing law does not necessarily  
          reflect the full range and scope of the subsequent changes to  
          federal tax law.  Therefore, this bill allows CalPERS to expand  
          the tax-preferred retirement savings arrangements and make  
          technical and conforming changes to its deferred compensation  
          program statutes.

           REGISTERED SUPPORT / OPPOSITION  :









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           Support 
           
          California Public Employees' Retirement System (Sponsor)
          American Federation of State, County and Municipal Employees
           
            Opposition 
           
          None on file

           Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916)  
          319-3957