BILL ANALYSIS                                                                                                                                                                                                    

                                                                SB 1139
                                                                Page  1


        SENATE THIRD READING
        SB 1139 (Correa)
        As Introduced February 18, 2010
        Majority vote 

         SENATE VOTE  :35-0  
         
         PUBLIC EMPLOYEES    6-0                                          
         
         ----------------------------------------------------------------- 
        |Ayes:|Torrico, Harkey,          |     |                          |
        |     |Furutani, Hernandez, Ma,  |     |                          |
        |     |Nestande                  |     |                          |
        |     |                          |     |                          |
         ----------------------------------------------------------------- 
         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:

        1)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.






                                                                SB 1139
                                                                Page  2



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

        2)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 JRS II benefits.   






                                                                SB 1139
                                                                Page  3


          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. 

        3)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.

         Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916)  
        319-3957                                                    FN:  
        0005058