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