BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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          |SENATE RULES COMMITTEE            |                  SB 1139|
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                              UNFINISHED BUSINESS


          Bill No:  SB 1139
          Author:   Correa (D)
          Amended:  8/9/10
          Vote:     21

           
           SENATE PUBLIC EMP. & RET. COMMITTEE  :  6-0, 4/12/10
          AYES:  Correa, Ashburn, Corbett, Cox, Ducheny, Liu

           SENATE FLOOR  :  35-0, 4/15/10
          AYES:  Aanestad, Alquist, Ashburn, Calderon, Cedillo,  
            Cogdill, Corbett, Correa, Cox, DeSaulnier, Florez,  
            Hancock, Harman, Hollingsworth, Huff, Kehoe, Leno, Liu,  
            Lowenthal, Maldonado, Negrete McLeod, Oropeza, Padilla,  
            Pavley, Price, Romero, Runner, Simitian, Steinberg,  
            Strickland, Walters, Wolk, Wright, Wyland, Yee
          NO VOTE RECORDED:  Denham, Ducheny, Dutton, Wiggins,  
            Vacancy

           ASSEMBLY FLOOR  :  52-24, 8/19/10 - See last page for vote


           SUBJECT  :    Public Employees Retirement Law

           SOURCE  :     Public Employees Retirement System, Board of 
                      Administration


           DIGEST  :    This bill makes several technical and  
          non-controversial changes to various sections of the  
          Government Code administered by the Public Employees'  
          Retirement System (PERS) and grants PERS authority to offer  
          and manage expanded retirement savings options currently  
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          authorized under federal law.

           Assembly Amendments  :

          1.Allows a public agency that contracts with PERS for  
            health care coverage to elect, as a contract option, to  
            provide health care coverage to eligible survivors who  
            are not receiving a survivor allowance but were receiving  
            health care coverage from the agency prior to them  
            contracting with PERS.

          2.Eliminates the requirement that the lease rates are to be  
            equal to fair market value and sufficient to pay  
            reasonable rate of return for the costs of construction  
            and maintenance of the leased portions of the buildings  
            and improvements.

          3.Eliminates the provisions that restrict the period of  
            time for which the board may retain the same certified  
            public accountant to audit the financial statements of  
            the system.

          ANALYSIS  :    

           Existing Law
           
          1.Requires up to a two percent annual cost-of-living  
            adjustment (COLA) in May for state and school employee  
            retirees (depending on the Consumer Price Index) and a  
            two percent to five percent adjustment (subject to  
            contract options) for local public employee retirees, and  
            requires that retiree pensions be increased annually in  
            January to preserve 75 percent of original purchasing  
            power for state and school employee retirees and 80  
            percent of original purchasing power of retirees of local  
            public agencies contracting with PERS.

          2.Provides a comprehensive set of rights and benefits for  
            judges.  That law, the Public Employees' Retirement Law  
            (PERL) and the Judges' Retirement System (JRS) II Law,  
            set forth the provisions of the delivery of benefits,  
            including benefits, including benefits for retired  
            judges, administered by PERS.


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          3.Provides that (a) PERS may offer 403(b) and 457 deferred  
            compensation retirement plans to local public agencies  
            and school districts in which participants make pre-tax  
            contributions for retirement savings, (b) the State  
            Teachers Retirement System (STRS) may offer a Roth  
            Individual Retirement Account (IRA) for the purpose of  
            rolling over assets held in an annuity contract or  
            custodial account offered by the system, and (c) the  
            Department of Personnel Administration (DPA) may  
            administer 401(k) and 457 retirement accounts to most  
            State employees, including employees of the Legislature,  
            Judicial and California State  University (CSU) system.

          This bill makes several minor or technical amendments to  
          various sections of the Government Code administered by the  
          California Public Employees' Retirement System (PERS) 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.Requires that state employees, managers and appointed  
            officials subject to mandatory furloughs by their  
            appointing authority in fiscal year (FY) 2010-11 receive  
            the PERS retirement service credit they would have  
            received had they not been furloughed.

          3.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).

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

          5.Allows a public agency that contracts with PERS for  
            health care coverage to elect, as a contract option, to  
            provide health care coverage to eligible survivors who  

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            are not receiving a survivor allowance but were receiving  
            health care coverage from the agency prior to them  
            contracting with PERS.

          6.Changes the accounting treatment of PERS' headquarters  
            facilities to conform to changes in government accounting  
            standards, and removes certain limitations on contracts  
            with accounting firms for purposes of auditing PERS'  
            financial statements.

          7.Establishes a list of eligible survivors to the Peace  
            Officers and Firefighters (POFF) Supplemental plan  
            statutes in the absence of a participant's designation.

          8.Provides conformity with federal healthcare reform  
            legislation.

           Comments

           The following information was provided by PERS:
           
           1.  Coordinate Timing of Annual COLA and PPPA Adjustments  .   
            PERS 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 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.

            This bill 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  

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            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 PERS' new automation  
            system is installed and operating.

          2.  Furloughed State Employees  .  Under existing law, a  
            full-time member that accrues at least 10 months of  
            service will still earn a full year of retirement service  
            credit.  However, under three day per month furloughs,  
            part-time Making certain that furloughed state employees  
            receive the retirement benefits they would have received  
            absent a furlough is consistent with previous chaptered  
            legislation that protected state employees subject to  
            mandatory furloughs in FYs 2008-2009 and 2009-2010 either  
            through an Executive Order, or the order of a state  
            employer not subject to the Governor's authority (such as  
            California State University, the Legislature and State  
            Courts).  Extending this protection to FY 2010-2011 will  
            ensure that all active state members of PERS that are  
            subject to furloughs are treated equitably, and that the  
            disability and retirement benefits they must rely upon  
            for income once they leave state service are not reduced  
            by another temporary furlough order.  PERS members, and  
            those full-time members hired or retired mid-year that  
            are unable to reach the 10-month threshold, will  
            experience a reduction in the overall amount of service  
            credit accrued.  The language in this bill amends the  
            Public Employees' Retirement Law to ensure that all state  
            employees subject to a 2010-2011 Executive order  
            requiring mandatory furloughs receive the retirement  
            benefits they otherwise would have received had the  
            furloughs not been in effect.

          3.  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  

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            monetary credit plan.  The defined benefit plan provides  
            a lifetime monthly benefit of up to 75% 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 PERS 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. 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."  This bill changes 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.

          4.  The PERS Supplemental Income Program  .  SB 2026 (Craven),  
            Chapter 1659, Statutes of 1990, authorizes PERS to  
            establish a deferred compensation program for PERS  
            members, and created the Public Employees' Deferred  
            Compensation Fund under the exclusive control of the PERS  
            Board of Administration.  The statute granted broad  
            authority for PERS 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 PERS 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.

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            Several changes in federal and state law have occurred  
            since enactment of the enabling statutes authorizing  
            establishment of the PERS Deferred Compensation Program  
            in 1991.  The enabling statutes for PERS' 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 15  
            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 PERS to expand the tax-preferred retirement  
            savings arrangements and make technical and conforming  
            changes to its deferred compensation program statutes.

          5.The Los Angeles Community College District (LACCD)  
            contracted with PERS for health benefit coverage,  
            effective January 1, 2010. LACCD's long-standing policy  
            and agreement with their members is to provide  
            employer-paid lifetime health benefits coverage to their  
            retirees, and the surviving spouse or domestic partner of  
            the retiree, once vesting criteria is met.  Under PEMHCA,  
            surviving family members must receive a monthly survivor  
            allowance to meet the definition of annuitant.  This bill  
            allows employers that are electing to be subject to  
            PEMHCA a means to provide survivors of annuitants without  
            an allowance the ability to receive health coverage  
            through a contract option.

          6.  Headquarters Accounting  .  Existing law requires the Board  
            to establish a building account for the transfer of money  
            from the retirement fund for the cost of the acquisition  
            of real property and the construction, maintenance, and  
            improvement of PERS facilities.  It also specifies that  
            the headquarters land, building, etc. must constitute an  
            investment in the retirement fund and carried on the  

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            books in accordance with generally accepted accounting  
            practices (GAAP).

            Approximately 10 years ago, PERS adopted Governmental  
            Accounting Standards Board (GASB) Statement No. 25, which  
            required a change in the accounting treatment and  
            financial reporting of the PERS Headquarter Building  
            Account from an investment asset to property, plant, and  
            equipment used in operations.  PERS staff and external  
            auditors determined that recognition of the Headquarters  
            Building as an investment asset does not conform to GASB  
            25.  This provision resolves inconsistencies between  
            existing law and PERS practice.

          7.  Statutory Survivors  .  Unlike PERS' pension plans, the  
            POFF program has no statutory listing of survivors  
            eligible to receive payment upon the death of a  
            participating member when the member has not designated a  
            beneficiary.  This bill adds such a statutory list, based  
            on the statutes provided in California probate code.

          8.  Definition of Family Member  .  The term "family member" as  
            it applies to health care coverage under the PEMHCA, has  
            always included unmarried children as eligible  
            dependents.  With the passage of the federal healthcare  
            reform bill, all children under age 26 must be covered,  
            not simply those who are unmarried.  This bill conforms  
            statute to federal law.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No    
          Local:  No

           SUPPORT  :   (Verified  8/20/10)

          Public Employees' Retirement System, Board of  
          Administration (source)


           ASSEMBLY FLOOR  : 
          AYES:  Ammiano, Arambula, Bass, Beall, Block, Blumenfield,  
            Bradford, Brownley, Buchanan, Caballero, Charles  
            Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De  
            Leon, Eng, Evans, Feuer, Fong, Fuentes, Furutani,  
            Galgiani, Gatto, Gilmore, Hall, Hayashi, Hernandez, Hill,  

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            Huber, Huffman, Jones, Lieu, Bonnie Lowenthal, Ma,  
            Mendoza, Monning, Nava, V. Manuel Perez, Portantino,  
            Ruskin, Salas, Saldana, Skinner, Solorio, Swanson,  
            Torlakson, Torres, Torrico, Yamada, John A. Perez
          NOES:  Adams, Anderson, Tom Berryhill, Blakeslee, Conway,  
            DeVore, Fletcher, Fuller, Gaines, Garrick, Hagman,  
            Harkey, Knight, Logue, Miller, Nestande, Niello, Nielsen,  
            Norby, Silva, Smyth, Audra Strickland, Tran, Villines
          NO VOTE RECORDED:  Bill Berryhill, Cook, Jeffries, Vacancy


          CPM:cm  8/20/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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