BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 160
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          Date of Hearing:   April 24, 2013

            ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL  
                                      SECURITY
                                  Rob Bonta, Chair
                     AB 160 (Alejo) - As Amended:  April 11, 2013
           
          SUBJECT  :   California Public Employees' Pension Reform Act of  
          2013: exceptions.

           SUMMARY  :   Excludes from the provisions of the Public Employees'  
          Pension Reform Act of 2013 (PEPRA) certain Taft-Hartley  
          multiemployer retirement plans and retirement plans for public  
          employees whose collective bargaining rights are protected by  
          provisions of the Federal Transit Act, as specified.     
          Specifically,  this bill  :  

          1)Excludes the following retirement plans from the definition of  
            "public retirement system"  as used in PEPRA:

             a)   Multiemployer plans authorized by the Taft-Hartley Act  
               if the employer participated in the plan prior to January  
               1, 2013 and the plan is regulated under the Employee  
               Retirement Income Security Act of 1974 (ERISA).

             b)   Retirement plans for public employees whose collective  
               bargaining rights are protected by provisions of the  
               Federal Transit Act if the United States Department of  
               Labor (DOL) has determined, in writing, that the PEPRA  
               requirements are in conflict with federal law.

          2)Excludes from provisions of PEPRA prohibiting an employer from  
            offering supplemental defined benefit plans after January 1,  
            2013, multiemployer plans, as defined in federal law, in which  
            a public employer is participating pursuant to a collective  
            bargaining or similar agreement.

           EXISTING FEDERAL LAW  :

          1)Establishes the Employee Retirement Income Security Act of  
            1974 (ERISA) which provides a comprehensive federal scheme for  
            the regulation of employee pension and welfare benefit plans  
            offered by private-sector employers. ERISA contains various  
            provisions intended to protect the rights of plan participants  
            and beneficiaries in employee benefit plans.  These  








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            protections include requirements relating to reporting and  
            disclosure, participation, vesting, and benefit accrual, as  
            well as plan funding. ERISA also regulates the  
            responsibilities of plan fiduciaries and other issues  
            regarding plan administration.  ERISA contains various  
            standards that a plan must meet in order to receive favorable  
            tax treatment, and also governs plan termination.

          2)Authorizes the establishment of multiemployer pension plans  
            which cover workers from more than one employer.   
            Multiemployer pension plans have a specific definition under  
            the Labor Management Relations Act of 1947, known as the  
            Taft-Hartley Act.  Under Taft-Hartley, a multiemployer pension  
            plan is established by negotiating an employer contribution as  
            part of a labor-management agreement and establishing a trust  
            fund.  Then, labor organizations bargain with additional  
            employers to have workers covered by these plans.  Employer  
            contributions, determined by collective bargaining, fund the  
            multiemployer pension plans.  A Taft-Hartley multiemployer  
            pension plan is characterized by provisions allowing  
            individual employees to gain credits toward pension benefits  
            from work with multiple employers, as long as each employer  
            has a collective bargaining agreement requiring plan  
            contributions.  Often, many employers in the same industry in  
            a geographic area contribute toward the same multiemployer  
            plan.  Thus, individual workers moving from job to job  
            continue to earn credits toward future pension benefits.

          3)Requires, under Section 13(c) of the Federal Transit Law, that  
            employee protections, commonly referred to as "protective  
            arrangements" or "Section 13(c) arrangements" must be  
            certified by the Department of Labor and in place, before  
            Federal transit funds can be released to a mass transit  
            provider.  As a general rule, Section 13(c) protects transit  
            employees who may be affected by Federal transit funding.   
            Section 13(c) requires, among other things, the continuation  
            of collective bargaining rights, and protection of transit  
            employees' wages, working conditions, pension benefits,  
            seniority, vacation, sick and personal leave, travel passes,  
            and other conditions of employment.

           EXISTING STATE LAW  :  

          1)Establishes comprehensive public employee pension reform  
            through enactment of PEPRA (and related statutory changes)  








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            that apply to all public employers and public pension plans on  
            and after January 1, 2013, excluding the University of  
            California and charter cities and counties that do not  
            participate in a retirement system governed by state statute.   
            Under PEPRA, new members are subject, in part, to the  
            following:

             a)   Requires new public retirement system members to have  
               lower retirement formulas and higher retirement ages.

             b)   Requires new members to have no less than a three-year  
               final compensation period.

             c)   Requires new members to pay at least 1/2 of the  
               actuarial annual normal cost of their benefit plans as  
               member contributions and prohibits employers from making  
               those contributions on behalf of employees.

             d)   Limits the amount of compensation that a public employee  
               may have counted towards a defined benefit based on the  
               Social Security wage index with subsequent adjustments  
               based on annual changes in the Consumer Price Index for All  
               Urban Consumers.

             e)   Prohibits certain items of pay from being included in  
               "pensionable compensation."

           FISCAL EFFECT  :   Unknown.

           COMMENTS  :   Last year the state adopted PEPRA. Since that time,  
          labor unions representing certain public transit employees have  
          asserted to the United States Department of Labor (DOL) that  
          PEPRA impairs pension benefits contained in existing collective  
          bargaining agreements and restricts collective bargaining  
          rights, in violation of the protections in Section 13(c) of the  
          Federal Transit Act.  Before federal transit funds can be  
          disbursed, the DOL must certify that grant recipients are  
          compliant with Section 13(c) and has withheld certification of  
          grants to California transit agencies.

          According to the author, PEPRA reduces the collective bargaining  
          rights of public transit employees and conflicts with federal  
          law regarding 'protective arrangements' between transit unions  
          and the State of California.  Under the Federal Transit Act,  
          affected labor unions may challenge Federal transit funding for  








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          the state upon a finding by the United States Department of  
          Labor (Department).  Since the passage of PEPRA, numerous  
          objections have been filed with the Department.  What is more,  
          the Department must approve of all 'protective arrangements'  
          before releasing Federal transit funds.  Consequently, the  
          Department has refused to release any transit funds.  Failure to  
          amend PEPRA could result in a loss of over $1 billion in annual  
          transit funding.  This bill will exempt from PEPRA any public  
          employees who have Federal Transit Act section 13(c) rights,  
          thereby saving the stat over $1 billion annually.

          "In addition, some public employers are participants in ERISA  
          regulated Taft-Hartley Pension Trusts.  These pension trusts are  
          essentially private sector multiemployer pension plans that  
          allow public agencies to participate.  The provisions of PEPRA  
          conflict with the terms of these plans and complete withdrawal  
          from the plans is the only option that would put the state in  
          compliance with ERISA regulations.  However, ERISA subjects a  
          withdrawing employer to withdrawal liability, which can  
          potentially be very substantial?This bill will also exempt from  
          PEPRA any employee whose employer began participation in an  
          ERISA protected Taft-Hartley pension trust prior to January 1,  
          2013, thereby saving local agencies millions of dollars in  
          liabilities."

          Supporters state, "This bill is not an effort to undermine  
          PEPRA.  However, when the original bill was passed, the  
          Legislature was simply not aware of these federal preemption  
          questions.  Just as the Legislature exempted charter cities and  
          the University of California for constitutional reasons when it  
          passed AB 340, it should have also enacted these exemptions.  In  
          order to save state and local governments from losing hundreds  
          of millions in federal funding and avoiding costly pension  
          withdrawal liability, it should enact these minor exemptions  
          now."

          In response to a request from the DOL, the Secretary of the  
          California Labor and Workforce Development Agency, sent a legal  
          memorandum to the DOL outlining why he believes PEPRA does not  
          violate the goals and requirements of section 13(c).  The  
          response states, in part, "My legal staff and I have reviewed  
          this matter carefully and concluded that PEPRA does not limit a  
          local transit authority's ability to bargain or to enter into  
          fair and equitable protective agreements or arrangements that  
          satisfy Section 13(c)?the changes in state pension law  








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          implemented by PEPRA do not impede Section 13(c)'s goal of  
          assuring a continued right to collective bargaining.   
          California's effort to bolster the sustainability of defined  
          benefit pension systems for public employees also does not  
          eliminate the important right of employees to engage in  
          'meaningful, good faith, negotiations with their employer over  
          wages, hour and other terms and conditions of employment.  To  
          the contrary, PEPRA merely modifies, prospectively, certain  
          aspects of the defined benefit pension plan than can be offered  
          by a public employer.  It does not permit employers to  
          unilaterally determine and impose terms under which defined  
          benefit pensions may be provided.  And, most importantly, PEPRA  
          retains the ability of current and future employees to engage in  
          good faith collective bargaining."






           REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          California Conference Board of the Amalgamated Transit Union
          California Conference of Machinists
          California Teamsters Public Affairs Council
          United Transportation Union

           Opposition 
           
          None on file
           
          Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916)  
          319-3957