BILL ANALYSIS Ó AB 160 Page 1 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 AB 160 Page 2 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) AB 160 Page 3 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 AB 160 Page 4 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 AB 160 Page 5 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