BILL ANALYSIS Ó SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 837 Norma Torres, Chair HEARING DATE: June 9, 2014 AB 837 (Wieckowski) as amended 9/06/13 FISCAL: YES PUBLIC EMPLOYEES' PENSION REFORM ACT OF 2013: EXEMPTION FOR SPECIFIED JUDGES HISTORY : Sponsor: California Judges Association (CJA) Other legislation: AB 340 (Furutani), Chapter 296, Statutes of 2012 ASSEMBLY VOTES : Not relevant - new bill with, September 6, 2013, amendments SUMMARY : AB 837 would exempt certain judges who were elected in 2012, but who did not take office until 2013, from the requirement in the Public Employees' Pension Reform Act of 2013 (PEPRA) to make employee contributions equal to one half of the normal cost of the retirement benefit plan. BACKGROUND AND ANALYSIS : 1)Existing law : a) establishes the Judges Retirement System II (JRSII), which is administered by the board of the California Public Employees' Retirement System (CalPERS). b) provides a JRSII retirement formula equal to 3.75% of the judge's final compensation for each year of service; however, in order to receive this benefit, the judge must be either age 70 or older with at least 5 years of service, or be age 65 or older with at least 20 years of service. c) provides that the final compensation period shall be Pamela Schneider Date: May 29, 2014 Page 1 the highest 12 months and limits the final benefit amount to no more than 75% of final compensation. d) requires that a judge accrue monetary credits equal to 18% of compensation. These monetary credits accrue to the judge's individual account; in addition, interest is paid to the account equal to the net earnings achieved by the JRSII fund during the prior fiscal year (this credited interest amount cannot be less than zero). So for example, if the JRSII earns a net of 7% in investment returns in a fiscal year, the judges' monetary credit accounts increase by 7% in the following fiscal year; if the fund loses 7%, the judges receive no interest payments in the following year. e) requires that a judge who is not eligible for the retirement benefit earned at age 65 or 70 based on 3.75% per year shall instead receive the monetary credits in either a lump sum or an annuity. f) requires a judge who is not subject to PEPRA to pay 8% of compensation as member contributions. g) establishes PEPRA, which provides a statewide benefit plan for public employees who first become members of public retirement systems on or after January 1, 2013. h) allows, in PEPRA, a legacy employee (i.e., a public employee who first became a member of a public retirement system prior to 2013) to move between public employers or retirement systems, as specified, and be "grandfathered" under the plans that existed on December 31, 2012, prior to implementation of PEPRA. i) requires the following of all new public employees subject to PEPRA: i) for non-safety employees, a benefit based on 2% of final compensation at age 62, increasing to 2.5% at age 67; ii) a final compensation period of 3 years; iii) a limit on the compensation that can count toward a pension, established as the Social Security wage base Pamela Schneider Date: May 29, 2014 Page 2 (approximately $113,000 in 2013) with annual increases to the limit based on increases to the Consumer Price Index, as specified; and iv) the requirement that all employees subject to PEPRA pay one half of the normal cost of their retirement benefits as member contributions. a) exempts, in PEPRA, new members in JRSII from the requirements of PEPRA except for the requirement to pay one half of the normal cost of their retirement benefits as member contributions. For JRSII members, this is currently 15%. 1)This bill would exempt from PEPRA judges who were elected in 2012, but who did not take office until 2013, and thus became new members of JRSII on or after that date. FISCAL : Unknown. COMMENTS : 1)Background According to the author, seven judges were elected in 2012 who did not take office until 2013. These seven judges came out of private practice, and are therefore subject to PEPRA because they are new public employees and new members of JRSII. Other judges elected in 2013 were former public employees, such as district attorneys and county councils, and those former public employees were grandfathered under the PEPRA rules that allow public employees to move between public employers and retirement systems without the loss of their status as legacy employees. PEPRA exempted judges in JRSII from all reforms with one exception; it requires that new members of the system pay one half of the normal cost of their benefits-the same as was required of all employees subject to PEPRA. At this time the normal cost of the JRSII plan is slightly over 30%, and new Pamela Schneider Date: May 29, 2014 Page 3 judges subject to PEPRA are currently paying 15% as member contributions. 2)Arguments in Support : According to the sponsor: AB 837 is designed to insure that judges elected to office during 2012 are subject to retirement provisions in effect at the time of their election. By our count, the bill applies to seven judges. These are individuals who came from private legal positions and were elected in 2012. Most were elected in June, but a small number were elected in November run-off elections. They were not able to assume office until early in January, 2013, because the seats they were filling were not yet vacant. We believe that simple fairness suggests that these judges should be subject to the retirement law in effect when they were elected to office. 3)SUPPORT : California Judges Association (CJA), Sponsor 4)OPPOSITION : None. ##### Pamela Schneider Date: May 29, 2014 Page 4