Senate Bill No. 13

Introduced by Senator Negrete McLeod

December 3, 2012

An act to amend Sections 7522.02, 7522.25, 7522.30, 7522.43, 20281.5, and 21400 of, and to repeal Section 7522.66 of, the Government Code, relating to public employees’ retirement, and declaring the urgency thereof, to take effect immediately.

LEGISLATIVE COUNSEL’S DIGEST

SB 13, as introduced, Negrete McLeod. Public employees’ retirement benefits.

(1) The Public Employees’ Retirement Law (PERL) establishes the Public Employees’ Retirement System (PERS) and the Teachers’ Retirement Law establishes the State Teachers’ Retirement System for the purpose of providing pension benefits to specified public employees. Existing law also establishes the Judges’ Retirement System II which provides pension benefits to elected judges and the Legislators’ Retirement System which provides pension benefits to elective officers of the state other than judges and to legislative statutory officers. The County Employees Retirement Law of 1937 authorizes counties to establish retirement systems pursuant to its provisions in order to provide pension benefits to county, city, and district employees.

The California Public Employees’ Pension Reform Act of 2013 (PEPRA), on and after January 1, 2013, requires a public retirement system, as defined, to modify its plan or plans to comply with the act and, among other provisions, establishes new retirement formulas that may not be exceeded by a public employer offering a defined benefit pension plan, setting the maximum benefit allowable for employees first hired on or after January 1, 2013, as a formula commonly known as 2.5% at age 67 for nonsafety members, one of 3 formulas for safety members, 2% at age 57, 2.5% at age 57, or 2.7% at age 57, and 1.25% at age 67 for new state miscellaneous or industrial members who elect to be in Tier 2. Under PEPRA, the Judges’ Retirement System I and the Judges’ Retirement System II are not required to adopt the defined benefit formula contained in certain other provisions.

This bill would correct an erroneous cross-reference in the above provision and would instead specify that the Judges’ Retirement System I and the Judges’ Retirement System II are not required to adopt the defined benefit formula contained in other provisions for nonsafety and safety members.

(2) PEPRA authorizes a public employer offering a retirement benefit plan consisting solely of a defined contribution plan prior to January 1, 2013, to continue to offer that plan instead of the defined benefit plan required pursuant to PEPRA. However, PEPRA requires an employer that adopts a new defined benefit pension plan or defined benefit formula on or after January 1, 2013, to conform the plan or formula to the requirements of PEPRA or be determined and certified by the retirement system’s chief actuary and the system’s board to have no greater risk and no greater cost to the employer than the defined benefit formula and to be approved by the Legislature. Under that law, new members of the employer’s plan may only participate in the defined contribution plan that was in place before January 1, 2013, or a defined contribution plan or defined benefit formula that conforms to the requirements of PEPRA.

This bill would specify that the above provisions are not to be construed to prohibit an employer from offering a defined contribution plan on or after January 1, 2013, either with or without a defined benefit plan, if the employer did not offer a defined contribution plan prior to that date.

(3) On and after January 1, 2013, PEPRA requires each retirement system that offers a defined benefit plan for safety members of the system to use one or more of specified defined benefit formulas and requires an employer to offer one or more of those formulas to new employees who are safety employees eligible for membership in the program.

This bill would instead require an employer to offer one or more of those formulas to new members who are safety employees.

(4) On and after January 1, 2013, PEPRA requires new employees of specified public employers, the California State University, and the judicial branch who participate in a defined benefit plan to have an initial contribution rate of at least 50% of the normal cost rate for that defined benefit plan, rounded to the nearest 1⁄4 of 1%, or the current contribution rate of similarly situated employees, whichever is greater.

This bill would make that provision applicable to new members employed by those entities and new members employed by the Legislature. The bill would also specify that this contribution rate for new members shall be the greater of the above 2 rates, if the greater, current contribution rate has been agreed to through the collective bargaining process.

(5) On and after January 1, 2013, PEPRA prohibits a public employer from offering a plan of replacement benefits for members and any survivors or beneficiaries whose retirement benefits are limited by specified federal law. On and after January 1, 2013, PEPRA makes that prohibition and certain other provisions related to replacement benefits applicable to new employees.

This bill would instead make those provisions applicable to new members.

(6) PEPRA, until January 1, 2018, authorizes a safety member of a public retirement system who retires for industrial disability to receive a disability retirement equal to the greater of specified benefit amounts.

This bill would repeal the above provision.

(7) Under PERL, a person who becomes a state miscellaneous member or state industrial member of PERS after August 11, 2004, does not immediately make contributions or receive service credit for his or her service until after the first 24 months of employment, except in specified circumstances. This provision, as modified by PEPRA, does not apply to a person who first becomes a state miscellaneous member or state industrial member on or after July 1, 2013.

This bill would instead specify that this provision does not apply to a person who first becomes a state miscellaneous member or state industrial member on or after January 1, 2013.

(8) Under PEPRA, a state safety member of PERS who retires on or after January 1, 2013, for industrial disability receives a disability retirement benefit equal to the greater of certain benefits, including, among others, 50% of his or her final compensation, plus an annuity purchased with his or her accumulated contributions, if any.

This bill would clarify that the portion of the industrial disability retirement benefit described above refers to an annuity purchased with the member’s accumulated additional contributions.

(9) This bill would declare that it is to take effect immediately as an urgency statute.

Vote: ²⁄₃. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

Section 7522.02 of the Government Code is
amended to read:

7522.02.  

(a) (1) Notwithstanding any other law, except as
provided in this article, on and after January 1, 2013, this article
shall apply to all state and local public retirement systems and to
their participating employers, including the Public Employees’
Retirement System, the State Teachers’ Retirement System, the
Legislators’ Retirement System, the Judges’ Retirement System
I, the Judges’ Retirement System II, county and district retirement
systems created pursuant to the County Employees Retirement
Law of 1937, independent public retirement systems, and to
individual retirement plans offered by public employers. However,
this article shall be subject to the Internal Revenue Code and
Section 17 of Article XVI of the California Constitution. The
administration of the requirements of this article shall comply with
applicable provisions of the Internal Revenue Code and the
Revenue and Taxation Code.

(2) Notwithstanding paragraph (1), this article shall not apply
to the entities described in Section 9 of Article IX of, and Sections
4 and 5 of Article XI of, the California Constitution, except to the
extent that these entities continue to be participating employers in
any retirement system governed by state statute. Accordingly, any
retirement plan approved before January 1, 2013, by the voters of
any entity excluded from coverage by this section shall not be
affected by this article.

(b) The benefit plan required by this article shall apply to public
employees who are new members as defined in Section 7522.04.

(c) Individuals who were employed by any public employer
before January 1, 2013, and who became employed by a subsequent
public employer for the first time on or after January 1, 2013, shall
be subject to the retirement plan that would have been available
to employees of the subsequent employer who were first employed
by the subsequent employer on or before December 31, 2012, if
the individual was subject to reciprocity established under any of
the following provisions:

(1) Article 5 (commencing with Section 20350) of Chapter 3
of Part 3 of Division 5 of Title 2.

(2) Chapter 3 (commencing with Section 31450) of Part 3 of
Division 4 of Title 3.

(3) Any agreement between public retirement systems to provide
reciprocity to members of the systems.

(d) If a public employer, before January 1, 2013, offers a defined
benefit pension plan that provides a defined benefit formula with
a lower benefit factor at normal retirement age and results in a
lower normal cost than the defined benefit formula required by
this article, that employer may continue to offer that defined benefit
formula instead of the defined benefit formula required by this
article, and shall not be subject to the requirements of Section
7522.10 for pensionable compensation subject to that formula.
However, if the employer adopts a new defined benefit formula
on or after January 1, 2013, that formula must conform to the
requirements of this article or must be determined and certified by
the retirement system’s chief actuary and the retirement board to
have no greater risk and no greater cost to the employer than the
defined benefit formula required by this article and must be
approved by the Legislature. New members of the defined benefit
plan may only participate in the lower cost defined benefit formula
that was in place before January 1, 2013, or a defined benefit
formula that conforms to the requirements of this article or is
approved by the Legislature as provided in this subdivision.

(e) If a public employer, before January 1, 2013, offers a
retirement benefit plan that consists solely of a defined contribution
plan, that employer may continue to offer that plan instead of the
defined benefit pension plan required by this article. However, if
the employer adopts a new defined benefit pension plan or defined
benefit formula on or after January 1, 2013, that plan or formula
must conform to the requirements of this article or must be
determined and certified by the retirement system’s chief actuary
and the system’s board to have no greater risk and no greater cost
to the employer than the defined benefit formula required by this
article and must be approved by the Legislature. New members of
the employer’s plan may only participate in the defined
contribution plan that was in place before January 1, 2013, or a
defined contribution plan or defined benefit formula that conforms
to the requirements of this article. begin insert This subdivision shall not be end insert
begin insert construed to prohibit an employer from offering a defined end insert
begin insert contribution plan on or after January 1, 2013, either with or end insert
begin insert without a defined benefit plan, if the employer did not offer a end insert
begin insert defined contribution plan prior to that date. end insert

(f) The Judges’ Retirement System I and the Judges’ Retirement
System II shall not be required to adopt the defined benefit formula
required by Section begin delete 7522.25 or 7522.30 end delete begin insert 7522.20 or 7522.25 end insert or the
compensation limitations defined in Section 7522.10.

(g) This article shall not be construed to provide membership
in any public retirement system for an individual who would not
otherwise be eligible for membership under that system’s
applicable rules or laws.

SEC. 2.  

Section 7522.25 of the Government Code is amended
to read:

7522.25.  

(a) Each retirement system that offers a defined
benefit plan for safety members of the system shall use one or
more of the defined benefit formulas prescribed by this section. A
member may retire for service under any of the formulas in this
section after five years of service and upon reaching 50 years of
age.

(b) The Basic Safety Plan shall provide a pension at retirement
for service equal to the percentage of the member’s final
compensation set forth opposite the member’s age at retirement,
taken to the preceding quarter year, in the following table,
multiplied by the number of years of service in the system as a
safety member.

 

Age at Retirement	Fraction
50	1.426
501⁄4	1.447
501⁄2	1.467
503⁄4	1.488
51	1.508
511⁄4	1.529
511⁄2	1.549
513⁄4	1.570
52	1.590
521⁄4	1.611
521⁄2	1.631
523⁄4	1.652
53	1.672
531⁄4	1.693
531⁄2	1.713
533⁄4	1.734
54	1.754
541⁄4	1.775
541⁄2	1.795
543⁄4	1.816
55	1.836
551⁄4	1.857
551⁄2	1.877
553⁄4	1.898
56	1.918
561⁄4	1.939
561⁄2	1.959
563⁄4	1.980
57 and over	2.000

 

(c) The Safety Option Plan One shall provide a pension at
retirement for service equal to the percentage of the member’s
final compensation set forth opposite the member’s age at
retirement, taken to the preceding quarter year, in the following
table, multiplied by the number of years of service in the system
as a safety member.

 

Age at Retirement	Fraction
50	2.000
501⁄4	2.018
501⁄2	2.036
503⁄4	2.054
51	2.071
511⁄4	2.089
511⁄2	2.107
513⁄4	2.125
52	2.143
521⁄4	2.161
521⁄2	2.179
523⁄4	2.196
53	2.214
531⁄4	2.232
531⁄2	2.250
533⁄4	2.268
54	2.286
541⁄4	2.304
541⁄2	2.321
543⁄4	2.339
55	2.357
551⁄4	2.375
551⁄2	2.393
553⁄4	2.411
56	2.429
561⁄4	2.446
561⁄2	2.464
563⁄4	2.482
57 and over	2.500

 

(d) The Safety Option Plan Two shall provide a pension at
retirement for service equal to the percentage of the member’s
final compensation set forth opposite the member’s age at
retirement, taken to the preceding quarter year, in the following
table, multiplied by the number of years of service in the system
as a safety member.

 

Age at Retirement	Fraction
50	2.000
501⁄4	2.025
501⁄2	2.050
503⁄4	2.075
51	2.100
511⁄4	2.125
511⁄2	2.150
513⁄4	2.175
52	2.200
521⁄4	2.225
521⁄2	2.250
523⁄4	2.275
53	2.300
531⁄4	2.325
531⁄2	2.350
533⁄4	2.375
54	2.400
541⁄4	2.425
541⁄2	2.450
543⁄4	2.475
55	2.500
551⁄4	2.525
551⁄2	2.550
553⁄4	2.575
56	2.600
561⁄4	2.625
561⁄2	2.650
563⁄4	2.675
57 and over	2.700

 

(e)  On and after January 1, 2013, an employer shall offer one
or more of the safety formulas prescribed by this section to new
begin delete employees end delete begin insert members end insert who are safety employees begin delete eligible for end delete
begin delete membership in the system end delete . The formula offered shall be the
formula that is closest to, and provides a lower benefit at 55 years
of age than, the formula provided to members in the same
retirement classification offered by the employer on December
31, 2012.

(f) On and after January 1, 2013, an employer and its employees
subject to Safety Option Plan One or Safety Option Plan Two may
agree in a memorandum of understanding to be subject to Safety
Option Plan One or the Basic Safety Plan, subject to the following:

(1) The lower plan shall apply to members first employed on
or after the effective date of the lower plan, and shall be agreed to
in a memorandum of understanding that has been collectively
bargained in accordance with applicable laws.

(2) A retirement plan contract amendment with a public
retirement system to alter a retirement formula pursuant to this
subdivision shall not be implemented by the employer in the
absence of a memorandum of understanding that has been
collectively bargained in accordance with applicable laws.

(3) An employer shall not use impasse procedures to impose
the lower plan.

(4) An employer shall not provide a different defined benefit
for nonrepresented, managerial, or supervisory employees than
the employer provides for other public employees, including
represented employees, of the same employer who are in the same
membership classifications.

(g) Pensionable compensation used to calculate the defined
benefit shall be limited as described in Section 7522.10.

SEC. 3.  

Section 7522.30 of the Government Code is amended
to read:

7522.30.  

(a) This section shall apply to all public employers
and to all new members. Equal sharing of normal costs between
public employers and public employees shall be the standard. The
standard shall be that employees pay at least 50 percent of normal
costs and that employers not pay any of the required employee
contribution.

(b) The “normal cost rate” shall mean the annual actuarially
determined normal cost for the defined benefit plan of an employer
expressed as a percentage of payroll.

(c) New begin delete employees employed on and after January 1, 2013, end delete
begin insert members employed end insert by those public employers defined in
paragraphs (2) and (3) of subdivision (i) of Section 7522.04, the
begin insert Legislature, the end insert California State University, and the judicial branch
who participate in a defined benefit plan shall have an initial
contribution rate of at least 50 percent of the normal cost rate for
that defined benefit plan, rounded to the nearest quarter of 1
percent, or the current contribution rate of similarly situated
employees, whichever is greater begin insert , if the greater current contribution end insert
begin insert rate has been agreed to pursuant to the requirements in subdivision end insert
begin insert (e) end insert . This contribution shall not be paid by the employer on the
employee’s behalf.

(d) Notwithstanding subdivision (c), once established, the
employee contribution rate described in subdivision (c) shall not
be adjusted on account of a change to the normal cost rate unless
the normal cost rate increases or decreases by more than 1 percent
of payroll above or below the normal cost rate in effect at the time
the employee contribution rate is first established or, if later, the
normal cost rate in effect at the time of the last adjustment to the
employee contribution rate under this section.

(e) Notwithstanding subdivision (c), employee contributions
may be more than one-half of the normal cost rate if the increase
has been agreed to through the collective bargaining process,
subject to the following conditions:

(1) The employer shall not contribute at a greater rate to the
plan for nonrepresented, managerial, or supervisory employees
than the employer contributes for other public employees, including
represented employees, of the same employer who are in related
retirement membership classifications.

(2) The employer shall not increase an employee contribution
rate in the absence of a memorandum of understanding that has
been collectively bargained in accordance with applicable laws.

(3) The employer shall not use impasse procedures to increase
an employee contribution rate above the rate required by this
section.

(f) If the terms of a contract, including a memorandum of
understanding, between a public employer and its public
employees, that is in effect on January 1, 2013, would be impaired
by any provision of this section, that provision shall not apply to
the public employer and public employees subject to that contract
until the expiration of that contract. A renewal, amendment, or
any other extension of that contract shall be subject to the
requirements of this section.

SEC. 4.  

Section 7522.43 of the Government Code is amended
to read:

7522.43.  

(a) A public employer shall not offer a plan of
replacement benefits for members and any survivors or
beneficiaries whose retirement benefits are limited by Section 415
of Title 26 of the United States Code. This section shall apply to
new begin delete employees end delete begin insert members end insert .

(b) A public retirement system may continue to administer a
plan of replacement benefits for employees first hired prior to
January 1, 2013.

(c) A public employer that does not offer a plan of replacement
benefits prior to January 1, 2013, shall not offer such a plan for
any employee on or after January 1, 2013.

(d) A public employer that offers a plan of replacement benefits
prior to January 1, 2013, shall not offer such a plan to any
additional employee group to which the plan was not provided
prior to January 1, 2013.

SEC. 5.  

Section 7522.66 of the Government Code is repealed.

begin delete

7522.66.  

(a) A safety member of a public retirement system
who retires for industrial disability shall receive an industrial
disability retirement benefit equal to the greater of the following:

(1) Fifty percent of his or her final compensation attributable
to the defined benefit plan, plus an annuity purchased with his or
her accumulated contributions, if any.

(2) A service retirement allowance, if he or she is qualified for
service retirement.

(3) An actuarially reduced factor, as determined by the actuary,
for each quarter year that his or her service age is less than 50 years
of age, multiplied by the number of years of safety service subject
to the applicable formula, if he or she is not qualified for service
retirement.

(b) This section shall remain in effect only until January 1, 2018,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2018, deletes or extends that date.

end delete

SEC. 6.  

Section 20281.5 of the Government Code is amended
to read:

20281.5.  

(a) Notwithstanding Section 20281, a person who
becomes a state miscellaneous member or state industrial member
of the system on or after the effective date of this section because
the person is first employed by the state and qualifies for
membership shall be subject to the provisions of this section.

(b) Members subject to this section shall not accrue credit for
service in the system and shall not make employee contributions
to the system, including the contributions set forth in Section
20677.4, for employment with the state until the first day of the
first pay period commencing 24 months after becoming a member
of the system.

(c) Notwithstanding subdivision (a), this section shall not apply
to any of the following:

(1) Persons who are already members or annuitants of the system
at the time they are first employed by the state.

(2) Employees of the California State University, or the
legislative or judicial branch of state government.

(3) Members of the Judges’ Retirement System, the Judges’
Retirement System II, the Legislators’ Retirement System, the
State Teachers’ Retirement System, or the University of California
Retirement Plan.

(4) Persons who are members of a reciprocal retirement system
and whose employment was subject to a reciprocal retirement
system within the six months prior to membership in this system.

(5) Persons whose service is not included in the federal system.

(6) Persons who are employed by the Department of the
California Highway Patrol as students at the department’s training
school established pursuant to Section 2262 of the Vehicle Code.

(7) Persons who had ceased to be members pursuant to Section
20340 or 21075.

(8) Persons who are National Guard members pursuant to
Section 20380.5.

(d) A separation of employment does not alter the 24-month
period described by subdivision (b). A member who separates
from state employment shall remain subject to this section if he
or she returns to state employment as a state miscellaneous or state
industrial member within that 24-month period.

(e) Any regulations adopted by the board to implement the
requirements of this section shall not be subject to the review and
approval of the Office of Administrative Law, pursuant to Chapter
3.5 (commencing with Section 11340) of Part 1 of Division 3. The
regulations shall become effective immediately upon filing with
the Secretary of State.

(f) This section shall not apply to any person who first becomes
a state miscellaneous member or a state industrial member on or
after begin delete July end delete begin insert January end insert 1, 2013.

SEC. 7.  

Section 21400 of the Government Code is amended
to read:

21400.  

(a) A safety member who retires on or after January
1, 2013, for industrial disability shall receive a disability retirement
benefit equal to the greater of the following:

(1) Fifty percent of his or her final compensation, plus an annuity
purchased with his or her accumulated begin insert additional end insert contributions,
if any.

(2) A service retirement allowance, if he or she is qualified for
service retirement.

(3) An actuarially reduced factor, as determined by the actuary,
for each quarter year that his or her service age is less than 50
years, multiplied by the number of years of safety service subject
to the applicable formula, if he or she is not qualified for service
retirement.

(4) Nothing in this section shall require a member to receive a
lower benefit than he or she would have received prior to January
1, 2013, as the law provided prior to that date.

(b) This section shall remain in effect only until January 1, 2018,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2018, deletes or extends that date.

SEC. 8.  

This act is an urgency statute necessary for the
immediate preservation of the public peace, health, or safety within
the meaning of Article IV of the Constitution and shall go into
immediate effect. The facts constituting the necessity are:

In order to address technical problems and avoid costly and
unnecessary changes to retirement systems in implementing the
California Public Employees’ Pension Reform Act of 2013
(Chapter 296 of the Statutes of 2012), it is necessary for this act
to take effect immediately.