BILL ANALYSIS Ó
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 13
Jim Beall, Chair HEARING DATE: February 11, 2013
SB 13 (Beall) as amended 02/06/13 FISCAL: YES
PUBLIC EMPLOYEES' PENSION REFORM ACT OF 2013: TECHNICAL
CORRECTIONS
HISTORY :
Sponsor: Author
Other legislation: AB 340 (Furutani)
Chapter 296, Statutes of 2012
SUMMARY :
SB 13 makes technical corrections to the Public Employee's
Pension Reform Act of 2013 (PEPRA) in order to clarify the
Legislature's intent in enacting PEPRA and to assist affected
employers and retirement systems in implementation of PEPRA.
URGENCY BILL.
BACKGROUND AND ANALYSIS :
1) Existing law establishes PEPRA, which requires, as of
January 1, 2013, comprehensive and statewide reform for the
State's public pension systems and plans and public
employers and employees, including the following, as
specified:
a) allows legacy members (i.e., employees in retirement
plan membership prior to 1/1/2013) subject to
reciprocity to move between public employers and be
subject to the new employer's retirement benefit plan as
it existed for new hires on December 31, 2012;
b) requires new public retirement system members to have
lower retirement formulas and higher retirement ages;
c) requires new members to have no less than a 3-year
final compensation period;
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d) prohibits retroactive benefit increases for all
public employees;
e) requires new members to pay at least one-half of the
actuarial annual normal cost of their benefit plans as
member contributions and prohibits employers from making
those contributions on behalf of employees;
f) 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;
g) prohibits certain items of pay from being included in
"pensionable compensation";
h) prohibits inequitable retiree health vesting for new
excluded and appointed employees;
i) prohibits, for new employees, any employer benefit
contributions paid on salaries in excess of specified
federal limits, and prohibits an employer from seeking a
federal exception to the limit;
j) prohibits, for new employees, employer contributions
to benefit replacement plans in excess of federal
compensation limits, and prohibits an employer from
offering a benefit replacement plan to any group of
employees to which the plan was not offered prior to
1/1/2013;
aa) prohibits for all members, on and after 1/1/2013, the
purchase of non-qualified service credit (aka,
"Airtime") in a defined benefit plan;
bb) requires, for persons first elected or appointed on
or after 1/1/2013, that final compensation earned as an
elected or appointed city council member or county
supervisor may not be used in the calculation of a
retirement benefit for other public employment, and
prohibits a retired appointee to a state board or
commission from receiving a full pension and a full
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salary while serving on the board or commission;
cc) prohibits pension contribution holidays for public
employers;
dd) places additional restrictions on working after
retirement for a public employer;
ee) creates stringent benefit forfeiture provisions for
public employees and officials who are convicted of
felonies committed in relation to the performance of
official duties;
ff) closes the Legislator's Retirement System to new
members;
gg) closes the Alternative Retirement Program to new
state miscellaneous employees subject to PEPRA;
hh) requires higher employee contributions for state
legacy employees, and allows local employers to impose
higher legacy employee contributions by 2018 if they
fail to bargain such increases in the interim; and
ii) makes various other changes to public retirement
systems and plans and the duties and requirements of
public employers and employees.
2) This bill makes various corrections and clarifications to
PEPRA provisions in order to assist employers and
retirement systems in the timely and correct implementation
of PEPRA requirements. Specifically, this bill clarifies
and requires the following:
a) states that it contains clarifying changes to PEPRA
that are consistent with legislative intent as enacted
in AB 340 and are therefore intended to be applicable as
of January 1, 2013;
b) clarifies that the provision for legacy employees to
move between public employers also (in addition to
moving between reciprocal employers) applies in cases of
concurrent membership (such as moving between CalPERS
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employers or CalPERS and CalSTRS), consistent with the
intent of AB 340 to grandfather public employees hired
prior to 1/1/2013 with regard to moving between public
employers;
c) clarifies that the bill does not prohibit an employer
that offers a defined benefit plan prior to 1/1/2013
from later offering only a defined contribution plan or
a defined contribution plan in addition to a defined
benefit plan;
d) provides express authority to retirement systems to
promulgate regulations or adopt resolutions to implement
the requirements of PEPRA;
e) confirms that in determining normal cost, the actuary
may use single rate contributions (as in CalPERS), or
age-based contribution rates (as in the 1937 Act County
Retirement Associations);
f) creates a uniform requirement for all public
retirement systems subject to PEPRA with regard to when
and how to make annual changes to the compensation
limits and when such changes shall be effective;
g) clarifies that the normal cost rate used to determine
employee contributions includes all benefits under the
plan (such as death and survivor benefits and
cost-of-living adjustments);
h) clarifies that new employees will initially be
subject to a higher employee contribution rate (i.e.,
higher than the required 50%) if it is paid by similarly
situated employees subject to a collective bargaining
agreement;
i) clarifies that an employer is not required to change
the retiree health vesting schedule of any employee
subject to a specific health vesting schedule prior to
1/1/2013, or with whom the employer had a contractual
agreement for a particular health vesting schedule;
j) clarifies that judges will be subject to felony
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forfeiture provisions required under the Judges
Retirement Systems (JRS I&II) and PEPRA, resulting in
the highest loss of benefits possible under the various
section;
aa) clarifies that legacy members in the Los Angeles
County Retirement Association are allowed to move
between retirement plans D and E, but not the PEPRA plan
and plans D or E;
bb) clarifies that new 1937 Act county retirement
association members subject to the PEPRA retirement
formulas shall not be subject to the traditional offsets
on contributions and benefits that apply to legacy
employees; and
cc) corrects typographical errors and clarifies various
requirements.
FISCAL :
This bill has no fiscal analysis at this time. However,
clarification of the provisions of PEPRA will allow
retirement systems and employers to implement PEPRA without
potentially costly errors.
In 2012, CalPERS estimated that the changes due to PEPRA
would result in estimated savings for the State and
participating state and school employers of between $42 and
$55 billion over the next 30 years. CalSTRS estimated about
$22 billion in savings to the State and schools over the same
time period.
Savings for counties in the 1937 Act and independent
retirement plans have not been estimated but will add
substantially to these numbers.
COMMENTS :
1) Argument in Support :
According to the author, "AB 340 passed at the end of the
2012 session as a conference committee report following over
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a year of meetings, hearings, and various legislative efforts
relative to comprehensive pension reform. Due to the scope
of the bill and its complexity, and the requirement that a
conference report may not be amended once in print, a number
of provisions need clarification in order to be implemented
as intended. SB 13 will provide employers and retirement
system administrators with better guidelines for fully
implementing the requirements of AB 340 in a timely manner."
2) SUPPORT :
Los Angeles County Employees Retirement Association
(LACERA)
3) OPPOSITION :
None to date
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