BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 13| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 13 Author: Beall (D) Amended: 2/6/13 Vote: 27 - Urgency SENATE PUBLIC EMPLOY. & RETIRE. COMM. : 4-0, 2/11/13 AYES: Beall, Walters, Block, Gaines NO VOTE RECORDED: Yee SENATE APPROPRIATIONS COMMITTEE : 7-0, 4/8/13 AYES: De León, Walters, Gaines, Hill, Lara, Padilla, Steinberg SUBJECT : Public employees retirement benefits SOURCE : Author DIGEST : This bill makes technical corrections to the Public Employees Pension Reform Act of 2013 (PEPRA) in order to clarify the Legislatures intent in enacting PEPRA and to assist affected employers and retirement systems in implementation of PEPRA. ANALYSIS : 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: 1. Allows legacy members (i.e., employees in retirement plan membership prior to January 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 CONTINUED SB 13 Page 2 hires on December 31, 2012. 2. Requires new public retirement system members to have lower retirement formulas and higher retirement ages. 3. Requires new members to have no less than a three-year final compensation period. 4. Prohibits retroactive benefit increases for all public employees. 5. 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. 6. 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. 7. Prohibits certain items of pay from being included in "pensionable compensation." 8. Prohibits inequitable retiree health vesting for new excluded and appointed employees. 9. 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. 10.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 January 1, 2013. 11.Prohibits for all members, on and after January 1, 2013, the purchase of non-qualified service credit (aka, "Airtime") in a defined benefit plan. 12.Requires, for persons first elected or appointed on or after CONTINUED SB 13 Page 3 January 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 salary while serving on the board or commission. 13.Prohibits pension contribution holidays for public employers. 14.Places additional restrictions on working after retirement for a public employer. 15.Creates stringent benefit forfeiture provisions for public employees and officials who are convicted of felonies committed in relation to the performance of official duties. 16.Closes the Legislator's Retirement System to new members. 17.Closes the Alternative Retirement Program to new state miscellaneous employees subject to PEPRA. 18.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. 19.Makes various other changes to public retirement systems and plans and the duties and requirements of public employers and employees. 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: 1. States that it contains clarifying changes to PEPRA that are consistent with legislative intent as enacted in AB 340 (Furutani, Chapter 296, Statutes of 2012) and are therefore intended to be applicable as of January 1, 2013. 2. 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 California Public CONTINUED SB 13 Page 4 Employees' Retirement System (CalPERS) employers or CalPERS and California State Teachers' Retirement System), consistent with the intent of AB 340 to grandfather public employees hired prior to January 1, 2013, with regard to moving between public employers. 3. Clarifies that nothing prohibits an employer that offers a defined benefit plan prior to January 1, 2013, from later offering only a defined contribution plan or a defined contribution plan in addition to a defined benefit plan. 4. Provides express authority to retirement systems to promulgate regulations or adopt resolutions to implement the requirements of PEPRA. 5. 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). 6. 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. 7. 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). 8. 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. 9. 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 January 1, 2013, or with whom the employer had a contractual agreement for a particular health vesting schedule. 10.Clarifies that judges will be subject to felony forfeiture provisions required under the Judges Retirement Systems and PEPRA, resulting in the highest loss of benefits possible CONTINUED SB 13 Page 5 under the various section. 11.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. 12.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. 13.Corrects typographical errors and clarifies various requirements. Comments According to the author, "AB 340 passed at the end of the 2012 session as a conference committee report following over 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." FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the Senate Appropriations Committee: Unknown loss of savings from closing the Alternate Retirement Program (ARP) on January 1, 2013, instead of July 1, 2013. (General/Special) Minor administrative costs to CalPERS and CalSTRS (Special). Minor increase in revenue from new legislative employees paying half the normal cost of their defined benefit plan. The exact loss of savings from closing the ARP six months earlier is unknown as it would depend on the number of employees hired during that time period who later decide not to purchase CONTINUED SB 13 Page 6 the two years of service credit, which would have resulted in a savings to the state in the amount of the associated employer contribution. SUPPORT : (Verified 4/9/13) California Public Employees' Retirement System Los Angeles County Employees Retirement Association JA:k 4/9/13 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED