BILL ANALYSIS Ó
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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
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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
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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
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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
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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
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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
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