BILL ANALYSIS Ó SB 13 Page 1 SENATE THIRD READING SB 13 (Beall) As Amended September 6, 2013 2/3 vote. Urgency SENATE VOTE : 37-0 PUBLIC EMPLOYEES 6-0 APPROPRIATIONS 16-0 ----------------------------------------------------------------- |Ayes:|Bonta, Allen, |Ayes:|Gatto, Harkey, Bigelow, | | |Jones-Sawyer, Mullin, | |Bocanegra, Bradford, Ian | | |Rendon, Wieckowski | |Calderon, Campos, Eggman, | | | | |Gomez, Hall, Holden, | | | | |Linder, Pan, Quirk, | | | | |Wagner, Weber | |-----+--------------------------+-----+--------------------------| | | | | | ----------------------------------------------------------------- SUMMARY : Makes technical corrections to the Public Employees' 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. Specifically, this bill : 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)Excludes from the provisions of PEPRA multiemployer plans authorized by the Taft-Hartley Act if the employer participated in the plan prior to January 1, 2013, and the plan is regulated under the Employee Retirement Income Security Act of 1974 (ERISA). 3)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 the California Public Employees' Retirement System (CalPERS) employers or CalPERS and the California State Teachers' Retirement System (CalSTRS), consistent with the intent of AB 340 to grandfather public employees hired prior to January 1, 2013, with regard to moving between public employers. SB 13 Page 2 4)Exempts from the definition of "new member" an individual who changes retirement systems or plans for the same employer without a break in service. 5)Adds language to the bill to avoid chaptering out issues with AB 1222 (Bloom and Dickinson) of the current legislative session. 6)Clarifies that the bill does not prohibit 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. 7)Provides express authority to retirement systems to promulgate regulations or adopt resolutions to implement the requirements of PEPRA. 8)Confirms that in determining normal cost, the actuary may use single rate contributions or age-based contribution rates. 9)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. 10)Clarifies that a retirement system shall only require contributions from employers and employees on compensation up to the compensation limit. 11)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). 12)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. 13)Excludes from the definition of "new member" as used in the provisions requiring new members to pay at least 50% of the normal cost rate, a judge who was elected to office prior to January 1, 2013, but may have become a member of the Judges' Retirement System II for the first time on or after that date. SB 13 Page 3 14)Clarifies that three consecutive school years can also be used meet the three-year final compensation requirement. 15)Allows an employer to exclude from pensionable compensation anything that has been agreed through collective bargaining to be excluded, and to apply that exclusion to related non-represented employees. 16)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. 17)Clarifies that judges will be subject to felony forfeiture provisions required under the Judges' Retirement Systems I and II (JRS I & JRS II) and PEPRA, resulting in the highest loss of benefits possible under the various section. 18)Makes California State University (CSU) employee contribution requirements consistent with those of state employees not subject to PEPRA which allow contributions to increase, as specified, on and after January 1, 2018. 19)Specifies that the Legislature retains the right to adjust contribution rates for CSU employees. 20)Clarifies that legacy members in the Los Angeles County Employees' Retirement Association are allowed to move between retirement plans D and E, but not the PEPRA plan and plans D or E. 21)Clarifies that new members of retirement systems established under the County Employees' Retirement Law of 1937 ('37 Act) subject to the PEPRA retirement formulas will not be subject to the traditional offsets on contributions and benefits that apply to legacy employees. 22)Corrects typographical errors and clarifies various requirements. EXISTING LAW : 1)Establishes PEPRA, which requires, as of January 1, 2013, SB 13 Page 4 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 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 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 three-year final compensation period. 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 SB 13 Page 5 plan was not offered prior to January 1, 2013. aa) Prohibits for all members, on and after January 1, 2013, the purchase of non-qualified service credit (also known as "Airtime") in a defined benefit plan. bb) Requires, for persons first elected or appointed on or after 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. 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 Legislators' 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. ii) Makes various other changes to public retirement systems and plans and the duties and requirements of public employers and employees. FISCAL EFFECT : According to the Assembly Appropriations Committee: 1)Unknown costs in the hundreds of thousands of dollars from SB 13 Page 6 moving up the closing of the alternate retirement plan (ARP) to January 1, 2013. The costs result because ARP is a defined contribution plan that new employees must join. After two years of state employment, state employees can begin earning CalPERS service credit and after two additional years may convert the time spent in ARP to CalPERS service credit. If the program is ended earlier the state has increased pension obligations. In addition, the state loses pension savings for those employees who would not have paid the employee share and converted their time to CalPERS retirement. 2)Minor and absorbable administrative costs for CalPERS and CalSTRS. 3)Increased administrative costs to state agencies for changing plans for employees who joined the ARP between January 1 and June 30, 2013. 4)Other provisions of the bill should allow the state and local governments to realize savings resulting from the enactment of PEPRA in 2012. 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." Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916) 319-3957 FN: 0002501