BILL ANALYSIS                                                                                                                                                                                                    Ó



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          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        
           
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          |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.








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          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.








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          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,  








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            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  








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               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  








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            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