BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SCA 15
Jim Beall, Chair HEARING DATE: September 3, 2013
SCA 15 (Yee) as introduced 7/10/13 FISCAL: YES
UNIVERSITY OF CALIFORNIA RETIREMENT PLAN: CONFORMITY WITH
PEPRA
HISTORY :
Sponsor: Association of Federal, State, County and
Municipal Employees (AFSCME)
Other legislation: AB 340 (Furutani)
Chapter 296, Statutes of 2012
SUMMARY :
SCA 15 would require the University of California (UC) and
its employees and the UC Retirement Plan (UCRP) to conform
with the requirements of The California Public Employees'
Pension Reform Act of 2013 (PEPRA).
BACKGROUND AND ANALYSIS :
1)Existing law :
a) establishes PEPRA, which requires, as of January 1,
2013, comprehensive and statewide reform for the State's
public pension systems and plans and requires a public
retirement system, as defined, to modify its plan or
plans to comply with the act, including the following,
as specified:
i) defines a new member of a public retirement
system and 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;
ii) requires new public retirement system members to
have lower retirement formulas and higher retirement
ages;
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iii) requires new members to have no less than a 3-year
final compensation period;
iv) prohibits retroactive benefit increases for all
public employees;
v) 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;
vi) 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;
vii) prohibits certain items of pay from being included
in "pensionable compensation";
viii) prohibits inequitable retiree health vesting for
new excluded and appointed employees;
ix) 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;
x) 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;
xi) prohibits for all members, on and after 1/1/2013,
the purchase of non-qualified service credit (aka,
"Airtime") in a defined benefit plan;
xii) 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;
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xiii) prohibits pension contribution holidays for public
employers;
xiv) places additional restrictions on working after
retirement for a public employer;
xv) creates stringent benefit forfeiture provisions
for public employees and officials who are convicted
of felonies committed in relation to the performance
of official duties; and
xvi) makes various other changes to public retirement
systems and plans and the duties and requirements of
public employers and employees.
a) excludes from PEPRA requirements the University of
California and stand-alone, independent retirement plans
offered by charter cities and counties that do not
participate in the California Public Employees'
Retirement System (CalPERS) or the 1937 Act County
Retirement System requirements.
b) the California Constitution, establishes the
University of California as a public trust with full
powers of organization and government, as provided, and
administered by the Regents of the University.
This bill :
a) amends the California Constitution to make an officer
or employee of the University of California first hired
on or after the effective date of this measure, and any
retirement plan of the University of California, subject
to the requirements of PEPRA and any subsequent
statutory enactment amending that act or enacting or
amending a successor act.
b) if passed, would result in a ballot measure that
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would require passage in order to amend the
Constitution.
FISCAL :
Unknown
COMMENTS :
1)Background Provided by the Committee :
The UC provides the University of California Retirement Plan
(UCRP) for its employees. UCRP is a defined benefit plan and
is similar to the CalPERS' retirement plan with regard to the
plan's structure and benefits.
The UCRP benefit structure for new employees hired after July
1, 2013 is similar to the miscellaneous plan required for new
public employees subject to PEPRA. For example, PEPRA
requires a benefit formula that provides 2% at age 62,
increasing to 2.5% at age 67. The UCRP formula provides 2%
at age 60, increasing to 2.5% at age 65.
Both plans require using the average of the 3 highest years'
compensation to determine the retirement benefit, and
prohibit certain items from being included in pensionable
compensation, such as overtime pay and uniform allowances.
However, differences lie in several key areas:
a) PEPRA limits the amount of compensation that may be
counted toward a pension to approximately $113,000, with
annual adjustments based on increases to the Consumer
Price Index. UCRP uses the federal limit-approximately
$255,000, which is the limit on compensation required by
federal law and also increases annually based on federal
formulas.
b) PEPRA requires new employees to contribute at least
one-half of the normal cost of their pensions as member
contributions and prohibits an employer from paying the
employee portion. UCRP has no such requirement.
Currently, employee contributions are determined through
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collective bargaining.
c) PEPRA requires that employers pay, at a minimum, the
normal cost of their pension plan into the retirement
system on an annual basis up to a level of 120% funding,
thereby establishing a surplus against deficiencies.
UCRP does not make this requirement. In the past, UC
did not make employer contributions to its plan for
approximately 20 years, contributing to its current
level of unfunded liability.
d) PEPRA establishes one miscellaneous formula (the 2%
at age 62 formula) for all public employees, and
prohibits any future benefit improvements from being
retroactive (i.e., applicable to service preformed prior
to the benefit improvement). UCRP may change its benefit
formula at any time via collective bargaining or an act
of its governing body and make benefit improvements
applicable to prior service.
1)Arguments in Support :
According to the author:
SCA 15 would allow voters to determine whether the
reforms made in the California Public Employees' Pension
Reform Act (PEPRA) of 2013 should extend to the
University of California. The common sense
checks-and-balances enshrined in PEPRA will mitigate
future pension obligations and ensure that the
University of California cannot continue to recklessly
burden poor and middle income households with the
University's pension debt.
As stated by AFSCME:
UC's unfunded pension liability stands at $10 billion
and growing. There are three factors that created this
crisis. First, UC policy makers decided to take a 20
year holiday from making contributions to the system.
Second, UCRP became reliant on risky investments
strategies that lost tens of millions of dollars during
the 2008 economic collapse. And third, the number of UC
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retirees drawing six figure annual pension payouts has
been skyrocketing-growing 30% over the last few years,
with more than 2,100 UC retirees receiving annual
pension payouts of between $100,000 and more than
$300,000 as of May 2012.
Because of constitutional protections, the University of
California's Retirement Plan was not subject to PEPRA,
and that institution cannot benefit from any long-term
savings achieved by PEPRA. AFSCME believes it is
appropriate, because of abuses by top executives, to
make University of California retirement plans for
employees who were hired after the passage of SCA 15
subject to the provisions of PEPRA and any subsequent
successor act. This will stop excessive spikes of
pensions that allow people to work for less than 10
years and receive a lifetime pension of more than six
figures.
2)Arguments in Opposition :
The UC opposes SCA 15, noting that it has implemented a lower
retirement tier as of July 1, 2013, that will save
substantially over the cost of the old plan. Moreover,
creating yet another tier modeled on PEPRA will be costly as
it will require additional changes to the UCRP. In regard to
capping pensionable compensation at approximately $113,000,
UC states that it currently employees approximately "16,000
employees whose pensionable compensation under PEPRA would be
greater than $113,000," and believes that this would make it
more difficult to recruit and retain quality professionals.
UC states the following:
Recruiting and retaining world-class faculty is one of
the University's highest
priorities. UC competes with other public and private
academic institutions, both
nationwide and globally, to hire these individuals.
According to the University's most recent Accountability
Report, UC faculty salaries are between 85 and 89
percent of the benchmark that UC has historically used
to assess their competitiveness. These
discrepancies in compensation create huge challenges to
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the University's efforts to
recruit and retain high-quality faculty.
The quality of the University of California is founded
on its distinguished faculty
who provide top-quality educational opportunities to
students and service to society.
As currently designed, UCRP incentivizes long careers at
the University, promoting
the recruitment of talented faculty and staff who will
develop their work with UC
over a lifetime. A cap on covered compensation, such as
imposed by PEPRA, would
immediately lower the value of UC's total compensation
package.
The California Nurses Association (CNA) believes that SCA 15
imposes severe cuts to employee pensions, and is unnecessary
due to the highly profitable UC medical centers. CNA
believes that requiring new employees to pay 50% of the
normal costs of their pensions and allowing the UC to impose
higher contributions on legacy employees by 2018 circumvents
collective bargaining and tilts the balance of power to the
employer, allowing the employer to "gain what they might not
otherwise be able to achieve through the regular give and
take of negotiations." CNA also states the following:
The formulas in SCA 15 would require these employees to
work until age 67 to receive the maximum retirement
factor of 2.5%. While we understand that people are
living longer, there are many jobs, such as nursing,
that are so physically demanding that working until age
67 is not reasonable. SCA 15 will both decrease benefit
formulas and increase age factors, resulting in new
employees earning substantially lower retirement
benefits.
3)SUPPORT :
American Federation of State, County and Municipal
Employees (AFSCME), AFL-CIO, Sponsor
American Federation of State, County and Municipal
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Employees (AFSCME), Local 3299 AFL-CIO, Co-Sponsor
4)OPPOSITION :
California Nurses Association (CNA)
California Teamsters Public Affairs Council
University Professional and Technical Employees (UPTE),
CWA, Local 9119, AFL-CIO
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