BILL ANALYSIS Ó
SENATE COMMITTEE ON
PUBLIC EMPLOYMENT AND RETIREMENT
Dr. Richard Pan, Chair
2015 - 2016 Regular
Bill No: AB 284 Hearing Date: 6/08/15
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|Author: |Brough |
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|Version: |06/03/15 As amended |
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|Urgency: |No |Fiscal: |No |
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|Consultant:|Pamela Schneider |
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Subject: City of San Juan Capistrano: public employee pension
benefits
SOURCE: City of San Juan Capistrano
ASSEMBLY VOTES:
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|Assembly Floor: |78 - 0 |
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|Assembly Public Employees, |7 - 0 |
|Retirement/Soc Sec Committee: | |
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DIGEST: This bill approves a specified optional defined benefit
formula (Plan W) for the employees of the City of San Juan
Capistrano (SJC) in lieu of the formula required to be provided
for new employees under the Public Employees' Pension Reform Act
of 2013 (PEPRA). Plan W has been certified as having no greater
risk and no greater cost to the employer than the PEPRA formula.
ANALYSIS:
Existing law:
1)Creates comprehensive public employee pension reform through
enactment of PEPRA (and related statutory changes) that apply
AB 284 (Brough) Page 2 of ?
to all public employers and public pension plans on and after
January 1, 2013, excluding the University of California and
charter cities and counties that do not participate in a
retirement system governed by state statute.
2)Changed, under PEPRA, the retirement benefit plans that may be
offered to new public employees, including:
a) Establishing uniform retirement formulas, including a 2%
at age 62 formula for non-safety workers, which caps out at
2.5% at age 67;
b) Requiring a three-year final compensation period for
determining a pension;
c) Requiring employee member contributions equal to 50% of
the normal cost of the employee's benefit plan;
d) Capping the amount of compensation that can count toward
a pension; and
e) Restricting the pay items that may be included in
pensionable compensation.
1)Specifies, with some exceptions, that the PEPRA requirements
are applicable to new retirement plan members who first become
members on and after January 1, 2013.
2)Authorizes an employer, upon approval of the Legislature, to
adopt a new, different retirement benefit plan or formula on
or after January 1, 2013 if that formula or plan is determined
and certified by the retirement system's chief actuary and the
retirement board to have no greater risk and no greater cost
to the employer than the PEPRA formula or plan.
This bill:
1)Is uncodified. It provides legislative approval for SJC's
Plan W. This bill makes findings and declarations in regard
to the following:
a) States the PEPRA requirement that alternative defined
benefit plans must be approved by the Legislature and meet
AB 284 (Brough) Page 3 of ?
specified requirements.
b) States that SJC has negotiated memoranda of
understanding with the SJC Management and Professional
Employees Association and the SJC Classified Employees
Association pursuant to which new employees may elect,
instead of the plan required by PEPRA, a hybrid retirement
plan (i.e., Plan W) which provides a lesser defined benefit
plan than the plan required by PEPRA.
c) States that the hybrid plan has been certified and
determined by the chief actuary of the Orange County
Employees Retirement System as having no greater risk and
no greater cost to the employer than the relevant defined
benefit formula required by PEPRA.
d) States that the Legislature therefore approves the
defined benefit formula described in this act.
Background
According to the author:
In 2014, the City of San Juan Capistrano negotiated a
hybrid pension plan with the San Juan Capistrano Management
and Professional Employees Association and the San Juan
Capistrano Classified Employees Association for employees
new to public service, hired on or after January 1, 2015.
This plan provides new, nonsafety hires the option to elect
coverage under a PEPRA alternative defined benefit formula,
"Plan W." This option consists of a 1.62% at Age 65
benefit formula combined with a City match of up to a
maximum of 1% to a defined contribution plan. New
employees may choose the hybrid pension plan or the City's
existing "Plan U" 2.5% at Age 67 benefit pension plan that
satisfies PEPRA.
The hybrid plan has been certified and determined by the
chief actuary of the retirement system and the Board of
Retirement of the Orange County Employees Retirement System
(OCERS) as representing "no greater risk"
and "no greater cost" to the City than the benefit formula
otherwise required by PEPRA.
AB 284 (Brough) Page 4 of ?
Prior/Related Legislation
AB 340 (Furutani, Chapter 296, Statutes of 2012) enacted PEPRA,
which became effective on January 1, 2013.
FISCAL EFFECT: Appropriation: No Fiscal
Com.: No Local: No
According to OCERS:
The OCERS Board of Retirement met on December 15, 2014, and
accepted a report from Segal Consulting, the OCERS Board's
chief actuary, dated December 5, 2014 indicating that the
proposed alternative benefit formula of 1.62% at age 65 as
proposed for new employees of the City of San Juan
Capistrano did not provide for any greater risk, or any
greater cost that the 2.5% at age 67 formula benefit
formula established under PEPRA.
SUPPORT:
City of San Juan Capistrano (source)
Classified Employees Association of the City of San Juan
Capistrano
Management and Professional Employees Association of the City
of San Juan Capistrano
Orange County Employees Retirement System
OPPOSITION:
None received
ARGUMENTS IN SUPPORT:
According to the sponsor and supporters:
The plan provides employees new to public service the
option of a PEPRA specified defined benefit formula or a
hybrid pension plan with a lower cost defined benefit
component and a defined contribution component. This plan
is consistent with the PEPRA principle of reducing agency
pension costs and is permissible as long as certain
AB 284 (Brough) Page 5 of ?
conditions are met.