BILL ANALYSIS Ó SENATE COMMITTEE ON APPROPRIATIONS Senator Ricardo Lara, Chair 2015 - 2016 Regular Session AB 1640 (Mark Stone) - Retirement: public employees ----------------------------------------------------------------- | | | | | | ----------------------------------------------------------------- |--------------------------------+--------------------------------| | | | |Version: June 20, 2016 |Policy Vote: P.E. & R. 3 - 0 | | | | |--------------------------------+--------------------------------| | | | |Urgency: No |Mandate: No | | | | |--------------------------------+--------------------------------| | | | |Hearing Date: August 1, 2016 |Consultant: Robert Ingenito | | | | ----------------------------------------------------------------- This bill does not meet the criteria for referral to the Suspense File. Bill Summary: AB 1640 would permanently exempt specified public transit workers represented in collective bargaining (who first became members of a public retirement system between January 1, 2013 and December 29, 2014), from the provisions of the Public Employees Pension Reform Act of 2013 (PEPRA). Fiscal Impact: One-time administrative costs of approximately $65,000 to CalPERS to implement system changes and data corrections. Background: In 2012, the state adopted PEPRA, which reduced retirement AB 1640 (Mark Stone) Page 1 of ? benefits for public employees who first became retirement system members on or after January 1, 2013. In 2013, labor unions representing public transit employees began asserting to the U.S. Department of Labor (DOL) that PEPRA impairs pension benefits contained in existing collective bargaining agreements and restricts collective bargaining rights, in violation of the protections in Section 13(c) of the Federal Transit Act. Under federal transit law, DOL can prevent the U.S. Department of Transportation from distributing grants until it certifies that labor agreements preserve collective bargaining rights. In 2013, DOL withheld certification of a federal grant to the Sacramento Regional Transit District, which in turn brought an action in federal court to challenge the DOL determination. That case was decided in December of 2014. The federal court of appeals ruled that DOL had erred in its determination that PEPRA precludes certification of transit funds. While the case was ongoing, transit workers were exempted from PEPRA until either the federal court issued a decision or January 1, 2016, whichever occurred sooner. If the court had sided with DOL, the statute requires the transit workers to be permanently excluded from PEPRA. If the court ruled that DOL erred in its determination, the statute requires that the workers become subject to PEPRA. Thus, when the court determined that DOL had erred in its determination, CalPERS made formerly exempt transit employees subject to PEPRA. These employees (1,431 employees from 36 CalPERS employers, according to CalPERS) were reclassified as PEPRA members following the federal ruling on December 30, 2014. Therefore, the affected employees will receive "classic" benefits for the period of time from January 1, 2013 until December 30, 2014, and PEPRA benefits from that time period forward. At the present time, DOL has appealed the findings of the district court and the case is ongoing. AB 1640 (Mark Stone) Page 2 of ? Proposed Law: This bill would reinstate and extend indefinitely the former exemption from PEPRA for certain public transit workers whose collective bargaining rights are protected under Section 13(c) of the Federal Transit Law and who became members of a state or local public retirement system prior to December 30, 2014. (These are the newly hired transit workers who would otherwise have been subject to PEPRA, exempted from January 1, 2013 to December 30, 2014, pending the federal district court ruling.) Related Legislation: SB 292 (Pan, 2015) sought to exempt public workers in specified cities from the PEPRA requirement that employees pay one-half of the normal cost of their benefit plans in member contributions, based on dedicated tax revenues in those districts for pension costs. The bill was vetoed by the Governor. Staff Comments: The Assembly Public Employees Retirement and Social Security Committee indicates that the only 1937 Act County Retirement System that has transit worker members is the Orange County Employees Retirement System (OCERS). According to the information provided, approximately 170 public transit workers were hired during the exemption period (January 1, 2013 to December 30, 2014), and in August of 2015, OCERS determined, based on its reading of the exemption, that those members would be permanently exempted from PEPRA. The bill, while having a minimal fiscal impact to the State, could result in an unknown but potentially significant erosion of projected PEPRA savings at the local level. -- END --