BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          AB 1640 (Mark Stone) - Retirement:  public employees
          
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          |Version: June 20, 2016          |Policy Vote: P.E. & R. 3 - 0    |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: August 1, 2016    |Consultant: Robert Ingenito     |
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          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  







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          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.












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          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. 




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