BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1640| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1640 Author: Mark Stone (D) Amended: 6/20/16 in Senate Vote: 21 SENATE PUBLIC EMP. & RET. COMMITTEE: 3-0, 6/27/16 AYES: Pan, Beall, Hall NO VOTE RECORDED: Morrell, Moorlach SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/1/16 AYES: Lara, Beall, Hill, McGuire, Mendoza NOES: Bates, Nielsen ASSEMBLY FLOOR: 53-26, 4/28/16 - See last page for vote SUBJECT: Retirement: public employees SOURCE: Santa Clara Valley Transportation Authority DIGEST: This bill permanently exempts a specific group of public transit workers from being subject to the California Public Employees' Pension Reform Act of 2013 (PEPRA). These employees were previously temporarily exempted pending a ruling from the federal district court with regard to whether or not the implementation of PEPRA and its perceived impact on collective bargaining rights precluded certification of certain transit projects and related federal funding. ANALYSIS: Existing federal law: AB 1640 Page 2 1)Protects the collective bargaining rights of specified transit workers employed in certain transit agencies and districts that were, mostly in the 1960s through the 1970s, converted from private to public agencies. Many such agencies are now included in the California Public Employees' Retirement System (CalPERS) or the Orange County Employees' Retirement System (OCERS), a 1937 Act retirement system. 2)Requires, under Section 13(c) of the Federal Transit Law, that these employee protections, commonly referred to as "protective arrangements" or "Section 13(c) arrangements," must be certified by the United States Department of Labor (US DOL) and in place before federal transit funds can be released to a mass transit employer subject to the Federal Transit Law. Section 13(c) requires, among other things, the continuation of collective bargaining rights, and protection of transit employees' wages, working conditions, pension benefits, seniority, vacation, sick and personal leave, travel passes, and other conditions of employment. 3)Allows the US DOL to determine if the collective bargaining rights of an employee group protected under a 13(c) arrangement have been impaired, and if so determined, to stop the flow of federal transportation funding until such time as the those rights have been restored. 4)Allows an employer to appeal the US DOL decision to the federal court of appeals. The federal court of appeals may then determine whether or not the US DOL erred in its decision. Existing state law: 1)Implements comprehensive public employee pension reform through enactment of PEPRA (and related statutory changes) that apply to all public employers (including public transit agencies) 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)Changes, under PEPRA, the retirement benefit plans that may be offered to new public employees, including: AB 1640 Page 3 a) Establishing uniform retirement formulas, including a 2% at age 62 formula for non-safety workers; 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 ($118,500 in 2016); and e) Restricting the pay items that may be included in pensionable compensation. 3)Protects the vested benefits of workers employed prior to the implementation of PEPRA. These employees are subject to benefit plans in place prior to the implementation of PEPRA. 4)Specifies, with some exceptions, that the PEPRA requirements (including those listed above) are applicable to new retirement plan members who first become members on and after January 1, 2013. 5)Makes an exemption to PEPRA for employees who are covered by federal 13(c) arrangements until either of the following occur: a) A federal district court rules that the United States Secretary of Labor (or his or her designee) erred in determining that application of PEPRA precludes certification of federal transit funding; or b) January 1, 2016, whichever is sooner. 6)Requires that, following either of the above conditions, whichever occurring sooner, the retirement systems discontinue exempting transit workers who would otherwise have been subject to PEPRA. 7)States that if the federal district court upholds the US DOL determination, then affected transit employees shall be permanently exempted from PEPRA. AB 1640 Page 4 8)Ensures the rights of all represented public employees, including transit workers, to collectively bargain over issues impacting the wages and working conditions of the employees. These rights apply regardless of whether or not the employee is subject to PEPRA. This bill reinstates and extends 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.) Background In 2012, the state adopted PEPRA, which became effective on January 1, 2013. In 2013, labor unions representing public transit employees began asserting to the US 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. In response, in 2013 the US 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 US DOL determination. That case was decided in December of 2014. The federal court of appeals ruled that the US 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 US DOL, the statute requires the transit workers to be permanently excluded from PEPRA. If the court ruled that US DOL erred in its determination, the statute requires that the workers become subject to PEPRA. Accordingly, when the court determined that US DOL had erred in its determination, CalPERS made formerly exempt transit AB 1640 Page 5 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, US DOL has appealed the findings of the district court and the case is ongoing. Finally, according to the Assembly Public Employees Retirement and Social Security Committee, the only 1937 Act County Retirement System that has transit worker members is OCERS. According to the information provided, approximately 170 public transit workers were hired during the exemption period (i.e., 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. Related/Prior 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. Vetoed by the Governor who stated, "The employee share-of-cost is a crucial standard that must be retained. I am unwilling to chip away at this reform." AB 1783 (Jones Sawyer, Chapter 724, Statutes of 2014) extended the January 1, 2015, date established in AB 1222 (Bloom, 2013) until January 1, 2016. AB 837 (Wieckowski, 2014) would have created an exemption to PEPRA for seven judges who were elected prior to implementation of PEPRA but who assumed office after PEPRA became effective. Vetoed by the Governor who stated, "This measure creates an exemption to the California Public Employees' Pension Reform Act of 2013. I am unwilling to begin chipping away at these reforms." AB 1222 (Bloom, Chapter 527, Statutes of 2013) created the AB 1640 Page 6 exemption for transit workers subject to Section 13(c) protections. The bill made the exemption effective until the sooner of either the federal court decision or January 1, 2015. AB 340 (Furutani, Chapter 296, Statutes of 2012) enacted PEPRA. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Senate Appropriations Committee, this bill results in one-time administrative costs of approximately $65,000 to CalPERS to implement system changes and data corrections. SUPPORT: (Verified8/2/16) Santa Clara Valley Transportation Authority (source) California Conference Board of the Amalgamated Transit Union California Teamsters Public Affairs Council California Transit Association Monterey-Salinas Transit Peninsula Corridor Joint Powers Board San Mateo County Transit District San Mateo County Transportation Authority OPPOSITION: (Verified8/2/16) None received ARGUMENTS IN SUPPORT: The sponsor states that the current statute is being interpreted inconsistently. CalPERS has converted affected transit workers to PEPRA membership as of December 30, 2014, while OCERS members and employees in independent transit agency retirement systems are being treated as permanently exempt from PEPRA so long as they were hired during the January 1, 2013, to December 30, 2014 timeframe. AB 1640 Page 7 Furthermore, the sponsor believes that the statute is unclear and that some transit workers hired during the exemption period may have believed that their PEPRA exemption would be permanent. "Thus we have a situation where public transit workers hired while the AB 1222 exemption was in place are being treated differently depending on which agency employs them, which raises a question of fairness." "AB 1640 would end the ambiguity and confusion regarding application of PEPRA to these employees. It would ensure that all employees hired by public transit agencies while the AB 1222 exemption was in place are being treated fairly and in the same manner, regardless of which agency they work for and which retirement system their agency uses." ASSEMBLY FLOOR: 53-26, 4/28/16 AYES: Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown, Burke, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin, Jones-Sawyer, Lackey, Linder, Lopez, Low, McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Waldron, Weber, Williams, Wood, Rendon NOES: Achadjian, Travis Allen, Baker, Bigelow, Brough, Chang, Chávez, Dahle, Beth Gaines, Gallagher, Grove, Hadley, Harper, Jones, Kim, Levine, Maienschein, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Wilk NO VOTE RECORDED: Daly Prepared by:Pamela Schneider / P.E. & R. / (916) 651-1519 8/3/16 18:49:53 **** END ****