BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 1640|
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                                   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:









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          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:







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             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.







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          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  







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          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  







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          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.








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          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


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