BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON
          PUBLIC EMPLOYMENT AND RETIREMENT
                               Dr. Richard Pan, Chair
                                2015 - 2016  Regular 

          Bill No:            AB 1853         Hearing Date:     6/27/16
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          |Author:    |Cooper                                               |
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          |Version:   |6/20/16    As amended                                |
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          |Urgency:   |No                     |Fiscal:    |No               |
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          |Consultant:|Pamela Schneider                                     |
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          Subject:  1937 Act County employees' retirement:  districts:   
          retirement system independent governance

            SOURCE:  State Association of County Retirement Systems
          
            ASSEMBLY VOTES:
          
          
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          |Assembly Floor:                 |45 - 21                         |
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          |Assembly Public Employees,      |4 - 0                           |
          |Retirement/Soc Sec Committee:   |                                |
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           DIGEST:    This bill authorizes the retirement boards that  
          govern the retirement systems operating under the County  
          Employees' Retirement Law of 1937 ('37 Act) to elect to be  
          independent districts separate from the counties they are  
          operating in.

          ANALYSIS:
          
          Existing law:
          
          1)Establishes the '37 Act which governs 20 independent county  
            retirement associations.









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          2)Defines specified districts formed under the law of the state,  
            located wholly or partially within a county, and states that  
            these districts are public employers whose employees are  
            eligible to participate in their respective '37 Act county  
            retirement associations.


          3)In general, allows the retirement systems to hire and fire  
            their employees but identifies employees of the retirement  
            systems as county employees who are subject to the same  
            benefits as county employees and who are compensated by the  
            county.


          4)Gives Orange, San Bernardino, Contra Costa, and Ventura county  
            retirement systems authority to be independent districts  
            within their respective retirement associations and the  
            statutory employers for purposes of determining specified  
            employees' compensation and benefits, as specified.


          5)Provides in Orange, San Bernardino, and Ventura county  
            retirement systems that certain of the retirement systems'  
            employees are retirement system district employees and that  
            the rest of the retirement system employees are county  
            employees.  In San Bernardino's case, almost all employees are  
            district employees.


          6)Provides in Contra Costa County that all of the retirement  
            system employees are retirement system district employees and  
            makes represented employees subject to the Myers Milias Brown  
            Act, which governs collective bargaining for local public  
            employees.


          7)Establishes the Public Employees' Pension Reform Act (PEPRA),  
            which requires, as of January 1, 2013, comprehensive and  
            statewide reform for the state's public pension systems and  
            plans and public employers and employees. PEPRA created new  
            benefit formulas and requirements for new public employees  
            hired on or after January 1, 2013.


          8)Provides, under the provisions of PEPRA, '37 Act retirement  








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            boards with more independence to perform audits and assess  
            penalties relating to pension spiking.


          This bill:

          1)Includes in the definition of "district" any '37 Act  
            retirement system whose board elects, by resolution, to be an  
            independent district under the law.


          2)Authorizes a retirement system board to adopt specified  
            administrative provisions that would classify various  
            personnel of the retirement system as employees of the  
            retirement system and not employees of the county.


          3)Allows employees to determine if they want to be retirement  
            system district employees (instead of county employees).  If  
            they so determine, they or their official representative may  
            advise the retirement system in writing of their choices and  
            become district employees.


          4)Specifies that a choice to become a retirement system district  
            employee is irrevocable and that thereafter the employee and  
            future employees in his or her position shall be district  
            employees.


          5)Prescribes requirements related to compensation, employment  
            classifications and status, and retirement and health  
            benefits, for employees who would move from being county  
            employees to being retirement system employees.


          6)Prescribes requirements regarding labor negotiations and the  
            continuity of labor agreements for these employees.


          7)Specifies that county employees who were not subject to the  
            California Public Employees' Pension Reform Act of 2103  
            (PEPRA) prior to becoming a retirement system employee will  
            maintain their non-PEPRA status.









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          8)Requires that former county employees that become retirement  
            system district employees shall be allowed to continue to  
            participate in county health plans' life insurance, workers  
            compensation, and deferred compensation programs under the  
            same terms and conditions applicable to county employees, and  
            that the retirement system employer shall provide the employer  
            costs and reasonable administrative expenses for that  
            participation.  Such participation shall not create a  
            collective bargaining obligation between the county and the  
            retirement system district employees.


          9)Requires that the county cooperate fully and act in a timely  
            manner to implement and accomplish the objectives of these  
            provisions when a retirement system resolves to become an  
            independent district.


          10)Provides that the compensation for retirement system  
            employees adopting these provisions will be treated as an  
            expense of administration of the retirement system, as  
            specified.


          Background

          Currently, 4 of the 20 1937 Act county retirement systems have  
          established independence by becoming independent districts  
          within their retirement associations.  In each case, the  
          retirement systems and counties jointly sponsored legislation to  
          separate the retirement systems from their respective counties.

          Each has a somewhat different administrative arrangement with  
          either all or most of the employees being retirement system  
          district employees (Contra Costa with all and San Bernardino  
          with most), or with only specified personnel being district  
          employees and the remainder continuing to be county employees  
          (Orange and Ventura).

          In general, each retirement system is governed by a board of  
          retirement consisting of 9 members:  the county treasurer, 4  
          members appointed by the county board of supervisors, and 4  
          members elected from the membership. In addition, there are  
          alternates for the elected members that may serve in case of  








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          their absence. 

          Related/Prior Legislation
          
          AB 1291 (Williams, Chapter 223, Statutes of 2015) made the  
          Ventura County Retirement System an independent, public employer  
          district within the Ventura County Employees' Retirement  
          Association and authorized the System to appoint specified  
          positions as "at will" employees, exempt from the county civil  
          service system, as specified.

          SB 673 (DeSaulnier, Chapter 244, Statutes of 2013) made Contra  
          Costa County Retirement System an independent district of the  
          Contra Costa County Employees' Retirement Association and made  
          all personnel employees of the retirement system.

          SB 777 (Soto, Chapter 369, Statutes of 2006) made San Bernardino  
          County Retirement System an independent district of the San  
          Bernardino County  Employees' Retirement Association and made  
          certain specified personnel employees of the retirement system.

          AB 1992 (Correa, Chapter 74, Statutes of 2002) made Orange  
          County Retirement System an independent district of the Orange  
          County Employees' Retirement Association and made certain  
          specified personnel employees of the retirement system.  These  
          positions include an administrator, an assistant administrator,  
          a chief investment officer, senior management employees next in  
          line of authority to the chief investment officer, subordinate  
          administrators, senior management employees next in line to  
          subordinate administrators, and legal counsel.

          FISCAL EFFECT:                 Appropriation:  No    Fiscal  
          Com.:             No           Local:          No


          There has been no fiscal analysis of this bill.
          
          SUPPORT:

          State Association of County Retirement Systems (source)
          Peace Officers Research Association of California

          OPPOSITION:

          California State Association of Counties








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          Los Angeles County Board of Supervisors
          Rural County Representatives of California
          Sacramento County Board of Supervisors
          San Joaquin County Board of Supervisors
          Urban Counties of California

          ARGUMENTS IN SUPPORT:    


          According to the sponsor:

               AB 1853 would give the 1937 Act retirement boards the  
               optional authority to vote to be the direct employer of  
               personnel working for the system based on one of three  
               existing statutory frameworks already approved for use by  
               the Legislature.  The three model frameworks exist for  
               Orange County Employee Retirement System (OCERS), San  
               Bernardino County Employee Retirement Association (SBCERA),  
               and the Contra Costa County Employee Retirement Association  
               (CCCERA).

               County retirement systems are much larger and more complex  
               than when they were established in the years following  
               passage of the 1937 Act.  Unfortunately, the legacy  
               operating authority structure under the 1937 Act has  
               largely failed to keep up with these developments.  Over  
               time, key personnel at the retirement system were  
               designated as employees of the system, with the retirement  
               board setting the terms and conditions of employment, but  
               the implementation of those decisions continues to require  
               action by the Board of Supervisors.  Similarly, broader  
               decisions regarding staffing levels, staff structure, job  
               descriptions and duties, and compensation made in the first  
               instance by the retirement board continue to require  
               implementation by the Board of Supervisors.  In some cases,  
               this has resulted in the fiduciary decisions of the  
               retirement board not being implemented, complicating the  
               ability of the retirement system to carry out its duties.

               Given this situation, individual 1937 Act systems began  
               efforts to gain a more modernized operating authority  
               structure via individual legislative bills to allow their  
               systems to be the direct employer of their employees.
          
               AB 1853 removes the need for pursuing ongoing piecemeal  








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               modernization of operating authority by putting in place a  
               standing mechanism for systems to adopt.  The bill would  
               continue to protect the rights of the retirement personnel  
               that would shift from county employment to system  
               employment and the governing structure of the boards would  
               not change.  This bill will bring a needed level of system  
               autonomy while maintaining all transparency, budgeting  
               accountability, and fiduciary responsibility.

          ARGUMENTS IN OPPOSITION:    

          Kern County is opposed to the bill unless amended, stating, "To  
          date, retirement districts formed in '37 Act counties have been  
          formed by separate legislation with the mutual consent of the  
          retirement board and the board of supervisors in each county.   
          However, AB 1853 would authorize any '37 Act county employee  
          retirement board to unilaterally form a district without the  
          consent of the board of supervisors."

          "Unless a board of supervisors elects by adopted resolution to  
          do so, Kern County cannot support unilaterally removing the  
          authority to manage employees from a county while a county  
          retains most of the financial responsibility for pay and  
          benefits."

          Additionally, opponents have raised concerns around the removal  
          of local control by not requiring each retirement system to  
          individually pursue legislation to establish the different  
          structure where a thorough analysis of the effects of the change  
          can take place.

          Opponents also state that, "?while administrative costs for the  
          retirement systems are capped in statute, nonetheless, a lack of  
          review or oversight by the county Board of Supervisors regarding  
          the hiring, pay and benefits of employees and the increase in  
          system administrative costs that would be incurred by the county  
          is problematic."

          Finally, opponents raise issues around the provision of health  
          care benefits for employees of the retirement systems. They note  
          that "many health plans either do not offer or must approve  
          coverage to those who are not actual employees of the  
          contracting entity.  The language of AB 1853 seems to imply that  
          employees transferred to the county retirement systems must be  
          offered coverage under the county plans for health care and  








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          other benefits; this could pose major administrative problems  
          for both counties and the employees."