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 ----------------------------------------------------------------- |Author: |Cooper | |-----------+-----------------------------------------------------| |Version: |6/20/16 As amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |No | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Pamela Schneider | | | | ----------------------------------------------------------------- Subject: 1937 Act County employees' retirement: districts: retirement system independent governance SOURCE: State Association of County Retirement Systems ASSEMBLY VOTES: ----------------------------------------------------------------- |Assembly Floor: |45 - 21 | |--------------------------------+--------------------------------| |Assembly Public Employees, |4 - 0 | |Retirement/Soc Sec Committee: | | ----------------------------------------------------------------- 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. AB 1853 (Cooper) Page 2 of ? 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 AB 1853 (Cooper) Page 3 of ? 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. AB 1853 (Cooper) Page 4 of ? 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 AB 1853 (Cooper) Page 5 of ? 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 AB 1853 (Cooper) Page 6 of ? 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 AB 1853 (Cooper) Page 7 of ? 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 AB 1853 (Cooper) Page 8 of ? other benefits; this could pose major administrative problems for both counties and the employees."