BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 1853|
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                                   THIRD READING 


          Bill No:  AB 1853
          Author:   Cooper (D) 
          Amended:  6/20/16 in Senate
          Vote:     21 

           SENATE PUBLIC EMP. & RET. COMMITTEE:  4-1, 6/27/16
           AYES:  Pan, Beall, Hall, Moorlach
           NOES:  Morrell

           ASSEMBLY FLOOR:  45-21, 5/31/16 - See last page for vote

           SUBJECT:   County employees retirement:  districts:  retirement  
                     system governance


          SOURCE:    State Association of County Retirement Systems
           
           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) Allows, in general, 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.








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







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             PEPRA prior to becoming a retirement system employee will  
             maintain their non-PEPRA status.


           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, four of the 20 '37 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).







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


          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.









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


          SUPPORT:   (Verified6/28/16)


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


          OPPOSITION:   (Verified6/28/16)


          California State Association of Counties
          Fresno County Board of Supervisors
          Kern County Board of Supervisors
          Los Angeles County Board of Supervisors
          Rural County Representatives of California
          Sacramento County Board of Supervisors
          San Joaquin County Board of Supervisors
          Santa Barbara County Board of Supervisors
          Urban Counties of California

          ARGUMENTS IN SUPPORT:   According to the sponsor, State  
          Association of County Retirement Systems:

            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 systems were designated as employees of the  







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            systems, 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  
            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 Board of Supervisors 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  







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


          ASSEMBLY FLOOR:  45-21, 5/31/16
          AYES:  Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown,  
            Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu,  
            Cooper, Dababneh, Dodd, Eggman, Frazier, Eduardo Garcia,  
            Gomez, Holden, Irwin, Jones, Jones-Sawyer, Levine, Low, Mayes,  
            Melendez, Mullin, Nazarian, O'Donnell, Olsen, Quirk,  
            Ridley-Thomas, Rodriguez, Santiago, Mark Stone, Thurmond,  
            Ting, Wagner, Waldron, Wood, Rendon
          NOES:  Achadjian, Travis Allen, Baker, Bigelow, Brough, Cooley,  
            Dahle, Beth Gaines, Gallagher, Gatto, Gordon, Grove, Hadley,  
            Harper, Lackey, Lopez, Maienschein, McCarty, Obernolte, Salas,  
            Wilk
          NO VOTE RECORDED:  Daly, Cristina Garcia, Gipson, Gonzalez,  
            Gray, Roger Hernández, Kim, Linder, Mathis, Medina, Patterson,  
            Steinorth, Weber, Williams


          Prepared by:Pamela Schneider / P.E. & R. / (916) 651-1519
          6/29/16 15:56:11








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