BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 2375| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 2375 Author: Committee on Public Employees, Retirement, and Social Security Amended: 6/20/16 in Senate Vote: 21 SENATE PUBLIC EMP. & RET. COMMITTEE: 5-0, 6/27/16 AYES: Pan, Morrell, Beall, Hall, Moorlach SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 76-0, 5/19/16 (Consent) - See last page for vote SUBJECT: Public Employees' Retirement System: omnibus bill SOURCE: California Public Employees' Retirement System DIGEST: This bill is the annual CalPERS housekeeping bill which makes various technical and non-controversial changes to statutory provisions governing the California Public Employees' Retirement System (CalPERS) to maintain and ensure effective administration of the system. ANALYSIS: Existing law: 1)CalPERS University and School Member Reduced Workload Program (Ed Code 87486 and GC 20900) Allows an academic or certificated California State University AB 2375 Page 2 (CSU), school district, or community college district member to reduce workload from full-time to part-time and maintain retirement benefits, as specified. The member must not be older than 70 years and is limited to a period of five years of part-time status. The program allows the member to work part-time but receive service credit and have the retirement allowance calculated as if the member had worked full-time provided that the member and the employer both elect to contribute to the retirement fund the amount that would have been contributed if the member were employed on a full-time basis. 2)Public Retirement System Actuary Qualifications (GC 7502, 7504, 7505, and 7507.2) Defines an enrolled actuary to mean an actuary enrolled under subtitle C of Title III of the federal Employee Retirement Income Security Act of 1974 (ERISA) and prescribes that certain actions, as specified, require the services of an enrolled actuary or that membership on certain advisory committees shall include enrolled actuaries. Under ERISA, an enrolled actuary is an actuary who has been licensed by a Joint Board of the Department of the Treasury and the Department of Labor for the Enrollment of Actuaries to perform a variety of actuarial tasks required of U.S. pension plans. The Joint Board administers two examinations to prospective enrolled actuaries. Once the two examinations have been passed, and an individual has also obtained sufficient relevant professional experience, that individual becomes an enrolled actuary. 3)Clarification of Final Compensation for Concurrent Retirement (GC 20034 and 20638) Requires CalPERS to consider a member's average monthly salary during any period of service as a member of the University of California retirement system or a County Employees Retirement Act of 1937 ('37 Act) retirement system as compensation earnable for purposes of computing final compensation for the member provided the member retires concurrently under both CalPERS and the other system and is credited with the period of service under the other system at the time of retirement. AB 2375 Page 3 4)Elimination of Member's Ability to Designate Final Compensation Period (GC 20035, 20035.5, 20037, and 20037.5 through 20037.15) Defines "final compensation" for the purposes of determining any CalPERS pension or benefit generally to mean the highest annual compensation which was earnable by the member during the consecutive 12-month or 36-month period of employment immediately preceding the member's effective retirement date or last separation from service, if earlier, or during any other period of 12 or 36 consecutive months during membership in CalPERS that the member designates on the application for retirement. 5)California Actuarial Advisory Panel Report - Biennial Instead of Annual Presentation (GC 20229) Requires the CalPERS board to provide the Legislature, the Governor, and the Chair of the California Actuarial Advisory Panel (CAAP) an annual report, as specified, related to state employee retirement plans and requires the CAAP Chair to provide a presentation regarding the report within 30 days of its receipt to a publicly noticed joint hearing of the Senate Committee on Public Employment and Retirement and the Assembly Committee on Public Employees, Retirement, and Social Security. 6)Interest Charges and Penalty Assessments for Non-Payment of Contributions (GC 20537 and 20572) Authorizes CalPERS to charge interest at the actuarial interest rate on the amount of any payment due and unpaid by a contracting agency until payment is received. Permits CalPERS to terminate a contract with a contracting agency if the agency fails to pay any installment of contributions required by its contract 30 days after a demand by the board or fails for three months to provide required information to CalPERS. Allows CalPERS to assess a contracting agency interest at an annual rate of 10 percent and the costs of collection, including reasonable legal fees, when necessary to collect the amounts due, if the agency fails to remit the contributions when due. CalPERS may assess the contracting agency a penalty of 10 percent of the delinquent amount. In the case of AB 2375 Page 4 repeated delinquencies the penalty may be assessed once during each 30-day period that the amount remains unpaid. 7)Terminated Agency Pool - Reduction of Member Benefits (GC 20577.5 and 20578) Authorizes CalPERS to merge a plan that has been terminated into the Terminated Agency Pool (TAP) if the board has made all reasonable efforts to collect the amount necessary to fully fund the liabilities of the plan and the board finds that the merger of the plan into TAP without benefit reduction will not impact the actuarial soundness of TAP. Requires benefits to be reduced proportionally prior to the transfer of assets to TAP if the amount of the terminating agency's assets are less than the actuarial equivalent of the amount CalPERS will be obligated to pay to persons who are or were employed by the terminating agency and the agency fails to pay the difference. 8)Conversion of Unused Sick Leave or Educational Leave to Service Credit (GC 20963, 20963.1, and 20965) Provides that CalPERS members, as specified, whose effective date of retirement is within four months of separation from employment, shall be credited at retirement with 0.004 (i.e., 8 hours) year of service credit for each unused day of sick leave or educational leave certified to the board by the employer. 9)Interest on Late Payments of Death Benefits (GC 21499) Requires CalPERS to authorize to the Controller the initial payment of a preretirement or postretirement death allowance or a preretirement or postretirement lump-sum benefit of ten dollars ($10) or more within 45 days of receipt of all necessary information. Provides that if any death benefit payment is not made within the allocated time, the payment shall also include interest at the greater of the 6 percent compounded interest crediting rate or the net earnings rate in effect at the time the payment is made for the time payment was delayed. 10)Definition of Domestic Partner for Post-Retirement Survivor AB 2375 Page 5 Allowance (GC 21626.5) Provides, upon the death of a retired member, a retirement benefit allowance to the member's surviving spouse and treats a surviving domestic partner in the same manner as a surviving spouse, as specified. 11)Firefighter/ Peace Officer Death Notification (GC 22820) Requires the employer of a deceased firefighter or peace officer member to notify CalPERS within 10 business days of the member's death if the member has a spouse or family member who may be eligible for enrollment in a CalPERS health benefit plan. This bill: 1)CalPERS University and School Member Reduced Workload Program (Ed Code 87486 and GC 20900) Corrects an erroneous statutory reference in the Education Code to the correct section of the Government Code authorizing the CalPERS reduced workload program for CSU, school district, and community college members and clarifies and makes consistent the eligibility requirements for participation in the program. 2)Public Retirement System Actuary Qualifications (GC 7502, 7504, 7505, and 7507.2) Eliminates the requirement that actuaries be enrolled by the Joint Board of the U.S. Department of the Treasury and the Department of Labor and instead requires that actuaries performing duties required, as specified, shall have attained the designation of Associate or Fellow of the Society of Actuaries and have demonstrated experience with public sector clients. 3)Clarification of Final Compensation for Concurrent Retirement (GC 20034 and 20638) Clarifies that when a CalPERS member applies for concurrent retirement using the final compensation earnable under the University of California Retirement System or a 1937 Act AB 2375 Page 6 County Retirement System the final compensation is based on the member's highest annual average compensation during any consecutive 12 or 36 month period. 4)Elimination of Member's Ability to Designate Final Compensation Period (GC 20035, 20035.5, 20037, and 20037.5 through 20037.15) Clarifies that final compensation means the highest annual compensation which was earnable by the member during any consecutive 12-month or 36-month period of employment and eliminates language that allows a member to designate his or her highest final compensation period because the my|CalPERS system now automatically searches payroll records for a member's highest final compensation period when calculating retirement benefits. 5)California Actuarial Advisory Panel Report - Biennial Instead of Annual Presentation (GC 20229) Eliminates the requirement that the CAAP Chair make a presentation of the annual CAAP report to a publicly noticed joint hearing of the Senate Committee on Public Employment and Retirement and the Assembly Committee on Public Employees, Retirement, and Social Security within 30 days of receiving the report from the CalPERS board and instead requires the presentation be made at the beginning of each legislative session. 6)Interest Charges and Penalty Assessments for Non-Payment of Contributions (GC 20537 and 20572) Authorizes, instead of the actuarial interest rate, CalPERS to charge contracting agencies that do not pay their contributions in a timely manner the greater of either the annual return on the system's investments for the year prior to the year in which payments are not timely made or a simple annual rate of 10 percent. Clarifies that the penalty assessment on a contract agency that is more than three months delinquent in paying contributions is in addition to the amount of interest charged on the agency's overdue outstanding contributions. Provides that the contracting agency may be assessed the costs of AB 2375 Page 7 collection, including reasonable legal fees and litigation costs, including, without limitation, legal fees and legal costs incurred in bankruptcy, when necessary to collect any amounts due. 7)Terminated Agency Pool - Reduction of Member Benefits (GC 20577.5 and 20578) Authorizes the board to elect not to impose a reduction, or to impose a lesser reduction, on a plan that has been terminated if the board has made all reasonable efforts to collect the amount necessary to fully fund the liabilities of the plan and the board finds that not reducing the benefits, or imposing a lesser reduction will not impact the actuarial soundness of TAP. Eliminates the requirement that CalPERS reduce benefits for employees of a terminating agency prior to the transfer of assets to TAP if the amount of the terminating agency's assets are less than the actuarial equivalent of the amount required to pay the benefits and the agency fails to pay the difference. Thus, CalPERS will be authorized to reduce the employees' benefits only after the plan has been placed in TAP and the employer fails to remit the contributions necessary to fully fund the plan's liabilities. 8)Conversion of Unused Sick Leave or Education Leave to Service Credit (GC 20963, 20963.1, and 20965) Clarifies that for purposes of converting unused sick leave or educational leave to service credit, a day of unused sick leave or educational leave is deemed to be the equivalent of an eight-hour day. 9)Interest on Late Payments of Death Benefits (GC 21499) Changes the interest rate to be paid on delayed payments of death benefits from either 6% or the net earnings rate in effect at the time of payment minus expenses, whichever is greater, to a fixed rate of 7% per annum simple (non-compounding) interest to ensure consistency in the payment of death benefits and reduce CalPERS administrative costs. AB 2375 Page 8 10)Definition of Domestic Partner for Post-Retirement Survivor Allowance (GC 21626.5) Authorizes the post-retirement survivor allowance to same-sex married couples who never entered into a registered domestic partnership and who retired before it was legally possible to marry their same-sex spouse so long as they sign an affidavit that they would have met the conditions had same-sex marriage been legal at the time of their retirement. 11)Firefighter/ Peace Officer Death Notification (GC 22820) Requires the employer of a deceased firefighter or peace officer member when notifying CalPERS of the member's death to also provide any updated contact information of the surviving spouse or family member if that spouse or family member may be eligible for enrollment in a CalPERS health benefit plan. Related/Prior Legislation SB 216 (Pan, Chapter 244, Statutes of 2015) served as CalPERS' annual housekeeping bill and made technical and non-controversial changes to the Government Code governing CalPERS. AB 2472 (Assembly Committee on Public Employees, Retirement, and Social Security, Chapter 237, Statutes of 2014) served as CalPERS' annual housekeeping bill and made technical and non-controversial changes to the Government Code governing CalPERS. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified8/2/16) California Public Employees' Retirement System (source) California State Controller Betty Yee AB 2375 Page 9 OPPOSITION: (Verified8/2/16) None received ARGUMENTS IN SUPPORT: According to the sponsor, this bill will "ensure the statutes administered by CalPERS are as clear and unambiguous as possible." According to the State Controller, the bill distinguishes "the requirements of actuaries performing professional services for state or local public retirement plans from those serving in a general advisory capacity, and would more appropriately define those actuaries who are qualified to serve the public sector." ASSEMBLY FLOOR: 76-0, 5/19/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Wood, Rendon NO VOTE RECORDED: Chang, Mathis, McCarty, Williams Prepared by:Glenn Miles / P.E. & R. / (916) 651-1519 8/3/16 18:36:26 **** END ****