BILL ANALYSIS Ó AB 2468 Page 1 Date of Hearing: April 20, 2016 ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL SECURITY Rob Bonta, Chair AB 2468 (Hadley) - As Introduced April 12, 2016 SUBJECT: Public Employees' Retirement System: contracting agencies: benefit formulas SUMMARY: Allows local contracting agencies of the California Public Employees' Retirement System (CalPERS) to offer an alternative retirement formula (2% at age 65) from that required by the Public Employees' Pension Reform Act (PEPRA) of 2013 (2% at age 62) to their miscellaneous employees first hired after January 1, 2017, if, among other things, it is agreed to in a memorandum of understanding, as specified. EXISTING LAW: 1)Creates comprehensive public employee pension reform through enactment of PEPRA, and related statutory changes, that apply to all public employers 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)Under PEPRA, changed the retirement benefit plans that may be AB 2468 Page 2 offered to new public employees, including, among other things: a) Establishing uniform retirement formulas, including a 2% at age 62 formula for non-safety workers and three formulas for safety employees - 2% at age 57; 2.5% at age 57; and, 2.7% at age 57. 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 be used to calculate a retirement benefit on for all new members of a public retirement system (currently $117,020 for employees who participate in Social Security or $140,424 for employees who do not participate in Social Security). This amount is adjusted annually based on changes in the Consumer Price Index (CPI) for all Urban Consumers. FISCAL EFFECT: Unknown. COMMENTS: According to the author, "Currently, non-safety miscellaneous employees of a CalPERS contracting agency can retire as early as 52 years old earning 1% of their highest salary per year served, and 2% at 62 years old, maxing out at 2.5% at 67. AB 2468 Page 3 "To attract talent, many municipalities began offering increasingly competitive retirement benefits to their new employees. Unfortunately this has result in significant unfunded pension liabilities for those cities and agencies. Many agencies now recognize the need to extend their menu of options when choosing retirement benefits for their new employees to offer more flexible benefits and to ensure their financial viability." "Assembly Bill 2468 will allow contracting agencies, on a permissive basis, to opt into increasing the base retirement age of newly hired employees to 55, allowing new members to retire with full benefits of 2% at 65 years old. New employees will be able to qualify for early retirement of 1% at age 55, earning an additional quarter of a percent increase with the maximum compensation calculation of 2.5% at 70 years old." The author concludes, "AB 2468 is permissive, and allows cities, counties and agencies that contract with CalPERS for their employees' retirement benefits, once approved through the collective bargaining process, to choose which retirement plans to offer." The opposition states, "While the new formula would have to be agreed to through collective bargaining, one of the benefits that we believed was being provided by PEPRA was uniformity in the benefits provided to new non-safety employees. AB 2468 Page 4 "PEPRA enacted many pension changes including: increasing retirement age, modifying pension formulas, and curbing abusive practices, in an effort to improve the future stability of public pension funds. These various reforms should be given time to be implemented before we make new changes to these benefits. This bill would run counter to the reforms already made in PEPRA. "This is an inferior formula that will not provide adequate benefits and provides no offsetting benefit to employees. No union has requested this option. It benefits only management." REGISTERED SUPPORT / OPPOSITION: Support None on file Opposition American Federation of State, County and Municipal Employees (AFSCME), AFL-CIO AB 2468 Page 5 California School Employees Association (CSEA), AFL-CIO LIUNA Locals 777 & 792 Los Angeles County Professional Peace Officers Association Organization of SMUD Employees San Diego County Court Employees Association San Luis Obispo County Employees Association Service Employees International Union (SEIU) Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916) 319-3957