BILL ANALYSIS                                                                                                                                                                                                    Ó



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

          Bill No:            SB 1162         Hearing Date:     4/11/16
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          |Author:    |Berryhill                                            |
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          |Version:   |3/30/16    As amended                                |
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          |Urgency:   |No                     |Fiscal:    |Yes              |
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          |Consultant:|Pamela Schneider                                     |
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          Subject:  Public employees' retirement: Mammoth Lakes Fire  
          District

            SOURCE: Author
           
           DIGEST:    This bill allows the Mammoth Lake Fire District  
          (MLFD) to request that the Board of the California Public  
          Employees' Retirement System (CalPERS) transfer available excess  
          assets from MLFD's miscellaneous employee plan to its safety  
          employee plan in order to pay unfunded accrued actuarial  
          obligations in the safety plan.

          ANALYSIS:
          
          Existing law:
          
          1)Allows a local public agency to contract with CalPERS for  
            retirement, death, disability, and health benefits for its  
            employees and retirees.

          2)Requires that the contributions made by the employer to  
            CalPERS to fund benefits be determined by actuarial  
            calculation, which may include both the normal cost of the  
            benefits and the cost of any unfunded accrued liability  
            relative to those benefits.

          3)Defines "normal cost" to be the portion of the present value  
            of projected benefits that is attributable to the current year  
            of service, as determined by the retirement system actuary.   







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            In general, normal cost is the actual cost to fund employees'  
            benefits in that year and does not include any additional  
            costs for unfunded accrued liability.

          4)Creates separate classes of membership in CalPERS, including  
            local safety members (such as police officers and  
            firefighters) and local miscellaneous members (i.e.,  
            non-safety personnel).

          5)Defines different benefits for safety vs. non-safety  
            personnel.  Therefore, the employer contribution rates and  
            retirement plans are different for each member classification.

          6)Requires, in the Public Employees' Pension Reform Act of 2013  
            (PEPRA), that the public employer's contributions, combined  
            with the employee's contributions, must annually pay the  
            normal cost of the pension benefits provided.  This  
            requirement may not be waived unless all of the following  
            occur:

             a)   The employer's benefit plan becomes funded by more than  
               120 percent.

             b)   The retirement system actuary determines that continuing  
               to accrue excess earnings could result in disqualification  
               of the plan's tax-exempt status under provisions of the  
               Internal Revenue Code.

             c)   The CalPERS board determines that continuing to accept  
               additional contributions would conflict with its fiduciary  
               duty as set forth in the California Constitution.

          7)Sets forth in the California Constitution the fiduciary  
            requirement that the retirement board discharge its duties  
            solely in the interest of, and for the exclusive purposes of  
            providing benefits to participants and their beneficiaries,  
            minimizing employer expenses, and defraying reasonable  
            expenses of administering the system.

          This bill:

          1)Allows MLFD to request that the CalPERS board transfer  
            available excess assets credited to MLFD's miscellaneous plan   
            in order to satisfy MLFD's unfunded accrued actuarial  
            obligations in its safety plan if both of the following are  








          SB 1162 (Berryhill)                                Page 3 of ?
          
          
            true:

             a)   The actuarially determined value of assets attributed to  
               the miscellaneous plan exceeds 200% of the accrued  
               actuarial liability.

             b)   The market value of assets attributed to the  
               miscellaneous plan exceeds 150% of the amount that is the  
               actuarial equivalent, including contingencies for mortality  
               fluctuations, of the amount CalPERS would be required to  
               pay for benefits for service attributed to the  
               miscellaneous plan if MLFD were to terminate its contract  
               with CalPERS for the miscellaneous plan.

          2)Upon request, requires the CalPERS board to transfer the  
            assets, which may only be used to pay for MLFD's unfunded  
            accrued actuarial obligations in its safety plan.

          3)Limits the amount that may be transferred to an amount that  
            does not exceed either of the following:

             a)   The difference between the actuarial value of assets  
               attributed to the MLFD's miscellaneous plan and the 200%  
               threshold described in (1) (a) above, and

             b)   The difference between the market value of assets  
               attributed to the MLFD's miscellaneous plan and the 150%  
               threshold described in (1) (b) above.

          4)Requires before requesting the CalPERS board to make the  
            transfer permitted by this bill that MDLF notify its employees  
            of the intended request in writing at least two weeks prior to  
            requesting the transfer of assets between the plans.

          5)Requires that MLFD submit a statement in writing to the  
            CalPERS board that MLFD has notified its employees as  
            required.

          6)Is an URGENCY statute in order to allow MLFD to redistribute  
            excess employer assets to address unfunded liability in the  
            safety plan to prevent layoffs, arrearage, and other  
            consequences of financial hardship.

          Background









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          For the past several years, MLFD has been communicating with  
          CalPERS, seeking the ability to transfer employer assets from  
          their overfunded miscellaneous plan to their underfunded safety  
          plan to help pay for the current unfunded actuarial obligations  
          of the safety plan.  In general, CalPERS law does not permit  
          such transfers.

          The 2014 actuarial valuation of MLFD reported that the  
          miscellaneous plan was 302% funded at that time.  The amount has  
          been increasing year over year.  MLFD has only one miscellaneous  
          employee.  In order to free employer monies in the miscellaneous  
          plan, MLFD's only current option is to terminate the  
          miscellaneous plan and terminate the employment of the  
          miscellaneous employee.  This action would require CalPERS to  
          reserve enough money in the terminated agency fund to cover the  
          service of the terminated employee and revert excess monies back  
          to the employer.  However, MLFD states that the miscellaneous  
          employee is critically needed, and terminating the employment of  
          its miscellaneous employee is not a good option for MLFD.

          Related/Prior Legislation
          
          AB 340 (Furutani, Chapter 296, Statutes of 2012) enacted PEPRA,  
          which became effective on January 1, 2013.

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


          SUPPORT:

          Mammoth Lakes Fire Protection District

          OPPOSITION:

          None received

          ARGUMENTS IN SUPPORT:    

          According to the author: 

               The Mammoth Lakes Fire District is a fire protection  
               district originating in 1948 to serve the Mammoth Lakes  
               community.  The District boundaries encompass approximately  
               24 square miles with 9 full-time positions.  The area will  








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               continue to grow in complexity and population as the resort  
               town grows to include more hotels, condos, and related  
               businesses; all built on an active volcano and MLFD will  
               continue to rise to the challenge with improved apparatus  
               and equipment.  Permitting the transfer of excess assets  
               for rate plans meeting the severely overfunded plan  
               requirements will allow agencies to redistribute excess  
               assets to portions of their contract that are under the  
               most financial stress.  Such funding may help prevent  
               layoffs, arrearage, and other consequences of financial  
               hardships.  The overfunded plan is one that would remain in  
               extremely favorable conditions following the transfer of  
               assets, protecting the Miscellaneous plan from market  
               fluctuations, catastrophic occurrences and other unforeseen  
               events.