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 ----------------------------------------------------------------- |Author: |Berryhill | |-----------+-----------------------------------------------------| |Version: |3/30/16 As amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Pamela Schneider | | | | ----------------------------------------------------------------- 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. SB 1162 (Berryhill) Page 2 of ? 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 SB 1162 (Berryhill) Page 4 of ? 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 SB 1162 (Berryhill) Page 5 of ? 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.