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.
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.