BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                    SB 1162


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          Date of Hearing:   June 22, 2016


           ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT, AND SOCIAL  
                                      SECURITY


                                  Rob Bonta, Chair


          SB  
          1162 (Berryhill) - As Amended June 15, 2016


          SENATE VOTE:  39-0


          SUBJECT:  Public employees' retirement:  Mammoth Lakes Fire  
          District


          SUMMARY:  Allows the Mammoth Lake Fire District (MLFD) to  
          request that the Board of the California Public Employees'  
          Retirement System (CalPERS) transfer all or a portion of  
          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.  Specifically, this  
          bill:  





          1)Allows MLFD to request that the CalPERS board transfer all or  
            a portion of available excess assets credited to MLFD's  
            miscellaneous plan in order to satisfy MLFD's unfunded accrued  
            actuarial obligations in its safety plan if the market value  
            of assets attributed to the miscellaneous plan exceeds 150% of  
            the amount that is the actuarial equivalent, including  








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            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)Requires, upon request, 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)Specifies that the amount that may be transferred cannot  
            exceed the difference between the market value of assets  
            attributed to the MLFD's miscellaneous plan as of the most  
            recent valuation and 150% of the amount of which is the  
            actuarial equivalent of the amount the system would be  
            obligated to pay for benefits for service attributed to the  
            miscellaneous plan if MLFD were to terminate its contract with  
            CalPERS for the miscellaneous plan as described in 1) 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  








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            safety plan to prevent layoffs, arrearage, and other  
            consequences of financial hardship.









          EXISTING LAW:   


          1)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.



          2)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.   
            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.



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









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          4)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%.



             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.



          FISCAL EFFECT:  According to the Senate Appropriations  
          Committee, pursuant to Senate Rule 28.8, negligible state costs.


          COMMENTS:  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.








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          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.





          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 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  








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          unforeseen events."





          REGISTERED SUPPORT / OPPOSITION:




          Support


          Mammoth Lakes Fire Protection District




          Opposition


          None on file




          Analysis Prepared by:Karon Green / P.E.,R., & S.S. / (916)  
          319-3957