BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1162|
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VETO
Bill No: SB 1162
Author: Berryhill (R)
Amended: 6/15/16
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE: 5-0, 4/11/16
AYES: Pan, Morrell, Beall, Hall, Moorlach
SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8
SENATE FLOOR: 39-0, 4/21/16 (Consent)
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,
Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson,
Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning,
Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone,
Vidak, Wieckowski, Wolk
NO VOTE RECORDED: Runner
SENATE FLOOR: 36-0, 8/18/16
AYES: Allen, Anderson, Bates, Beall, Berryhill, Block,
Cannella, De León, Fuller, Gaines, Galgiani, Glazer, Hall,
Hancock, Hernandez, Hertzberg, Hill, Huff, Jackson, Lara,
Leno, Leyva, McGuire, Mendoza, Mitchell, Monning, Moorlach,
Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Vidak,
Wieckowski, Wolk
NO VOTE RECORDED: Hueso, Liu, Stone
ASSEMBLY FLOOR: 77-0, 8/4/16 (Consent) - See last page for
vote
SUBJECT: Public employees' retirement: Mammoth Lakes Fire
District
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SOURCE: Mammoth Lakes Fire Protection District
DIGEST: This bill allows the Mammoth Lakes 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.
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).
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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 all or
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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 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)Limits the amount that may be transferred to an amount that
does not exceed:
The difference between the market value of assets attributed to
the MLFD's miscellaneous plan as of the most recently completed
valuation and 150 percent of the accrued actuarial liability.
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.
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Background
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.
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.:YesLocal: No
According to the Assembly Appropriations Committee, this bill
would result in negligible state costs.
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SUPPORT: (Verified10/6/16)
Mammoth Lakes Fire Protection District (source)
OPPOSITION: (Verified10/6/16)
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 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.
GOVERNOR'S VETO MESSAGE:
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I am returning Senate Bill 1162 without my signature.
This bill allows the Mammoth Lake Fire District to request
that the California Public Employees' Retirement System Board
transfer assets from the District's superfunded miscellaneous
employee plan to its safety employee plan in order to pay for
unfunded liabilities in the safety plan.
Inherent in the nature of our pension systems is that each
employee plan be funded separately and expend its funds only
for the benefit of specific beneficiaries. This bill would
upend this longstanding practice and set a harmful precedent
by allowing the transfer of assets from one employee group to
another.
ASSEMBLY FLOOR: 77-0, 8/4/16
AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker,
Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke,
Calderon, Campos, Chang, Chau, Chiu, Chu, Cooper, Dababneh,
Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher,
Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez,
Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin,
Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low,
Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin,
Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk,
Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark
Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams,
Wood, Rendon
NO VOTE RECORDED: Chávez, Cooley, Roger Hernández
Prepared by:Pamela Schneider / P.E. & R. / (916) 651-1519
10/19/16 10:22:25
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