BILL ANALYSIS Ó SENATE COMMITTEE ON PUBLIC EMPLOYMENT AND RETIREMENT Dr. Richard Pan, Chair 2015 - 2016 Regular Bill No: SB 1203 Hearing Date: 4/11/16 ----------------------------------------------------------------- |Author: |Hertzberg | |-----------+-----------------------------------------------------| |Version: |3/28/16 As amended | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Pamela Schneider | | | | ----------------------------------------------------------------- Subject: Retirement systems: joint powers authorities: benefit formulas SOURCE: California Professional Firefighters DIGEST: In the case of a joint powers authority (JPA) formed on or after January 1, 2013 that contracts with the California Public Employees' Retirement System (CalPERS), this bill requires that any employees moving from employment with a public agency forming the JPA to employment with the JPA be provided the same defined benefit plan or formula that they had as an employee of the public agency on or before December 31, 2012. ANALYSIS: Existing law: 1)Authorizes, under the Joint Exercise of Powers Act, public agencies to enter into agreements to jointly exercise any power common to the contracting parties, including providing for the creation of an agency or entity that is separate from the parties to the agreement and is responsible for the administration of the agreement. 2)Allows local public employers forming a JPA to contract with the California Public Employees' Retirement System (CalPERS) to offer retirement benefits to their employees if the JPA meets the federal definition of a governmental plan. The JPA is then a new contracting employer in the retirement system. SB 1203 (Hertzberg) Page 2 of ? 3)Establishes, under the Public Employees' Pension Reform Act (PEPRA) a new retirement plan formula and requires public employers to offer the PEPRA formula to new employees first hired into public service after January 1, 2013, as defined. 4)Requires pre-PEPRA members-referred to as "classic" members by CalPERS-who were first hired into public service prior to January 1, 2013, and who move between public employers within a 180-day time period, to be grandfathered under pre-PEPRA retirement formulas and eligible to receive the benefit plans offered to employees of the public employer on December 31, 2012 (i.e., the benefit plan in place prior to PEPRA implementation). 5)Allows a JPA formed by the cities of Brea and Fullerton on or after January 1, 2013, to provide employees who transfer to the JPA from Brea or Fullerton with the "classic" retirement formulas that the employees were receiving on December 31, 2012, from their respective employers. 6)Clarifies that the formation of the JPA by Brea and Fullerton shall not act in a manner so as to exempt a member from PEPRA who would otherwise be subject to PEPRA. This bill: Requires the following when public agencies form a JPA on or after January 1, 2013, and contract with CalPERS for benefit coverage for employees of the JPA: 1)Employers that form the joint powers authority, if they provided employee benefits on or before December 31, 2012, must provide classic employees who transfer to the JPA with continuance of the same benefit plans or formulas that those employees received from their respective employers on or before December 31, 2012. 2)In order to receive continuance of the classic member benefits, the classic employees must transfer between the member agency and the JPA within 180 days of the member agency providing for the exercise of the common power. 3)The formation of a JPA on or after January 1, 2013, may not act in a manner to exempt someone from PEPRA who would SB 1203 (Hertzberg) Page 3 of ? otherwise have been subject to PEPRA. Employees who became new members of CalPERS after January 1, 2013, must be subject to PEPRA. Background PEPRA allows classic employees who move between public employers to be grandfathered under pre-PEPRA retirement formulas. Since employers, over time, could have more than one retirement formula for specific classes of employees, PEPRA further specifies that a classic employee who moves between public employers within a 6 month period will receive the benefit formula that the employer was offering on December 31, 2012 (i.e., one day prior to implementation of PEPRA). A JPA formed after that date would be a new employer in CalPERS and would therefore have no classic formula to offer classic employees. Related/Prior Legislation SB 24 (Hill, 2016), currently in Assembly Rules Committee, authorizes a JPA formed by the Cities of Belmont, Foster City, and San Mateo to provide the JPA employees a defined benefit plan or formula that those employees received as classic CalPERS members from their employment with the cities. The language of SB 24 is substantially the same as statutory language enacted for the Cities of Fullerton and Brea (SB 1251, 2014). SB 354 (Huff, Chapter 158, Statutes of 2015) clarified the time period during which a CalPERS classic member employed in the cities of Brea and Fullerton may transfer to a Joint Powers Authority (JPA) formed by those two cites and retain classic benefit formulas received prior to the transfer. SB 1251 (Huff, Chapter 757, Statutes of 2014) created an exemption in PEPRA to allow classic employees transferred to a new JPA formed by the cities of Brea and Fullerton after January 1, 2013, to retain their classic retirement benefits following transfer to and employment in the JPA. AB 340 (Furutani, Chapter 296, Statutes of 2012) enacted PEPRA, effective January 1, 2013, which implemented statewide reform of pension plans and related public employment benefits. FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes SB 1203 (Hertzberg) Page 4 of ? SUPPORT: California Professional Firefighters (source) California State Firefighters' Association Laborers' International Union of North America, Local 777 Laborers' International Union of North America, Local 792 Orange County Professional Firefighters Association, Local 3631 OPPOSITION: None received ARGUMENTS IN SUPPORT: From a letter from California Professional Firefighters: The Great Recession forced local public agencies up and down our state to implement hard-dollar cuts in core public services, including fire protection, as a result of severely squeezed budgets. Over the last few years in many of our communities, fire stations have been closed, or rolling "brown-outs" have been implemented, in an effort to save money. Firefighters have been laid off, and a whole host of other safety-net services have been eliminated or severely pared back. For some communities, the most efficient, cost-effective model for providing fire protection and emergency medical services in the wake of the Great Recession is to form a JPA so that local agencies can integrate their respective services in those jurisdictions and in doing so, achieve economies of scale and cost savings. However, one barrier to these consolidations has arisen and created a significant obstacle to full integration of fire protection and EMS services in this regard because of the inability to transfer existing, classic employees to a newly formed JPA without an interruption or loss of those employees' classic retirement formulas or benefit plans. Therefore, legislation applicable statewide, which remedies the aforementioned unintended consequence, is needed so as SB 1203 (Hertzberg) Page 5 of ? to alleviate not only the existing burden that falls on individual agencies to introduce authorizing bills specific to their respective, proposed JPA agreements, but also to eliminate the cost incurred by taxpayers and time delays for implementation each time an agency-specific bill is introduced. Furthermore, SB 1203 aids local public agencies in their efforts to effectively recruit and retain the most experienced, qualified public safety professionals. Indeed, by providing equity for all seasoned and veteran firefighters and other public workers who wish to continue to serve in their communities without being forced to consider transferring to another public agency, SB 1203 advances the public's interest. And, when lives are on the line, every second counts. SB 1203 ultimately also allows local public agencies to achieve economies of scale for the taxpayers, which in turn translates into better response times.