BILL ANALYSIS
SB 400
Page 1
Date of Hearing: July 14, 1999
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Lou Correa, Chair
SB 400 (Ortiz) - As Amended: June 24, 1999
SENATE VOTE : 35-0
SUBJECT : Public Employees' Retirement System: benefits.
SUMMARY : Makes various improvements in the benefits provided
to state and school members of the Public Employees' Retirement
System (CalPERS). Specifically, this bill :
1)Provides a new retirement formula for state miscellaneous,
university, state industrial and school members who retire on
or after January 1, 2000. The new formula would have a
minimum retirement age of 50 and would provide a retirement
benefit factor of 2% at age 55 increasing to 2.7% at age 65
and above. This formula will supercede the present 1/50th at
age 60 formula and the modified 1/50th at age 60 formula for
state and school members for both past and future service.
2)Provides a new retirement formula for state patrol members who
retire on or after January 1, 2000. The new formula would
provide a retirement benefit factor of 3% at age 50 and would
not be available as a contract option for local contracting
agencies. This formula would supercede the present 2% at age
50 formula for both past and future service.
3)Provides a new retirement formula for State Peace
Officer/Firefighter members who retire on or after January 1,
2000. The new formula would provide a retirement benefit
factor of 3% at and after age 55 and would allow members to
retire, on a discounted basis, as early as age 50. This
formula would not be available as a contract option for local
contracting agencies and would supercede the present 2.5% at
age 55 formula for both past and future service.
4)Provides a new retirement formula for state safety members who
retire on or after January 1, 2000. The new formula would
provide a retirement benefit factor of 2% at age 55,
increasing to 2.35% at and above age 56. Members could retire
on a discounted basis as early as age 50. This formula would
not be available as a contract option for local contracting
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agencies and would supercede the present 2% at age 55 formula
for both past and future service.
5)Changes the method of calculating the average monthly
compensation used in computing retirement allowances for
school members who retire on or after January 1, 2000 from an
average of 36 consecutive months to 12 consecutive months.
6)Closes the CalPERS Second Tier Plan and the Modified First
Tier Plan to state employees hired on or after January 1,
2000.
7)Allows current state employees in the Second Tier Plan to
elect to be subject to the First Tier Plan with the new
retirement formula. Also allows Second Tier members who elect
to be subject to First Tier the option of upgrading former
Second Tier service to First Tier service by paying the
required contributions and interest. The CalPERS Board would
have authority to establish regulations to implement this
section without being subject to review by the Office of
Administrative Law.
8)Provides that current members of the Modified First Tier Plan
would automatically become members of First Tier unless they
make a written request to remain subject to Modified First
Tier.
9)Provides a 2% to 5% ad hoc retirement allowance increase,
effective January 1, 2000, for state and school retirees who
retired prior to December 31, 1999. This increase would be in
addition to the annual cost of living allowance and
supplemental payments from the Purchasing Power Protection
Act. Retirees who retired from 1996 to present would receive
a 2% increase, 1995 retirees would receive a 3% increase, 1994
retirees would receive a 4% increase, 1993 retirees would
receive a 4.5% increase and retirees who retired in 1992 or
before would receive a 5% increase.
10)Establishes a new "5th Level" of survivor benefits for state
and school employees participating in the 1959 Survivor
Benefit Program, as follows:
a) Creates a new "5th Level" 1959 Survivor Benefit and
requires all state and school members not participating in
Social Security to be covered by this program.
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b) Specifies that under this new level, survivors of
deceased members would receive $750 per month for a single
recipient, $1,500 per month for two recipients and $1,800
per month for three or more recipients.
c) Decreases the age at which a surviving spouse becomes
eligible for certain benefits from 62 to 60.
d) Requires the members, and the employer if necessary, to
each pay $2.00 per month for the increased benefit (should
the needed total contribution ever exceed $4.00 per month,
the employee and the employer would evenly share the cost).
e) Repeals the benefit on January 1, 2010, unless a later
enacted statute deletes or extends that date.
EXISTING LAW : Attached is a comparison of the proposed benefit
increases with the current CalPERS benefits for state and school
members.
Additionally, current law contains the 1959 Survivor Benefit
that was designed to provide pre-retirement death benefits to
CalPERS members not covered by Social Security, specifically the
federal Old Age and Survivor Insurance (OASI) program.
Employees who participate in the 1959 Survivor Benefit program
pay $2.00 per month for coverage. Over the years four distinct
benefit levels have been developed within the 1959 Survivor
Benefit program. 1959 Survivor Benefits are fixed dollar
amounts without pre-death indexing or post death CPI increases.
FISCAL EFFECT : According to CalPERS, "The use of excess assets
to finance these benefits for the state would be $5.415 billion
and for the schools $2.748 billion. With the approval of the
benefit equity package, the excess assets will total
approximately $10.4 billion for the state and $7.208 billion for
the schools. Thus the remaining excess assets will be
approximately $4.985 billion for the state and $4.46 billion for
the schools. Overall, the benefit equity package is the
equivalent to about 2% to 2 % increase in normal costs.
The state's contribution to CalPERS is about $766 million for
the 98/99 fiscal year. This has been reduced to $463 million
for the 99/00 fiscal year and would be further reduced to $160
million for the 99/00 fiscal year with the successful enactment
of this bill. The increase contributions of about $600 million
for the cost of these benefits will not begin until the 01/02
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fiscal year.
It is estimated that if all current 2nd, and 3rd level enrollees
were transferred into the new 5th level pool of the 1959
Survivor Benefit, the employer cost would remain at zero for
approximately the next nine years. At the end of that period,
total cost of the proposed program is expected to be
approximately $6.00 per participant per month, shared equally
between the member and employer."
COMMENTS : This bill is sponsored by CalPERS to resolve
inequities between various classes of membership within CalPERS.
According to CalPERS, employer retirement costs have been
declining over the last ten years as the result of significant
investment returns and changes in actuarial assumptions. The
members and retirees of CalPERS have not benefited from these
returns.
Supporters further argue that:
1)The new retirement formulas provided by this bill mark the
first significant improvement in retirement benefits for most
state and school members' in approximately 30 years.
2)The increase in liability for these new benefits can be funded
by the excess retirement assets that have been generated
through investment income and changes in actuarial assumptions
resulting in no immediate increase in costs to the employer.
3)Tier Two is widely known as an inferior, inadequate retirement
plan that contributes to the state's inability to attract
talented employees in a tight labor market. By closing Tier
Two to new employees, this bill would improve recruitment
efforts and increasing benefits after age 63 should increase
retention of state and school workers.
4)Many local government law enforcement and public safety
employees have more generous pensions that recognize the
unique hazardous duties and the more limited tenure of these
strenuous stressful positions. The benefit increases provided
by this bill will help attract and retain high caliber state
safety employees.
5)The new level of 1959 Survivor Benefit would reestablish
comparability to Social Security survivor benefits.
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REGISTERED SUPPORT / OPPOSITION :
Support
Association of California State Attorneys and Administrative Law
Judges (co-sponsor)
California Association of Highway Patrolmen (co-sponsor)
California Association of Professional Scientists (co-sponsor)
California Department of Forestry Firefighters (co-sponsor)
California Public Employees' Retirement System (co-sponsor)
California School Employees Association (co-sponsor)
California State Employee's Association (co-sponsor)
California State University Emeritus and Retired Faculty
Association
Professional Engineers in California Government (co-sponsor)
Retired Public Employees Association (co-sponsor)
American Federation of State, County and Municipal Employees,
AFL-CIO
California Correctional Peace Officers Association
California Faculty Association
California Federation of Teachers
California Professional Firefighters
California Union of Safety Employees
San Bernardino County Sheriff
Union of American Physicians & Dentists
Opposition
None on file.
Analysis Prepared by : Karon Green / P.E., R. & S.S. /
(916)319-3957
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CalPERS
SB 400 (as amended 6/24/99) - BENEFIT EQUITY
COMPARISON OF BENEFITS WITH CURRENT PROGRAM
---------------------------------------------------------------------------------------------
| | Current | Proposed |
|----------------------------+--------------------------------+-------------------------------|
|1. Final Compensation for |3 year average |1 year average |
|School Members (to be | | |
|identical to State | | |
|employees) | | |
|----------------------------+--------------------------------+-------------------------------|
| | | |
|----------------------------+--------------------------------+-------------------------------|
|2. State miscellaneous and |Most state miscellaneous and |All new state miscellaneous |
|Industrial members: Second |industrial members hired since |and Industrial members would |
|Tier to First Tier |7/1/91 are mandatory Second |go into First Tier. Current |
| |Tier members while those hired |Second Tier members would have |
| |prior to that date could elect |the option of becoming First |
| |to be subject to the Second |Tier members on a prospective |
| |Tier. Since 1/1/99 members in |basis. Second Tier members |
| |two bargaining units are |who elect First Tier have the |
| |subject to a Modified First |additional option of upgrading |
| |Tier. Current First Tier |former Second Tier service to |
| |members have the option of |First Tier by paying required |
| |electing into Second Tier every |contributions and interest. |
| |five years. |Members in Modified First Tier |
| | |become members of First Tier |
| | |with the option to remain |
| | |subject to Modified First |
| | |Tier. |
|----------------------------+--------------------------------+-------------------------------|
| | | |
|----------------------------+--------------------------------+-------------------------------|
|3. 5% Ad Hoc Increase for |Up to a 2% annual Cost of |2% to 5% ad hoc increase in |
|State and school retirees |Living allowance increase (3% |addition to the annual cost of |
| |for Second Tier retirees). |living allowance and |
| |Supplemental increase provided |supplemental payments from the |
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| |by Purchasing Power Protection |Purchasing Power Protection |
| |Act when allowances drop to |Act. Retirees from 1996 to |
| |less than 75% of original |present would receive 2%, 1995 |
| |purchasing power. |retirees would receive 3%, |
| | |1994 retirees would receive |
| | |4%, 1993 retirees would |
| | |receive 4.5% and retirees in |
| | |1992 or earlier would receive |
| | |5% |
|----------------------------+--------------------------------+-------------------------------|
| | Current | Proposed |
|----------------------------+--------------------------------+-------------------------------|
|4. Formula change: State |First Tier: 2% @ 60 (benefit |First Tier: 2.7% @ 65 |
|miscellaneous and |factor at: age 50 is 1.092%, |(benefit factor at |
|Industrial members; School |age 55 is 1.460%, |age 50 is 1.426%, |
|members |age 60 is 2% |at age 55 is 2%, |
| |age 63 and above is 2.418%) |at age 60 is 2.35% |
| |Second Tier: 1 1/4% @ 65 |and at 65 and above is 2.7%) |
| |(benefit factor at age 55, the |Second Tier: No change for |
| |minimum retirement age, is .75% |members who elect to remain |
| |at age 55, 1% at age 60 and |under Second Tier. |
| |1.25% at age 65 and above) | |
| |Modified First Tier: 2% @ 60 | |
| |(benefit factor at age 50 is |Modified First Tier: No |
| |1.092%, at age 55 it is 1.460% |change for members who elect |
| |and at age 60 and above it is |to remain under Second Tier. |
| |2%) | |
|----------------------------+--------------------------------+-------------------------------|
| | | |
|----------------------------+--------------------------------+-------------------------------|
|5. Formula change: |2% @ 50 (benefit factor |3% @ 50 (no change in benefit |
|Highway Patrol |increases to 2.7% at 55 and |factor after age 50). The |
| |above). The maximum benefit is |maximum benefit is 85% of |
| |85% of final compensation |final compensation. |
|----------------------------+--------------------------------+-------------------------------|
| | | |
|----------------------------+--------------------------------+-------------------------------|
|6. Formula change: Peace |2.5% @ 55 or older (benefit |3% at age 55 or older (the |
|Officer/Fighter |factor at age 50 is 2%). The |benefit factor at age 50 is |
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| |maximum benefit is 80% of final |2.4%). The maximum benefit is |
| |compensation. |80% of final compensation. |
|----------------------------+--------------------------------+-------------------------------|
| | | |
|----------------------------+--------------------------------+-------------------------------|
|7. Formula change: State |2% @ 55 or older (benefit |2.35% @ 56 (benefit factor at |
|Safety |factor at age 50 is1.426%). |age 50 is 1.713% of final |
| |The maximum benefit is 80% of |compensation). The maximum |
| |final compensation. |benefit is 80% of final |
| | |compensation. |
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* The bill also contains the 5th Level 1959 Survivor Benefit, which was the
original subject matter of the bill. The 5th Level 1959 Survivor Benefit for
state and school members has no "no" votes in committee or on the Senate
floor.