BILL ANALYSIS
AB 446
Page 1
Date of Hearing: May 20, 2009
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Kevin De Leon, Chair
AB 446 (Niello) - As Amended: May 18, 2009
Policy Committee: P.E.R. &
S.S.Vote: 6-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill requires the California Public Employees' Retirement
System (CalPERS) to submit information to the Legislature from
its system-wide actuarial investigation that relates purchases
of "air time." Specifically, the bill:
1)Requires that the information include:
a) A list of key assumptions currently used in the pricing
of additional retirement service credits.
b) A comparison of the retirement experience for state
members (including in each retirement tier) public agency
members, and school members who have purchased additional
retirement service credits to those members that have not
purchased the service credit.
c) A comparison of the increase in compensation for
members who have purchased additional retirement service
credits to those members that have not purchase the service
credit; and a summary of recommendations presented to the
board and the status of those recommendations.
2)Requires that the information be submitted to the chairs and
vice chairs of the relevant policy and fiscal committees, as
well as the Director of Finance, the Director of the
Department of Personnel Administration, and the Legislative
Analyst.
3)Specifies that the information shall be filed with the
Legislature no later than February 1, 2010 and shall be based
AB 446
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on the period from January 1, 2004 thru June 30, 2007.
FISCAL EFFECT
CalPERS indicates it will incur only minor and absorbable costs,
to the extent it is currently developing the specified
information as part of its system-wide actuarial investigation
required by existing law.
COMMENTS
1)Rationale . The author asserts that the purchase of additional
retirement service credits may be a factor that is
contributing to the unfunded liability in the CalPERS
retirement system. The purpose of the bill is to have CalPERS
provide pertinent information about the program to the
Legislature, so that it can evaluate the program and, if
appropriate, consider modifications.
2)Background . The Internal Revenue Code allows a member of a
tax-qualified defined benefit program, such as CalPERS, to
purchase up to five years of nonqualified time. Nonqualified
time is sometimes referred to as "air time" because it does
not correspond to any service actually performed. The only
requirements are that the amount purchased be five years or
less and that the member has earned at least five years of
service credit before being eligible to make the purchase.
According to CalPERS, its methodology for determining the cost
of purchasing additional retirement credits is based on the
present value of additional future retirement payments
resulting from the purchase. The goal of this methodology is
to ensure that the future benefits are fully funded by the
purchase price.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081