BILL ANALYSIS
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THIRD READING
Bill No: AB 1856
Author: Fong (D)
Amended: 6/7/10 in Senate
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 5-0, 6/14/10
AYES: Correa, Ashburn, Corbett, Ducheny, Liu
NO VOTE RECORDED: Cox
SENATE APPROPRIATIONS COMMITTEE : 10-0, 6/28/10
AYES: Kehoe, Cox, Alquist, Corbett, Denham, Leno, Price,
Walters, Wolk, Yee
NO VOTE RECORDED: Wyland
ASSEMBLY FLOOR : 73-0, 5/17/10 - See last page for vote
SUBJECT : Public employees retirement
SOURCE : California Public Employees Retirement System
DIGEST : This bill allows a California Public Employees
Retirement System member who is making the after-tax
payments to purchase service credit to suspend payments for
a period of up to 12 months or to cancel prospective
payments and be credited with the amount of service
purchased prior to cancellation.
ANALYSIS :
Existing Law
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1.Allows a member of the California Public Employees'
Retirement System to purchase various types of service
credit, such as service prior to membership, military
service, and additional retirement service credit.
2.Specifies that members may pay for service credit
purchases with either pre-tax or after-tax monies, either
in lump sum or in installment payments. Purchases made
with pre-tax monies are subject to state and federal
Internal Revenue Code laws and may not be altered or
discontinued unless the member separates from employment
or retires.
3.Requires that the service credit being purchased is
credited in full at the time payments begin.
4.Allows members who retire while making installment
payments to continue to have those payments deducted from
their retirement warrants.
'
This bill:
1.Allows a member who is purchasing service credit with
after-tax, installment payments to elect to either cancel
the purchase prospectively or suspend the payments for up
to 12 months, after which time the payments will
automatically resume and be recalculated to include
interest due during the suspension period.
2.Allows the member to elect to resume installment payments
sooner than 12 months if he or she so desires.
3.Prohibits the member from electing another suspension of
payments for three years following resumption of
payments.
4.Requires a member who retires during the suspension
period to either pay the remaining balance at retirement
or cancel the remaining service credit purchase. Failure
to do either of these actions will result in automatic
resumption of payments deducted from the retirement
allowance.
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5.In the case of prospective cancellation of the service
credit purchase, specifies that the service credit will
be recalculated to give credit for the amount of service
purchased prior to the cancellation and allows the
member, at any time prior to retirement, to elect to make
appropriate payments to purchase the remaining service
credit that was cancelled.
6.Prohibits cancellation of payments for service credit
adjustments required by law or contract, an election from
2nd Tier to 1st Tier retirement benefits, or service
credit purchases subject to a court order (such as part
of a community property settlement).
7.Allows CalPERS to cancel a service credit purchase if the
member has not made installment payments for 12 months
and has not elected to suspend payments, in the same
manner and with the same effect as if the member had
elected to cancel the service credit purchase.
Comments
After-tax payment plans have been extended under the
authority of the California Code of Regulations, thereby
providing relief by lowering the actual payment amount.
(Example: A member's election of 100 payments is
extendable to the maximum 180 monthly installment payments
provided by the Code of Regulations.)
In some cases, after-tax payments have been suspended for a
period (usually six to 12 months) when a hardship is
claimed and the member is ineligible for an extension
(already at the 180 month maximum) or is ineligible under
the election cancellation criteria. However, suspension of
payments and election cancellation laws and policies are
very limited, so many members requesting relief do not
qualify.
CalPERS receives service credit purchase cancellation
requests based on a variety of reasons, and each request if
reviewed individually. Since the service credit election
is currently considered irrevocable at the time of
election, requests for cancellation are generally not
honored unless no payments had yet been received, or unless
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an error is discovered. However, there has been an
increase in the number of requests for suspensions and
cancellations due to a variety of reasons including
furloughs, disability, loss of family income and other life
changing circumstances.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
Admin expenses Unknown new costs likely less than
$150
potentially offset by
existing workload Special*
*Public Employment Retirement fund
CalPERS indicates that the bill will result in no net costs
to either the pension fund or the administration of the
program.
Any cancelled service credit election will be pro-rated to
reflect the payments received and interest will continue to
accrue during a suspension period. Any resumption of a
cancelled election will be calculated using a present-value
calculation method, which requires the purchase to be
cost-neutral.
The suspension and cancellation workload will replace
current workload involved with reviewing requests, making
hardship determinations, explaining cancellation denials,
and handling subsequent "second opinion" requests/appeals.
SUPPORT : (Verified 6/29/10)
California Public Employees' Retirement System (source)
ARGUMENTS IN SUPPORT : According to CalPERS, "In recent
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years, the number of cancellation requests has increased
with many members citing the declining economy and
financial hardship. Other common reasons include second
thoughts, job change, family obligations, personal debt,
declining health, and early retirements. This proposal
provides a means for the member to obtain the desired
relief from after-tax payments regardless of the reason and
provides CalPERS staff with a process for providing relief
without having to make a hardship determination."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Bradford, Brownley, Buchanan, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Emmerson, Eng, Evans, Feuer, Fletcher, Fong,
Fuentes, Fuller, Gaines, Galgiani, Garrick, Gilmore,
Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande,
Niello, Nielsen, V. Manuel Perez, Portantino, Ruskin,
Salas, Saldana, Skinner, Smyth, Solorio, Audra
Strickland, Swanson, Torlakson, Torres, Torrico, Tran,
Villines, John A. Perez
NO VOTE RECORDED: Bass, Caballero, Furutani, Norby, Silva,
Yamada, Vacancy
CPM:cm 6/29/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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