BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1139
Lou Correa, Chair Hearing date: April 12, 2010
SB 1139 (Correa) as introduced 2/18/10 FISCAL: NO
CALPERS ANNUAL HOUSEKEEPING BILL: MAKES VARIOUS CHANGES TO
THE PUBLIC EMPLOYEES' RETIREMENT LAW
HISTORY :
Sponsor: California Public Employees' Retirement System
(CalPERS), Board of Administration
Prior legislation: CalPERS Annual Housekeeping Bill
SUMMARY :
This bill would make several technical and
non-controversial changes to various sections of the
Government Code administered by the California Public
Employees' Retirement System (CalPERS), and would grant
CalPERS authority to offer and manage expanded retirement
savings options currently authorized under federal law.
BACKGROUND:
1) Existing law requires up to a 2% annual cost-of-living
adjustment (COLA) in May for state and school employee
retirees (depending on the Consumer Price Index) and a 2% to
5% adjustment (subject to contract options) for local public
employee retirees, and requires that retiree pensions be
increased annually in January to preserve 75% of original
purchasing power for state and school employee retirees and
80% of original purchasing power for retirees of local public
agencies contracting with CalPERS.
2) Existing law provides a comprehensive set of rights and
benefits for judges. That law, the Public Employees'
Retirement Law (PERL) and the Judges' Retirement System (JRS)
II Law, set forth the provisions for the delivery of
benefits, including benefits for retired judges, administered
by CalPERS.
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3) Existing law provides that CalPERS may offer 403(b) and
457 deferred compensation retirement plans to local public
agencies and school districts in which participants make
pre-tax contributions for retirement savings; the California
State Teachers Retirement System (CalSTRS) may offer a Roth
Individual Retirement Account (IRA) for the purpose of
rolling over assets held in an annuity contract or custodial
account offered by the system, and the Department of
Personnel Administration (DPA) may administer 401(k) and 457
retirement accounts to most State employees, including
employees of the Legislature, Judicial and California State
University (CSU) system.
ANALYSIS:
1) This bill would coordinate the date for adjustment of
COLA and the Purchasing Power Protection Allowance (PPPA) in
the same month each year.
2) This bill would make a minor, technical change to the
Public Employees' Medical and Hospital Care Act (PEMHCA) to
align it with language contained in the JRS II Law.
3) This bill would expand the types of savings opportunities
offered to public employees of a participating employer under
the CalPERS deferred compensation program and makes other
conforming changes to the statutes governing the program.
COMMENTS :
1) Coordinating the Timing of Annual COLA and PPPA
Adjustments
According to CalPERS, by coordinating the timing of COLA
and PPPA adjustments retiree benefits will only be adjusted
once annually, reducing administrative costs and benefit
fluctuations.
In the first year of implementation, PPPA adjustments will
be deferred from January to May to synchronize the two
benefits. However, the total amounts paid to retirees will
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be equal to what would have been paid prior to the
administrative change, thereby ensuring that this provision
will be cost neutral.
2) Health Benefits for Judges Who Leave Office Early
This minor, technical change does not create an additional
benefit or cost beyond what is currently provided by
statute.
3) Tax-Deferred vs. Tax-Preferred Retirement Accounts
Deferred compensation plans reduce taxable income while
saving pre-tax dollars, gain interest on tax-deferred
investments, and are not taxed until money is withdrawn.
Alternatively, tax-preferred retirement accounts such as
the Roth individual retirement account (IRA) and Roth
403(b) require income taxes to be paid on contributions,
but distributions are tax free if certain conditions are
met. Additionally, earnings and gains on amounts in a Roth
contribution program are not taxed if the withdrawals are
qualified distributions. Otherwise, they are taxed once
they are withdrawn.
a) Expanding Retirement Savings Products Offered:
Tax-Preferred Retirement Accounts
According to CalPERS, changes in federal and state
law have occurred since enactment of the enabling
statutes authorizing establishment of the CalPERS
Deferred Compensation Program in 1991.
Although CalPERS may offer 457 and 403(b) plans to
local public agencies and school districts, the Economic
Growth and Tax Relief Reconciliation Act of 2001 expanded
employees' ability to save pre-tax compensation for their
retirement, and was amended in 2006 to allow employees to
designate some or all of their elective contributions as
designated after-tax or Roth contributions rather than
traditional, pre-tax elective contributions.
Because the enabling statutes for CalPERS' Deferred
Compensation Program predate many of these changes, this
expansion would allow CalPERS to offer after-tax savings
arrangements such as the Roth 457, Roth 401(k), Roth IRA
and other non-traditional savings arrangements authorized
under federal law, to better meet the needs of local
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agency employers and employees while centralizing and
providing additional supplements to CalPERS' retirement
plan.
4) SUPPORT :
CalPERS Board of Administration (Sponsor)
American Federation of State, County and Municipal
Employees (AFSCME)
5) OPPOSITION :
None to date
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Date: 4/6/10 Page 4