BILL ANALYSIS
SB 1139
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Date of Hearing: August 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 1139 (Correa) - As Amended: August 9, 2010
Policy Committee: P.E.R. and
S.S.Vote: 6-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill makes several, mostly technical and minor, changes to
the Public Employees Retirement Law. Specifically, the bill:
1)Coordinates the date of the annual cost-of-living and
purchasing power protection adjustments to members' pensions.
2)Changes references in existing law from "deferred
compensation" to "tax-preferred retirement savings" for the
purpose of expanding the types of supplemental retirement
savings programs CalPERS may establish to include those with
after-tax contributions.
3)Specifies that service credits for individuals subject to
mandatory furloughs in 2010-11 will be based on time worked
and compensation that would have occurred absent the
furloughs. (Under current law, an employee receives a year of
service credit if he or she works more than 10 months
annually. Thus, this provision will only affect a modest
number of part time employees.)
4)Clarifies that a judge may leave office without retiring and
still maintain health benefits under the conditions currently
specified in the Judges Retirement System II Law.
5)Changes the accounting treatment of CalPERS' headquarters
facilities to conform to changes in government accounting
standards, and removes certain limitations on contracts with
accounting firms for purposes of auditing CalPERS' financial
statements.
SB 1139
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6)Establishes a list of eligible survivors to the Peace Officers
& Firefighters Supplemental plan (POFF) statutes in the
absence of a participant's designation.
7)Provides conformity with federal healthcare reform
legislation.
FISCAL EFFECT
1)CalPERS indicates that the impact of the bill on its
administrative costs would be minor and absorbable.
2)The provision affecting service credits calculations during
furloughs will have an unknown, probably minor, impact on
future pension liabilities. The exact magnitude depends on the
length of furloughs and the number of workers that are
affected.
3)The impact on program costs of the remaining provisions is
minor.
COMMENTS
1)Purpose . This bill is sponsored by CalPERS to facilitate its
efficient administration of the public employee retirement
law.
2)Background - cost of living and purchasing power protection
adjustments . CalPERS provides two types of benefits to
retirees to ensure that retirement allowances maintain
purchasing power over time. First, members receive an annual
cost-of-living adjustment that begins in May of the second
calendar year after retirement. This adjustment is capped at
2% per year for state and school members, and from 2% to 5%
for local members, depending on the contract. Second, the
purchasing power protection adjustment is a supplemental
adjustment for those members that have been retired for
several years and have seen the purchasing power of their
benefit eroded by inflation (above the capped cost-of-living
adjustments) to the point that it is worth (in most cases) 75%
of the original benefit. This supplemental adjustment is
intended to ensure that the purchasing power of the benefit
does not fall below the original level. The purchasing power
protection adjustment occurs in January of each year for
eligible retirees.
SB 1139
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This bill makes the annual cost of living adjustment and the
purchasing power protection adjustment applicable in May of
each year. In the first year of implementation, the purchasing
power protection adjustment will be deferred from January to
May to synchronize the two benefits, with retroactive
application to January to adjust for the delay.
3)Background - after-tax supplemental programs . Currently,
CalPERs offers tax deferred 457 and 403(b) plans as
supplements to its pension programs. Under these plans, which
are exclusively funded by employee contributions, the payments
into the accounts, as well as subsequent earnings and capital
gains are tax-deferred until withdrawal, at which time they
are fully taxed as ordinary income. Federal and state law
also permit alternative tax preferred retirement accounts,
such as the Roth individual retirement account (IRA) and Roth
403(b). Under these plans, income taxes are paid on the
contributions into the plans, but earnings and distributions
are tax free if certain conditions are met. This bill allows
PERS to offer these after-tax savings arrangements to its
employee members.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081