BILL ANALYSIS
SB 1139
Page 1
SENATE THIRD READING
SB 1139 (Correa)
As Amended August 9, 2010
Majority vote
SENATE VOTE : 35-0
PUBLIC EMPLOYEES 6-0 APPROPRIATIONS 12-5
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|Ayes:|Torrico, Harkey, |Ayes:|Fuentes, Bradford, |
| |Furutani, Hernandez, Ma, | |Huffman, Coto, Davis, De |
| |Nestande | |Leon, Gatto, Hall, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Conway, Harkey, Miller, |
| | | |Nielsen, Norby |
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SUMMARY : Makes several minor or technical amendments to various
sections of the Government Code administered by the California
Public Employees' Retirement System (CalPERS) that are necessary
for the continued efficient administration of the system.
Specifically, this bill :
1)Changes the month in which the Purchasing Power Protection
Adjustment (PPPA) is assessed from January to May in order to
coordinate the timing of the adjustment with the
cost-of-living allowance (COLA).
2)Requires that state employees, managers and appointed
officials subject to mandatory furloughs by their appointing
authority in fiscal year (FY) 2010-11 receive the CalPERS
retirement service credit they would have received had they
not been furloughed.
3)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 (JRS II).
4)Changes references in existing law from "deferred
compensation" to "tax-preferred retirement savings," thereby
expanding the types of retirement savings programs the CalPERS
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Board of Administration (Board) may establish to include those
with after-tax payments.
5)Allows a public agency that contracts with CalPERS for health
care coverage to elect, as a contract option, to provide
health care coverage to eligible survivors who are not
receiving a survivor allowance but were receiving health care
coverage from the agency prior to them contracting with
CalPERS.
6)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.
7)Establishes a list of eligible survivors to the Peace Officers
and Firefighters (POFF) Supplemental plan statutes in the
absence of a participant's designation.
8)Provides conformity with federal healthcare reform
legislation.
FISCAL EFFECT : According to the Assembly Appropriations
Committee:
1)CalPERS indicates that the impact of the bill on its
administrative costs would be minor and absorbable.
2)The provision affecting service credit 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.
COMMENTS : The following information regarding this bill has
been provided by CalPERS:
1)Coordinate timing of annual COLA and PPPA adjustments:
CalPERS pays two types of benefits to retirees to ensure that
retirement allowances maintain purchasing power despite
inflation: the PPPA and the COLA. Many factors affect these
benefits, including retirement year, membership type, and
former employer's contract provisions.
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The COLA benefit is an annual cost-of-living increase that
begins in the second calendar year after retirement and is
adjusted each May after that. The PPPA is an added protection
against inflation for those members whose benefits fall below
a specified percent of their original purchasing power based
on the Consumer Price Index for all cities. Unlike the COLA,
there is no specific timetable for when a retiree can become
eligible for the PPPA. The PPPA adjustment occurs in January
of each year for eligible retirees.
SB 1139 conforms the annual COLA adjustment and the PPPA in the
same month each year. In the first year of implementation,
the PPPA adjustments will be deferred from January to May to
synchronize the two benefits, with retroactive application to
January to adjust for the delay. Implementation must be
deferred to January 1, 2012, so that required automation
changes can be developed, built, and tested after CalPERS' new
automation system is installed and operating.
2)Furloughed state employees: Under existing law, a full-time
member that accrues at least 10 months of service will still
earn a full year of retirement service credit. However, under
three day per month furloughs, part-time CalPERS members, and
those full-time members hired or retired mid-year that are
unable to reach the 10-month threshold, will experience a
reduction in the overall amount of service credit accrued.
The language in this bill would amend the Public Employees'
Retirement Law to ensure that all state employees subject to a
2010-2011 Executive order requiring mandatory furloughs
receive the retirement benefits they otherwise would have
received had the furloughs not been in effect.
Making certain that furloughed state employees receive the
retirement benefits they would have received absent a furlough
is consistent with previous chaptered legislation that
protected state employees subject to mandatory furloughs in
FYs 2008-2009 and 2009-2010 either through an Executive Order,
or the order of a state employer not subject to the Governor's
authority (such as California State University, the
Legislature and State Courts). Extending this protection to
FY 2010-2011 will ensure that all active state members of
CalPERS that are subject to furloughs are treated equitably,
and that the disability and retirement benefits they must rely
upon for income once they leave state service are not reduced
by another temporary furlough order.
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3)Health benefits for judges that leave office early: The JRS
II was established in 1994 to create a fully funded,
actuarially-sound retirement system for Supreme and Appellate
Court justices, Superior Court judges, and Municipal Court
judges appointed or elected on or after November 9, 1994. As
of September 2009, it includes 1130 active members and 17
retirees.
The JRS II offers a combination of two basic types of retirement
benefits: a defined benefit plan and a monetary credit plan.
The defined benefit plan provides a lifetime monthly benefit
of up to 75% of final annual salary (percentage is based on
age at retirement and years of service). The monetary credit
plan allows for a refund of member contributions, a portion of
the employer contributions, and interest. Lifetime benefits
are not provided under the monetary credit plan.
Under JRS II, a judge is eligible to retire upon attaining both
age 65 and 20 or more years of service, or upon attaining age
70 with a minimum of five years of service. It also includes
early retirement provisions that outline retirement benefits
for a judge who "leaves judicial office" after specified
numbers of years. The Public Employees Medical Hospital Care
Act (PEMHCA) outlines access to CalPERS health benefits after
"retirement" pursuant to JRS II.
Currently, statutes in PEMHCA and JRS II use different
terminology to describe a judge who leaves office after
accruing five or more years of service and becomes eligible to
receive JRS II benefits. JRS II specifies the retirement
benefits of "a judge who leaves judicial office after accruing
five or more years of service." PEMHCA outlines the health
benefits of a judge who "retires." SB 1139 would change the
language in PEMHCA from "retires" to "leaves judicial office"
to align it with the language in JRS II and eliminate any
ambiguity between the two statutes.
4)The CalPERS Supplemental Income Program: SB 2026 (Craven),
Chapter 1659, Statutes of 1990, authorizes CalPERS to
establish a deferred compensation program for CalPERS members,
and created the Public Employees' Deferred Compensation Fund
under the exclusive control of the CalPERS Board of
Administration. The statute granted broad authority for
CalPERS to offer a 457 plan, 403(b) plan, or any other form of
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deferred compensation arrangement authorized by the Internal
Revenue Code and approved by the CalPERS Board. The program
is self-funded through fees assessed against participating
employees and/or contracting employers and invested and
administered in a series of accounts established within the
Public Employees' Deferred Compensation Fund.
Several changes in federal and state law have occurred since
enactment of the enabling statutes authorizing establishment
of the CalPERS Deferred Compensation Program in 1991. The
enabling statutes for CalPERS' deferred compensation program
predate many of these changes, including the imposition of
governmental plan trust requirements for 457(b) plans, and the
creation of certain forms and features of deferred
compensation arrangements now authorized under federal law,
including ROTH-type and other after-tax or non-traditional
deferred compensation savings arrangements.
By allowing the program to offer any form of after-tax
retirement savings arrangement, the enabling statutes provided
fairly broad authority. However, it has been 15 years since
they were amended, and so, existing law does not necessarily
reflect the full range and scope of the subsequent changes to
federal tax law. Therefore, this bill allows CalPERS to
expand the tax-preferred retirement savings arrangements and
make technical and conforming changes to its deferred
compensation program statutes.
5)The Los Angeles Community College District (LACCD) contracted
with CalPERS for health benefit coverage, effective January 1,
2010. LACCD's long-standing policy and agreement with their
members is to provide employer-paid lifetime health benefits
coverage to their retirees, and the surviving spouse or
domestic partner of the retiree, once vesting criteria is met.
Under PEMHCA, surviving family members must receive a monthly
survivor allowance to meet the definition of annuitant. This
bill would allow employers that are electing to be subject to
PEMHCA a means to provide survivors of annuitants without an
allowance the ability to receive health coverage through a
contract option.
6)Headquarters accounting: Existing law requires the Board to
establish a building account for the transfer of money from
the retirement fund for the cost of the acquisition of real
property and the construction, maintenance, and improvement of
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CalPERS facilities. It also specifies that the headquarters
land, building, etc. must constitute an investment in the
retirement fund and carried on the books in accordance with
generally accepted accounting practices (GAAP).
Approximately 10 years ago, CalPERS adopted Governmental
Accounting Standards Board (GASB) Statement No. 25, which
required a change in the accounting treatment and financial
reporting of the CalPERS Headquarter Building Account from an
investment asset to property, plant, and equipment used in
operations. CalPERS staff and external auditors determined
that recognition of the Headquarters Building as an investment
asset does not conform to GASB 25. This provision would
resolve inconsistencies between existing law and CalPERS
practice.
7)Statutory survivors: Unlike CalPERS' pension plans, the POFF
program has no statutory listing of survivors eligible to
receive payment upon the death of a participating member when
the member has not designated a beneficiary. SB 1139 would
add such a statutory list, based on the statutes provided in
California probate code.
8)Definition of family member: The term "family member" as it
applies to health care coverage under the PEMHCA, has always
included unmarried children as eligible dependents. With the
passage of the federal healthcare reform bill, all children
under age 26 must be covered, not simply those who are
unmarried. This bill would conform state statute to federal
law.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0005916