BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1139|
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UNFINISHED BUSINESS
Bill No: SB 1139
Author: Correa (D)
Amended: 8/9/10
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 6-0, 4/12/10
AYES: Correa, Ashburn, Corbett, Cox, Ducheny, Liu
SENATE FLOOR : 35-0, 4/15/10
AYES: Aanestad, Alquist, Ashburn, Calderon, Cedillo,
Cogdill, Corbett, Correa, Cox, DeSaulnier, Florez,
Hancock, Harman, Hollingsworth, Huff, Kehoe, Leno, Liu,
Lowenthal, Maldonado, Negrete McLeod, Oropeza, Padilla,
Pavley, Price, Romero, Runner, Simitian, Steinberg,
Strickland, Walters, Wolk, Wright, Wyland, Yee
NO VOTE RECORDED: Denham, Ducheny, Dutton, Wiggins,
Vacancy
ASSEMBLY FLOOR : 52-24, 8/19/10 - See last page for vote
SUBJECT : Public Employees Retirement Law
SOURCE : Public Employees Retirement System, Board of
Administration
DIGEST : This bill makes several technical and
non-controversial changes to various sections of the
Government Code administered by the Public Employees'
Retirement System (PERS) and grants PERS authority to offer
and manage expanded retirement savings options currently
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authorized under federal law.
Assembly Amendments :
1.Allows a public agency that contracts with PERS 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 PERS.
2.Eliminates the requirement that the lease rates are to be
equal to fair market value and sufficient to pay
reasonable rate of return for the costs of construction
and maintenance of the leased portions of the buildings
and improvements.
3.Eliminates the provisions that restrict the period of
time for which the board may retain the same certified
public accountant to audit the financial statements of
the system.
ANALYSIS :
Existing Law
1.Requires up to a two percent annual cost-of-living
adjustment (COLA) in May for state and school employee
retirees (depending on the Consumer Price Index) and a
two percent to five percent adjustment (subject to
contract options) for local public employee retirees, and
requires that retiree pensions be increased annually in
January to preserve 75 percent of original purchasing
power for state and school employee retirees and 80
percent of original purchasing power of retirees of local
public agencies contracting with PERS.
2.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 of the delivery of benefits,
including benefits, including benefits for retired
judges, administered by PERS.
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3.Provides that (a) PERS 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, (b) the State
Teachers Retirement System (STRS) 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 (c) 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.
This bill makes several minor or technical amendments to
various sections of the Government Code administered by the
California Public Employees' Retirement System (PERS) 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 PERS 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 PERS Board of Administration (Board) may
establish to include those with after-tax payments.
5.Allows a public agency that contracts with PERS for
health care coverage to elect, as a contract option, to
provide health care coverage to eligible survivors who
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are not receiving a survivor allowance but were receiving
health care coverage from the agency prior to them
contracting with PERS.
6.Changes the accounting treatment of PERS' headquarters
facilities to conform to changes in government accounting
standards, and removes certain limitations on contracts
with accounting firms for purposes of auditing PERS'
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.
Comments
The following information was provided by PERS:
1. Coordinate Timing of Annual COLA and PPPA Adjustments .
PERS 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.
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.
This bill 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
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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 PERS' 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 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 PERS 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. PERS 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 amends 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.
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
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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 PERS 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." This bill changes 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 PERS Supplemental Income Program . SB 2026 (Craven),
Chapter 1659, Statutes of 1990, authorizes PERS to
establish a deferred compensation program for PERS
members, and created the Public Employees' Deferred
Compensation Fund under the exclusive control of the PERS
Board of Administration. The statute granted broad
authority for PERS to offer a 457 plan, 403(b) plan, or
any other form of deferred compensation arrangement
authorized by the Internal Revenue Code and approved by
the PERS 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.
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Several changes in federal and state law have occurred
since enactment of the enabling statutes authorizing
establishment of the PERS Deferred Compensation Program
in 1991. The enabling statutes for PERS' 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 PERS 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 PERS 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
allows 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 PERS facilities. It also specifies that
the headquarters land, building, etc. must constitute an
investment in the retirement fund and carried on the
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books in accordance with generally accepted accounting
practices (GAAP).
Approximately 10 years ago, PERS adopted Governmental
Accounting Standards Board (GASB) Statement No. 25, which
required a change in the accounting treatment and
financial reporting of the PERS Headquarter Building
Account from an investment asset to property, plant, and
equipment used in operations. PERS staff and external
auditors determined that recognition of the Headquarters
Building as an investment asset does not conform to GASB
25. This provision resolves inconsistencies between
existing law and PERS practice.
7. Statutory Survivors . Unlike PERS' 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. This bill adds 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 conforms
statute to federal law.
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 8/20/10)
Public Employees' Retirement System, Board of
Administration (source)
ASSEMBLY FLOOR :
AYES: Ammiano, Arambula, Bass, Beall, Block, Blumenfield,
Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Coto, Davis, De La Torre, De
Leon, Eng, Evans, Feuer, Fong, Fuentes, Furutani,
Galgiani, Gatto, Gilmore, Hall, Hayashi, Hernandez, Hill,
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Huber, Huffman, Jones, Lieu, Bonnie Lowenthal, Ma,
Mendoza, Monning, Nava, V. Manuel Perez, Portantino,
Ruskin, Salas, Saldana, Skinner, Solorio, Swanson,
Torlakson, Torres, Torrico, Yamada, John A. Perez
NOES: Adams, Anderson, Tom Berryhill, Blakeslee, Conway,
DeVore, Fletcher, Fuller, Gaines, Garrick, Hagman,
Harkey, Knight, Logue, Miller, Nestande, Niello, Nielsen,
Norby, Silva, Smyth, Audra Strickland, Tran, Villines
NO VOTE RECORDED: Bill Berryhill, Cook, Jeffries, Vacancy
CPM:cm 8/20/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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