BILL NUMBER: AB 1184 AMENDED BILL TEXT AMENDED IN ASSEMBLY APRIL 25, 2011 INTRODUCED BY Assembly Member Gatto (Coauthors: Assembly MembersSmythBlumenfield, Gordon, Jeffries, Smyth, and Williams) FEBRUARY 18, 2011 An act to amendSections 21757 and 21761Section 21757 of, and to add Section 20532.5 to, the Government Code, relating to public employees' retirement. LEGISLATIVE COUNSEL'S DIGEST AB 1184, as amended, Gatto. Public employees' retirement benefits. The Public Employees' Retirement Law (PERL) creates the Public Employees' Retirement System (PERS), which provides a defined benefit to its employees based on age at retirement, service credit, and final or highest compensation paid to the employee. Existing law authorizes any public agency to participate in, and make its employees members of, PERS by contract. In the case of an employee who has been employed by one or more contracting public agencies, retirement benefits distributed to that employee are based on the highest final compensation under any system, and each system makes a separate retirement payment to the employee based upon the number of years that the employee worked for each of those agencies. This bill would provide that the obligations for retirement benefits that are attributable to excess compensation earned by a nonrepresented employee who was employed by one or more public agencies shall be the sole obligation of the subsequent contracting agency that paid the excess compensation. This bill would define "excess compensation" as the final compensation of an employee of a contracting agency who previously worked for another contracting agency to the extent the final compensation received from the current contracting agency is 15% or more in excess of the salary paid by the prior contracting agency, as adjusted for actuarial increases in that salary. Existing law requires the Board of Administration of PERS to establish a plan of replacement benefits for members and any survivors or beneficiaries whose retirement benefits are limited by a specified provision of federal law and that cannot be fully maximized pursuant to PERL.PERL requires the state, school employers, and all contracting agencies under PERS to be deemed to have elected to contract with the board for administration of the replacement benefit plan.This bill would prohibit a plan of replacement benefits from being administered by the boardor a participating agency, as specified, for members hiredfor a person who first becomes a member on or after January 1, 2013. Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 20532.5 is added to the Government Code, to read: 20532.5. (a) (1) Notwithstanding any other law, the contributions and disbursements of benefits for that portion of the compensation of an employee of a contracting agency that constitutes excessive compensation shall be the sole obligation of the current contracting agency that paid the excessive compensation to that employee. (2) The liability of any prior contracting agency for the contributions and disbursements of benefits of that employee shall be limited to contributions and other assets sufficient to fund a retirement allowance calculated using the amount of the employee's final compensation at the time he or she terminated his or her service with the prior contracting agency and any amount that is not excess compensation. (b) For purposes of this section, "excessive compensation" is the final compensation of an employee of a contracting agency who previously worked for another contracting agency to the extent the final compensation received from the current contracting agency is 15 percent or more in excess of the salary paid by the prior contracting agency, as adjusted for actuarial increases in that salary. (c) This section shall not apply to any employee who is covered by a memorandum of understanding or to any employee who is a member of a recognized employee organization as that term is defined in Section 3501. (d) The actuary, in determining contributions required of contracting agencies, subject to this section, shall establish a contribution with respect to excessive compensation separate from, and independent of, the contribution required for other benefits under their contracts. The total contribution, in that case, for the agencies as a group shall be established, and from time to time adjusted, by actuarial valuation performed by the actuary of the liability for the benefit or benefits on account of the employees of all those agencies. Adjustments shall affect only future contributions and shall take into account the difference between contributions on hand and the amount required to fund the allowances or benefits for which entitlement has already been established, as well as liability for future entitlements to benefits. The contribution as so established and adjusted from time to time shall be allocated between the agencies on a basis that, in the opinion of the board, after recommendation of the actuary, provides an equitable distribution between the agencies as required by this section. However, the allocation shall not be based on differences in the incidence of death or disability in the respective agencies. (e) (1) Whenever the board, pursuant to subdivision (d), establishes a separate contribution, it shall maintain the contribution and any contributions required to be made by employeestowardstoward the cost of the benefit or benefits as a separate account, which shall be available only for payment of the benefit or benefits and shall not be a part of the accumulated contributions under this system of any of the employers or members included. (2) All contributions in that account, irrespective of the agency from which they were received, shall be available for payment of the benefit or benefits with respect to the employees of any agency included. In the event of termination of any agency's participation in this system, the liability with respect to all those benefits to which the agency's employees have become entitled, after establishment of the rate and prior to the termination, shall be its contributions, as established under subdivision (d), that have become due and payable as of the date of termination. (f) The board and each contracting agency shall modify each contract to reflect the requirements of this section on or before July 1, 2012. SEC. 2. Section 21757 of the Government Code is amended to read: 21757. (a) If the retirement benefits of any member or his or her survivors or beneficiaries payable pursuant to Part 3 (commencing with Section 20000) would be limited by Section 415 of Title 26 of the United States Code, the board shall adjust the payment of those benefits, including, but not limited to, cost-of-living adjustments, cost-of-living banks, temporary annuities, survivor continuance benefits, or any combinations thereof, in order to maximize benefits within the limits of Section 415. (b) The board shall establish a plan of replacement benefits for members and any survivors or beneficiaries whose retirement benefits are limited by Section 415 and cannot be fully maximized pursuant to Part 3 (commencing with Section 20000). The benefits provided by that plan may consist of deferred compensation, cash payments, health benefits, or supplemental disability benefits, as shall be determined by the board to give effect to the purpose of this part. The factors the board may take into consideration in making its determination shall include, but not be limited to, the following: legal constraints, administrative feasibility, and cost effectiveness. The board may periodically modify the replacement benefits plan and may add or eliminate any type of replacement benefits, as necessary, to carry out the purpose of this part. The administrative costs of the replacement benefits plan shall be satisfied out of funds credited to the accounts of the participant members, and shall not be paid from the retirement fund or the retirement trust fund of a participating agency. (c) The application of Section 415 to benefits provided under Part 3 (commencing with Section 20000) and this part shall not be taken into account for purposes of determining employers' or employees' contribution rates, until replacement benefits are implemented pursuant to Section 21758. (d) Under no circumstances shall the replacement benefit plan result in increased benefit costs to an employer, member, or annuitant. (e) The board shall not administer a plan of replacement benefits formembers hireda person who first becomes a member on or after January 1, 2013.SEC. 3.Section 21761 of the Government Code is amended to read: 21761. The state, school employers, as defined in Section 20063, and all contracting agencies under this system shall be deemed to have elected to contract with the board for administration of the replacement benefit plan pursuant to this part. A participating agency may contract with the board for administration to participate in the replacement benefit plan administered by the board, as follows: (a) A participating agency shall deposit its replacement benefit contributions into the Replacement Benefit Custodial Fund, as the board directs. (b) At the request of the board, the participating agency shall furnish any data concerning its members the board requires to direct the payment of replacement benefit contributions. (c) A public agency that intends to contract under this section and become a participating agency shall do so only pursuant to the procedure set forth in Sections 20469 to 20471, inclusive. (d) The ordinance or resolution by which a public agency approves a contract under this section shall be filed with the board. A participating agency under this section shall not maintain any other replacement benefit plan, except upon the express approval of the board. (e) A contract entered into under this section may be amended pursuant to the procedure set forth in Section 20472. (f) A participating agency shall not administer a plan of replacement benefits for members hired on or after January 1, 2013.