BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 1184 (Gatto)
Hearing Date: 8/15/2011 Amended: 7/1/2011
Consultant: Maureen Ortiz Policy Vote: PE&R 5-0
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BILL SUMMARY: AB 1184 requires CalPERS to develop and implement
program changes to ensure that a contacting agency that creates
a significant increase in actuarial liability due to increased
compensation bears the costs of the associated liability. The
bill further prohibits CalPERS from providing a plan of
replacement benefits effective for persons who become members on
or after January 1, 2013.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
CalPERS liability assessment
and report to Legis ----unknown, probably
less than $150--- Special*
RBP elimination ------unknown future savings to
employers --------- Local
*Public Employees Retirement Board
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STAFF COMMENTS:
The CalPERS actuary will be required to assess and adjust the
increased liability to the employer that created that liability.
This provision will be effective for any significant increases
determined after January 1, 2012, regardless of when the
increase in compensation occurred. The CalPERS board will
report to the Legislature no later than June 30, 2012, and the
report will include an explanation of the guidelines developed
by the board as well as an assessment of the implementation and
effectiveness of the guidelines. CalPERS indicates the need for
at least one PY at the Actuarial Assistant level at a total cost
of about $89,000. AB 1184 will result in an unknown shift in
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pension liability costs from one local employer to another.
AB 1184 contains Legislative Intent stating that a contracting
agency shall not experience a significant increase in actuarial
liability due to increased compensation paid by another
contracting agency. In the interest of code clarity, staff
recommends the bill be amended to place the Legislative Intent
language in an uncodified section of the bill. The provisions
of AB 1184 will not apply to compensation paid to an employee
who is covered by a memorandum of understanding or who is a
member of a recognized employee organization.
The Public Employees' Retirement Law provides a defined benefit
to its members based on age at retirement, service credit, and
final or highest compensation paid to the employee. Existing
law authorizes any public agency to contract with CalPERS for
retirement benefits to its employees. 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. Reciprocity agreements provide the right of
a member to have his or her highest compensation applied to all
of his or her years of service under all employers in the
system.
AB 1184 requires CalPERS to develop requirements for defining a
significant increase in actuarial liability due to increased
compensation paid to a nonrepresented employee and to implement
program changes to ensure that a contracting agency that creates
a significant increase in actuarial liability due to increased
compensation paid to a nonrepresented employee shall bear the
costs of that liability.
Internal Revenue Code 415(b) places a dollar limit on the annual
benefit that can be received from a tax-qualified pension plan
such as CalPERS. The maximum annual retirement benefit payable
at the Social Security "normal retirement age" is $195,000 for
calendar years 2010 and 2011. This annual limit may be
increased by the IRS annually for cost-of-living adjustments.
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The IRS allows some members to be "grandfathered" and,
therefore, not subject to the limitation as follows: a) persons
who were members of CalPERS prior to January 1, 1990, and b)
persons for whom the employer has provided no new or enhanced
benefits since October 14, 1987.
The Replacement Benefit Plan is a program that allows for
replacement of the annual benefit allowance amount that exceeds
the Section 415(b) limit with wages. Its purpose is to make a
member's retirement allowance "whole". This plan is funded by
the employer through collections by CalPERS and then it is
disbursed to affected retirees as wages in quarterly payments.
In 2010, out of 30,000 retirees, only 60 individuals exceeded
the federal cap due to long careers and high wages. AB 1184
will prohibit CalPERS from administering a plan of replacement
benefits for members hired on or after January 1, 2013.