BILL ANALYSIS �
SB 503
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Date of Hearing: July 13, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
SB 503 (Vargas) - As Amended: July 6, 2011
Policy Committee: PERSS Vote:5-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill allows a judge to purchase a portion of the time that
the judge served as a full-time subordinate judicial officer
(SJO) as service credit in the Judge's Retirement System (JRS
II).
FISCAL EFFECT
This bill will not have a significant fiscal effect.
To the extent judges opt to make more purchases of service
credit than they have been doing under existing law, there will
be minor and absorbable costs to CalPERS for processing the
applications. Also, to the extent that judges purchase more
service credit, there is a transfer of risk to CalPERS, which is
committing to pay the scheduled retirement benefits. However,
the transfer of risk does not necessarily mean the state will
incur higher costs, as the overall costs will ultimately depend
on a combination of factors, including the actuarial cost
assigned by CalPERS, the return on CalPERS investments and the
amount of the benefits that are ultimately paid. According to
CalPERS, only one JRS II member has elected to purchase SJO time
since January 1, 2002. Conversely, the flexibility allowed by
this bill may mean judges will purchase less service credit than
under existing law, so there would be a reduction in the risk
being transferred to CalPERS when compared to current law.
COMMENTS
1)Purpose . According to the author, under current law judges
choosing to purchase their subordinate judicial officer
service time under JRS II are required to pay for the JRS II
SB 503
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service credit, at the actuarial present value as determined
by CalPERS. A judge choosing to purchase time must purchase
all of the time he or she served as an SJO, which can be
prohibitively expensive and could be more service time than
necessary to qualify for full retirement under JRS II. The
author argues this bill allows a less costly option of
purchasing partial service credit to increase their JRS II
benefits. The author adds that under this proposal, as with
existing law, the judge would be required to pay the full
employee and employer cost of any SJO service purchased.
According to the California Judges Association and the
Judicial Council of California, the sponsors of the bill, SB
503 provides judges with an additional bit of flexibility in
retirement planning, without imposing any costs on the
retirement systems or the state.
2)Background . According to information provided to the
Committee by CalPERS, SJO's are not members of JRS I or JRS
II, but are either members of CalPERS, a 1937 Act County
Retirement System, or another county retirement system. There
are currently 360 SJOs, but the number of positions will
decline sharply as those positions, upon vacancy, will be
converted to judgeships.
Currently, members of JRSII are allowed to purchase service
credit for their time as an SJO if all of the prior SJO
service is purchased and the member pays the actuarial present
value of the increase in benefits due to the additional
service. In addition, to meet the requirements of the federal
Internal Revenue Code, members cannot receive a benefit for
their SJO service from any other retirement system. Because
of this restriction, JRS II members must first seek a refund
of contributions from the public retirement system that would
provide the benefits for their former SJO service and then
make the purchase for service credit JRS II, either from
CalPERS or county retirement systems.
3)Opposition . The Department of Finance is opposed to the bill
stating it is inconsistent with the administration's recent
pension reform proposals which seek to eliminate the purchase
of additional service credit and could result in a fiscal
impact to the state, since the actuarial present value may not
cover the actual cost of the additional years of service.
SB 503
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Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081