BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1231
Gloria Negrete McLeod, Chair Hearing date: May 7, 2012
SB 1231 (Walters) as amended 5/01/12 FISCAL: NO
ORANGE COUNTY EMPLOYEES RETIREMENT ASSOCIATION: STAR COLA
HISTORY :
Sponsor: County of Orange
Other legislation: SB 1232 (Walters), 2012
Currently in Senate PE&R Committee
AB 1542 (Mansoor), 2012
Currently in Assembly PER&SS Committee
SUMMARY :
SB 1231 allows the Orange County Board of Supervisors to
adopt a resolution prohibiting the Orange County Employees
Retirement Association from approving the Supplemental
Targeted Adjustment for Retirees Cost of Living Adjustment
(STAR COLA), and allows the Board of Supervisors to limit the
benefit for current members or preclude the benefit for any
member not currently receiving the STAR COLA.
BACKGROUND AND ANALYSIS :
1) Existing law :
a) establishes the 1937 Act County Retirement Law, which
covers 20 independent county retirement systems,
including the Orange County Employees Retirement
Association (OCERA).
b) provides, for members of OCERA, a defined benefit based
on years of service, age factor at retirement, and
highest average final compensation, and provides that the
benefit may also be paid to a beneficiary or survivor of
the member, as actuarially determined.
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Date: 5/01/12 Page 1
c) establishes various levels of COLA that a county
employer may provide for retirees, including annual COLAs
of up to 2, 3, and 5 percent, pursuant to county
resolution.
d) requires that the annual COLA be determined based on
cost of living increases or decreases as determined by
the Bureau of Labor Statistics Consumer Price Index for
all Urban Consumers in the area in which the county seat
is located and be applied effective April 1st each year.
e) allows the board of retirement, when a retiree's
benefit is worth 80 percent or less of its original
purchasing power, to provide a supplemental COLA to those
retirees in addition to the standard COLA in order to
maintain the retiree's benefit at 80 percent of its
original purchasing power. This is referred to as the
STAR COLA.
f) generally requires that when pension benefits are
reduced, the reduced benefits apply only to employees
hired on or after the date the reduced benefits become
applicable.
g) requires the retirement system actuary to determine the
funded status of the retirement system and to set the
employer contribution rate, according to governmental
actuarial standards for public retirement systems.
h) gives the board of retirement plenary authority over
investing the retirement fund and ensuring the payments
of benefits for members and their beneficiaries and
survivors.
2) This bill :
a) allows the county board of supervisors to adopt a
resolution to prohibit the board of retirement from
providing the STAR COLA for any member who is not yet
receiving it as of the date of the resolution, and to
limit the STAR COLA from being increased
for those retirees already receiving it.
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Date: 5/01/12 Page 2
b) only applies to employees or officials of Orange
County with respect to the portion of their allowance
attributable to that service.
COMMENTS :
1) Argument in Support :
According to the author:
"This is an optional benefit that is currently granted
through the Board of Retirement each year. As it stands
today, STAR COLA only applies to employees who retired on
or before April 1, 1981, or to their qualified
survivors-known as the "Pre-1981 Group." These individuals
were hired during a time of high inflation during the
1980s, and therefore lost 80% of their purchasing power
over their career."
"The Board of Retirement has sole discretion in choosing to
grant STAR COLA each year. Under the jurisdiction of the
Board of Retirement, the STAR COLA must be granted in its
entirety and to all participants who are eligible, or not
granted at all. If the Board of Retirement does not
approve STAR COLA each year, then pensions of these 800
individuals will drop back down to 1981 levels. Even if
they cannot approve it one year, in order to prevent an
unfunded liability, but may be able to the next, by not
approving it one year the built up STAR COLA accumulation
drops. As long as jurisdiction lies fully with the Board
of Retirement, there is no discretion or flexibility in how
STAR COLA is granted, because it is currently all or
nothing."
"The STAR COLA has been reapproved each year, despite the
system being chronically underfunded. When STAR COLA is
granted while the system is chronically underfunded, the
County must either pay the additional immediate costs, or
exacerbate the unfunded liability within the system.
Currently the Orange County Employees Retirement System
unfunded actuarial accrued liability (UAAL) is $3.75
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Date: 5/01/12 Page 3
billion. The Board of Supervisors has no discretion
regarding the granting of this benefit, yet they are
responsible for paying the cost-whether or not the funds
are available. Because the governing entity is the most
knowledgeable about the County's fiscal situation, yet has
no control over this crucial element of the county's
budget, the county has a fractured government."
2) Arguments in Opposition :
According to the State Association of County Retirement
Systems, "This bill strikes at the heart of a retirement
board's plenary authority, vested in it by the California
Constitution, to administer the retirement system. This
bill would erode that authority and partially vest it with
the county board of supervisors."
As stated by the Orange County Employees Association, "This
discretionary benefit is paid solely to eligible retirees
and survivors who have lost more that 20 percent of their
original retirement benefit's purchasing power due to
inflation. This bill would thus target system participants
who have been retired from service for the longest periods
of time at the lowest benefit levels-those who can least
afford to cope with the decreased purchasing power of their
retirement benefit at a time in their lives when they are
least able to replace that income."
Other opponents note that COLAs are factored into the
contribution rates paid over an employee's career, and note
that retirement systems are considered to be at healthy
funding levels when they are funded at 90 percent or more.
3) SUPPORT :
County of Orange, Sponsor
4) OPPOSITION :
American Federation of State, County and Municipal
Employees (AFSCME), AFL-CIO
Association for Los Angeles Deputy Sheriffs (ALADS)
California Association of Professional Employees (CAPE)
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Date: 5/01/12 Page 4
California Professional Firefighters (CPF)
California Retired County Employees Association (CRCEA)
California State Sheriffs' Association (CSSA)
Los Angeles Police Protective League
Los Angeles Probation Officers' Union, AFSCME, Local 685
Orange County Employees Association (OCEA)
Orange County Professional Firefighters Association, IAFF
Local 3631
Riverside Sheriffs' Association
San Bernardino County Sheriff's Department
Service Employees International Union (SEIU), California
State Association of County Retirement Systems (SACRS)
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Date: 5/01/12 Page 5