Amended in Senate April 2, 2014

Senate Bill No. 1251

Introduced by Senator Huff

February 20, 2014

An act to amend Section begin delete 7522.04 end delete begin insert 7522.02 end insert of the Government Code, relating to public employees’ retirement.

LEGISLATIVE COUNSEL’S DIGEST

SB 1251, as amended, Huff. California Public Employees’ Pension Reform Act of begin delete 2013. end delete begin insert 2013: joint power authority: employees. end insert

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The California Public Employees’ Pension Reform Act of 2013 (PEPRA) requires a public retirement system, as defined, to modify its plan or plans to comply with the act and, among other provisions, establishes new retirement formulas that may not be exceeded by a public employer offering a defined benefit pension plan for employees first hired on or after January 1, 2013. PEPRA authorizes individuals who were employed by any public employer before January 1, 2013, and who became employed by a subsequent public employer for the first time on or after January 1, 2013, to be subject to the retirement plan that would have been available to employees of the subsequent employer who were first employed by the subsequent employer on or before December 31, 2012, if the individual was subject to reciprocity, as specified.

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Existing law, the Joint Exercise of Powers Act, generally authorizes 2 or more public agencies, by agreement, to jointly exercise any common power, which may include hiring employees and establishing retirement systems.

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This bill would authorize a joint powers authority formed by one or more public employers, on or after January 1, 2013, to provide employees meeting specified criteria with the defined benefit plan or formula that was available to employees of the employer on December 31, 2012. This bill would prohibit the formation of a joint powers authority on or after January 1, 2013, in a manner that would exempt a new employee or a new member from the requirements of PEPRA.

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The California Public Employees’ Pension Reform Act of 2013 (PEPRA) generally requires a public retirement system, as defined, to modify its pension plan or plans to comply with the act, as specified. Among other things, PEPRA prohibits a public employer offering a defined benefit pension plan from exceeding specified retirement formulas for new members and prohibits an enhancement of a public employee’s retirement formula or benefit adopted after January 1, 2013, from applying to service performed prior to the operative date of the enhancement. PEPRA prescribes definitions for the purposes of its provisions.

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This bill would make nonsubstantive changes to the definitional provisions of PEPRA.

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Vote: majority. Appropriation: no. Fiscal committee:  begin delete no end delete begin insert yes end insert . State-mandated local program: no.

The people of the State of California do enact as follows:

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begin insert SECTION 1. end insert   

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begin insert Section 7522.02 of the end insert begin insert Government Code end insert begin insert is
amended to read: end insert

7522.02.  

(a) (1) Notwithstanding any other law, except as
provided in this article, on and after January 1, 2013, this article
shall apply to all state and local public retirement systems and to
their participating employers, including the Public Employees’
Retirement System, the State Teachers’ Retirement System, the
Legislators’ Retirement System, the Judges’ Retirement System,
the Judges’ Retirement System II, county and district retirement
systems created pursuant to the County Employees Retirement
Law of 1937, independent public retirement systems, and to
individual retirement plans offered by public employers. However,
this article shall be subject to the Internal Revenue Code and
Section 17 of Article XVI of the California Constitution. The
administration of the requirements of this article shall comply with
applicable provisions of the Internal Revenue Code and the
Revenue and Taxation Code.

(2) Notwithstanding paragraph (1), this article shall not apply
to the entities described in Section 9 of Article IX of, and Sections
4 and 5 of Article XI of, the California Constitution, except to the
extent that these entities continue to be participating employers in
any retirement system governed by state statute. Accordingly, any
retirement plan approved before January 1, 2013, by the voters of
any entity excluded from coverage by this section shall not be
affected by this article.

(3) (A) Notwithstanding paragraph (1), this article shall not
apply to a public employee whose interests are protected under
Section 5333(b) of Title 49 of the United States Code until a federal
district court rules that the United States Secretary of Labor, or
his or her designee, erred in determining that the application of
this article precludes certification under that section, or until
January 1, 2015, whichever is sooner.

(B) If a federal district court upholds the determination of the
United States Secretary of Labor, or his or her designee, that
application of this article precludes him or her from providing a
certification under Section 5333(b) of Title 49 of the United States
Code, this article shall not apply to a public employee specified
in subparagraph (A).

(4) Notwithstanding paragraph (1), this article shall not apply
to a multiemployer plan authorized by Section 302(c)(5) of the
Taft-Hartley Act (29 U.S.C. Sec. 186(c)(5)) if the public employer
began participation in that plan prior to January 1, 2013, and the
plan is regulated by the Employee Retirement Income Security
Act of 1974.

(b) The benefit plan required by this article shall apply to public
employees who are new members as defined in Section 7522.04.

(c) (1) Individuals who were employed by any public employer
before January 1, 2013, and who became employed by a subsequent
public employer for the first time on or after January 1, 2013, shall
be subject to the retirement plan that would have been available
to employees of the subsequent employer who were first employed
by the subsequent employer on or before December 31, 2012, if
the individual was subject to concurrent membership for which
creditable service was performed in the previous six months or
reciprocity established under any of the following provisions:

(A) Article 5 (commencing with Section 20350) of Chapter 3
of Part 3 of Division 5 of Title 2.

(B) Chapter 3 (commencing with Section 31450) of Part 3 of
Division 4 of Title 3.

(C) Any agreement between public retirement systems to provide
reciprocity to members of the systems.

(D) Section 22115.2 of the Education Code.

(2) An individual who was employed before January 1, 2013,
and who, without a separation from employment, changed
employment positions and became subject to a different defined
benefit plan in a different public retirement system offered by his
or her employer shall be subject to that defined benefit plan as it
would have been available to employees who were first employed
on or before December 31, 2012.

(d) If a public employer, before January 1, 2013, offers a defined
benefit pension plan that provides a defined benefit formula with
a lower benefit factor at normal retirement age and results in a
lower normal cost than the defined benefit formula required by
this article, that employer may continue to offer that defined benefit
formula instead of the defined benefit formula required by this
article, and shall not be subject to the requirements of Section
7522.10 for pensionable compensation subject to that formula.
However, if the employer adopts a new defined benefit formula
on or after January 1, 2013, that formula must conform to the
requirements of this article or must be determined and certified by
the retirement system’s chief actuary and the retirement board to
have no greater risk and no greater cost to the employer than the
defined benefit formula required by this article and must be
approved by the Legislature. New members of the defined benefit
plan may only participate in the lower cost defined benefit formula
that was in place before January 1, 2013, or a defined benefit
formula that conforms to the requirements of this article or is
approved by the Legislature as provided in this subdivision.

(e) If a public employer, before January 1, 2013, offers a
retirement benefit plan that consists solely of a defined contribution
plan, that employer may continue to offer that plan instead of the
defined benefit pension plan required by this article. However, if
the employer adopts a new defined benefit pension plan or defined
benefit formula on or after January 1, 2013, that plan or formula
must conform to the requirements of this article or must be
determined and certified by the retirement system’s chief actuary
and the system’s board to have no greater risk and no greater cost
to the employer than the defined benefit formula required by this
article and must be approved by the Legislature. New members of
the employer’s plan may only participate in the defined
contribution plan that was in place before January 1, 2013, or a
defined contribution plan or defined benefit formula that conforms
to the requirements of this article. This subdivision shall not be
construed to prohibit an employer from offering a defined
contribution plan on or after January 1, 2013, either with or without
a defined benefit plan, whether or not the employer offered a
defined contribution plan prior to that date.

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(f) (1) If one or more public employers, on or after January 1,
2013, form a joint powers authority pursuant to the provisions of
the Joint Exercise of Powers Act (Article 1 (commencing with
Section 6500) of Chapter 5), that joint powers authority may
provide the following employees with the defined benefit plan or
formula that would have been available to employees of the
employer on December 31, 2012:

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(A) An employee of that public employer or employers that was
hired prior to January 1, 2013, and was not subject to the
provisions of this article, and was subsequently employed by the
joint powers authority without a break in service of more than 180
days.

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(B) An employee of that public employer or employers that was
hired on or after January 1, 2013, but would otherwise be exempt
from this article pursuant to subdivision (c), and was subsequently
employed by the joint powers authority without a break in service
of more than 180 days.

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(2) If there was more than one retirement plan or formula in
place on December 31, 2012, due to there being more than one
employer, then the joint powers authority shall indicate which
defined benefit plan or formula shall apply to employees of the
authority who are exempt from this article pursuant to this
subdivision.

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(3) The formation of a joint powers authority on or after January
1, 2013, shall not act in a manner as to exempt a new employee
or a new member, as defined by Section 7522.04, from the
requirements of this article. New members may only participate
in a defined benefit plan or formula that conforms to the
requirements of this article.

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(4) This subdivision shall not be construed to prohibit an
employer or employers from forming a joint powers authority on
or after January 1, 2013, and providing to all employees the
defined benefit plan and formula that conforms to the requirements
of this article.

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(f)

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begin insert (g) end insert  The Judges’ Retirement System and the Judges’ Retirement
System II shall not be required to adopt the defined benefit formula
required by Section 7522.20 or 7522.25 or the compensation
limitations defined in Section 7522.10.

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(g)

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begin insert (h) end insert  This article shall not be construed to provide membership
in any public retirement system for an individual who would not
otherwise be eligible for membership under that system’s
applicable rules or laws.

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(h)

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begin insert (i) end insert  On and after January 1, 2013, each public retirement system
shall modify its plan or plans to comply with the requirements of
this article and may adopt regulations or resolutions for this
purpose.

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SECTION 1.  

Section 7522.04 of the Government Code is
amended to read:

7522.04.  

For the purposes of this article:

(a) “Defined benefit formula” means a formula used by a
retirement system to determine a retirement benefit based on age,
years of service, and pensionable compensation earned by an
employee up to the limit defined in Section 7522.10.

(b) “Employee contributions” means the contributions to a public
retirement system required to be paid by a member of the system,
as fixed by law, regulation, administrative action, contract, contract
amendment, or other written agreement recognized by the
retirement system as establishing an employee contribution.

(c) “Federal system” means the old age, survivors, disability,
and health insurance provisions of the federal Social Security Act
(42 U.S.C. Sec. 301 et seq.).

(d) “Member” means a public employee who is a member of a
public retirement system or plan.

(e) “New employee” means either of the following:

(1) An employee, including one who is elected or appointed, of
a public employer who is employed for the first time by a public
employer on or after January 1, 2013, and who was not employed
by another public employer prior to that date.

(2) An employee, including one who is elected or appointed, of
a public employer who is employed for the first time by a public
employer on or after January 1, 2013, and who was employed by
another public employer prior to that date, but who was not subject
to reciprocity under subdivision (c) of Section 7522.02.

(f) “New member” means any of the following:

(1) An individual who becomes a member of a public retirement
system for the first time on or after January 1, 2013, and who was
not a member of another public retirement system prior to that
date.

(2) An individual who becomes a member of a public retirement
system for the first time on or after January 1, 2013, and who was
a member of another public retirement system prior to that date,
but who was not subject to reciprocity under subdivision (c) of
Section 7522.02.

(3) An individual who was an active member in a retirement
system and who, after a break in service of more than six months,
returned to active membership in that system with a new employer.
For purposes of this subdivision, a change in employment between
state entities or from one school employer to another shall not be
considered as service with a new employer.

(g) “Normal cost” means the portion of the present value of
projected benefits under the defined benefit that is attributable to
the current year of service, as determined by the public retirement
system’s actuary according to the most recently completed
valuation. For the purpose of determining normal cost, the system’s
actuary may use a single rate of contribution or an age-based rate
of contribution as is applicable to that retirement system.

(h) “Public employee” means an officer, including one who is
elected or appointed, or an employee of a public employer.

(i) “Public employer” means:

(1) The state and every state entity, including, but not limited
to, the Legislature, the judicial branch, including judicial officers,
and the California State University.

(2) A political subdivision of the state, or agency or
instrumentality of the state or subdivision of the state, including,
but not limited to, a city, county, city and county, a charter city, a
charter county, school district, community college district, joint
powers authority, joint powers agency, and any public agency,
authority, board, commission, or district.

(3) Any charter school that elects or is required to participate
in a public retirement system.

(j) “Public retirement system” means a pension or retirement
system of a public employer, including, but not limited to, an
independent retirement plan offered by a public employer that the
public employer participates in or offers to its employees for the
purpose of providing retirement benefits or a system of benefits
for public employees that is governed by Section 401(a) of Title
26 of the United States Code.

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