Legislative Alert – May 2011

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In the May Budget Revision issued last week by Governor Brown, he proposed that the state give CalPERS $1.5 million to identify and study alternatives for a “hybrid” retirement plan, a cost-cutting combination of pensions and 401(k)-style individual investment plans. The development of a “hybrid” plan is one of the Governor’s remaining items in the 12-point pension reform plan he proposed last March. Brown issued the reform plan after a breakdown in talks with Republican legislators, who must provide at least four of the votes needed to extend expiring tax increases. The May Revision proposal states that the funding would pay for “pension-related consultation, technical advice, and fiscal analysis” from CalPERS and that the specific requests related to this funding would be coordinated by the Director of Finance. While some, including the Legislative Analyst’s Office, have questioned whether it is CalPERS’ place to be studying the feasibility of a defined contribution plan or component, according to a recent Wall Street Journal article CalPERS’ own officials say they now see the fund playing a leadership role in the national debate over whether to overhaul public pensions and replace them with defined contribution plans.



The California Foundation for Fiscal Responsibility, a non-profit founded by the late former Assemblyman Keith Richman, has proposed another round of pension reform initiatives that it will try to get on the next ballot. The first proposal is modeled on the federal government’s retirement system and recently was endorsed in concept by the state’s Little Hoover Commission, a nonpartisan panel that studies ways to make government function more efficiently. The second is a version of 401(k) plans widely used by private sector employers. The following is a summary of the provisions of the initiative that has already been filed:

  • Employees hired after July 1, 2013 eligible a for Defined Contribution plan
  • Pension for new employees will not exceed the defined benefit formula offered to federal workers on January 1, 2011* (for non-safety benefit at age 62 is 1.1% of highest three-year average salary multiplied by years of service; for safety it is 1.7% of highest three-years multiplied by 20 years of service plus 1% of highest three-year average salary times years of service exceeding 20)
  • Qualifying compensation not to exceed 75% of taxable Social Security wages
  • Minimum retirement age for pension raised to 62
  • Employees not covered by Social Security provided with a supplemental defined benefit equivalent of Social Security
  • Current and future employees pay half the cost of pension and retiree healthcare
  • Pension based on average of final three years compensation, excludes overtime, sick, vacation, bonuses, and severance
  • Retroactive benefit increases are prohibited
  • New employees may not receive lifetime medical benefits prior to age 65
  • Pension shall be provided by a joint powers authority, self-insurance or private companies
  • Public employers shall provide competitive life insurance and disability benefits integrated with retirement benefits and other insurance
  • Public employees can opt out of pension plan and select a lower-cost plan and/or can opt out of retiree health plan
  • Two-thirds of a public pension plan’s governing trustees shall be independent of the retirement system and two-thirds of independent trustees shall be certified or licensed financial, actuarial, accounting, legal, benefits or investment professionals.

Conversely, the pension reform initiative by former Assembly Member Roger Niello is now dead, as Niello recently indicated that he will not pursue collecting the signatures necessary for placing it on the ballot. The initiative would have eliminated retroactive pension increases, made full retirement age 62, required five consecutive years of full-time service for vesting, and limited benefits to 60% of the highest average 3 years base compensation. Niello remarked that the purpose of this measure was to have something in place for a November 2011 special election. With that special election now unlikely, he noted that the sense of urgency for the measure was no longer there but he may introduce it for next year’s ballot later.



Following are the retirement-related bills that have been introduced for the 2011-2012 Legislative Session that are still alive this year, and those that are now 2-year bills having failed to pass out of policy committee by the May 6 deadline. We will keep tracking these “alive” bills for further changes as the session moves forward and update their status in next month’s Legislative Alert.

Bills Still Alive

AB 89 (Hill) Public Retirement Benefits Limit

This bill specifies that for a person who first becomes a member of a public retirement system on or after January 1, 2012, the maximum salary upon which retirement benefits shall be based shall not exceed an amount set forth in IRC Title 26 section 401(a)(17) – $200,000. The bill also now prohibits public employers from making contributions to any qualified public retirement plan based on compensation exceeding that amount.

AB 340 (Furutani) County Employee Post-Retirement Service

This bill, on and after January 1, 2012, would prohibit a person who has been retired for service from a ’37 Act County retirement system from being reemployed in any capacity without reinstatement into the system for 6 months. This bill was amended to also prohibit a variety of payments including bonus payments, housing allowances, severance pay, vehicle allowances, and payments for unused vacation, sick leave, or some compensatory time off, from being included in final compensation calculations.

AB 344 (Furutani) PERS Retiree Appointments

This bill would delete the option for a PERS retiree to serve without reinstatement from retirement under an appointment that exceeds 960 hours in any fiscal year. The bill also prohibits any exceptions to the law prohibiting compensation increases during the final compensation period and 2 years preceding for employees not in a group or class.

AB 582 (Pan) Public Notice for Compensation Increases

This bill now requires that proposed compensation increases over 5 percent for unrepresented local agency employees be publicly noticed twice: first, for general notice, nonvoting and discussion purposes; second, in the event of a vote on the matter, no less than 12 days after the first notice, if the compensation increase is deemed necessary by the legislative body of the local agency. This bill covers: city managers, deputy city managers, county chief administrative officers, and deputy chief administrative officers.

AB 873 (Furutani) PERS and STRS Retiree Employment

This bill would now prohibit a retired STRS or PERS board member and certain officers from representing another person before PERS or STRS for 4 years and from assisting in a business activity for 2 years, if they participated with contracts or investments over $10 million during the previous 2 years. It also prohibits them from working as a placement agent in connection with PERS and STRS for 10 years.

AB 1028 (Comm. on Pub. Empl., Ret. and S. S.) PERS Housekeeping Bill

Along with modifying the definition of “pay rate” for school members to include amounts deducted for participation in a deferred compensation, retirement, money purchase pension, or flexible benefits plan, the PERS housekeeping bill now requires that emergency/special skills appointments of retired members without reinstatement be interim appointments to a vacant position during recruitment for a permanent appointment, and would prohibit an agency from appointing a retired person under this provision more than once.

AB 1184 (Gatto) Excess Compensation

This bill requires the cost of the increased retirement benefit because of “excessive compensation” (over a 15% increase from the prior employer) be paid for by the employer that approved that compensation. The bill also prohibits PERS from administering replacement plans for new hires.

AB 1247 (Fletcher) Retirement System Annual Reports

AB 1247 would require the PERS board to submit an annual report to the Legislature, Governor, and Treasurer, limiting the scope of the report to state employee retirement plans, and would revise the adjustments of the investment return assumptions and discount rates utilized by the board any time it calculates the contribution rates.

AB 1320 (Allen) Taxpayer Adverse Risk Prevention Account

This bill establishes a fund for each employer that would receive the excess of pension contributions not actuarially required so that the funds can be used in years when contributions are less than what is actuarially required (no employer contribution holidays). The employer contribution rate may be reduced when the account exceeds 50% of the employer’s assets.

SB 27 (Simitian) Compensation and Return-to-Work

For STRS members, SB 27: (1) prohibits one employee from being a class; (2) enhances provisions preventing pension spiking; (3) and shifts compensation paid in addition to salary or wages directly to the credit of the Defined Benefit Supplement Program. For both STRS and PERS members: (1) after January 1, 2013, prohibits a retiring member from returning to work for 6 months; (2) provides that any change in compensation principally for the purpose of enhancing a member’s benefits would not be included in the retirement benefit calculation; and (3) prohibits final compensation increases from exceeding the average increase received within the 2 preceding years by employees in the same or a related group.

SB 46 (Correa) Compensation Disclosure

This bill would require until January 1, 2019 all public officials to file an annual compensation disclosure form, to be posted by each public agency on their website. The Controller will develop the form.

SB 322 (McLeod) PERS Benefit Limit

This bill prohibits a PERS member who receives benefits based on credited service with multiple employers from receiving annual retirement benefits exceeding the federal dollar limitations set forth in IRC Section 415(b)(1)(A) of Title 26 – $195,000, even for service under multiple employers. SB 322 has passed the Senate.

SB 349 (Negrete McLeod) STRS Housekeeping Bill

Among other provisions, this bill requires that if a member dies during uniformed services, their service time be counted for the purpose of vesting and eligibility for membership; permits a retired member to work as a county or district superintendent or to perform trustee work for the Cash Balance Benefit Program; requires post-retirement compensation exemptions to submit paperwork within 60 days of commencement of work; would permit a member retired for service under the Cash Balance Benefit Program to perform specified activities as an employee of an employer in the system, as an employee of a 3rd party, or as an independent contractor within the California public school system, but would prohibit the member from making contributions to the retirement fund or accruing service credit based on compensation earned from that service. This bill is set for a hearing on May 2.

SB 350 (Negrete McLeod) PERS School Member Survivor Allowance

This bill would merge the first, second, and third levels of the 1959 Survivor Benefit for contracting local agencies of PERS that currently provide one of those levels of benefits to employees, and allow PERS to suspend employee premiums of $2 monthly when the funding pool is determined to contain surplus funds.

Two Year Bills (didn’t pass policy committee)

AB 558 (Portantino) Retirement Plan Distribution Penalties

This bill would, for taxable years beginning 2011 and 2013, waive the penalty tax for any early distribution of up to $25,000 per taxable year on individuals who have either exhausted or are ineligible for unemployment insurance benefits.

AB 758 (Wieckowski) STRS Postretirement Earnings Exemptions

This bill would extend the current exemptions to the postretirement earnings limitation for two more years, through June 30, 2014.

AB 870 (Grove) PERS Hybrid Plan

This bill would require PERS to create a hybrid defined benefit/defined contribution retirement plan for public employees hired on or after January 1, 2012.

AB 875 (Donnelly) Final Compensation Restrictions

AB 875 would prohibit PERS members first hired on or after January 1, 2012 from including accrued leave of any form or credit for overtime work in the calculation of final compensation.

AB 961 (Mansoor) Collective Bargaining

This bill would prohibit collective bargaining of pension benefits for public employees.

SB 115 (Strickland) Public Employee Felony

This bill would require a public officer or employee convicted of certain felonies for conduct arising directly out of his or her official duties on or after January 1, 2012 to forfeit all retirement benefits accrued on or after January 1, 2012.

SB 355 (Huff) Teacher Layoffs

This bill would allow school districts to base employee terminations on performance evaluations and the needs of the educational program. The bill would also authorize a school district to deviate from seniority when reappointing employees or offering substitute service.

SB 520 (Walters) PERS Hybrid Plan

SB 520 would require PERS to create a hybrid defined benefit/defined contribution retirement plan for public employees who become members on or after January 1, 2012.

SB 521 (Walters) PEMHCA Post-Employment Healthcare

This bill would require the board to determine the actuarially-required contributions necessary to ensure that post-employment health care benefits provided under PEMHCA are fully funded. The bill would require an employee first hired on or after January 1, 2012 and his or her employer to each pay 50% of those actuarially-required contributions, to be deposited into the Annuitants’ Health Care Coverage Fund.

SB 522 (Walters) Air-time

This bill eliminates the ability to purchase additional service credit years or ‘air-time’ for all state retirement members.

SB 524 (Walters) Retroactive Benefit Increases

This bill would require that any increase in any state retirement system’s member retirement benefits apply only to service performed after the operative date of the adjustment and would prohibit retroactive application.

SB 525 (Walters) PERS Retirement Eligibility

The bill would prohibit a PERS member hired on or after January 1, 2012, except for safety members, from retiring prior to reaching age 55.

SB 526 (Walters) Final Compensation

This bill requires that final compensation be based on highest the 3-year average, and prohibits the inclusion of credit for accrued leave or overtime, for all state retirement system members hired on and after January 1, 2012.

SB 527 (Walters) Collective Bargaining

SB 527 prohibits collective bargaining of pension benefits for public employees, with the exception of the employee contribution amount.

SB 528 (Walters) PERS Board Appointments

This bill would provide for the appointment of the 6 board members by the Governor based on their demonstrated expertise in the financial and actuarial fields.

SB 689 (Harman) Pension Reporting

This bill would require all state and local retirement systems to file a report quarterly instead of annually with the Legislature, Department of Finance, and the Legislative Analyst’s Office, secure the services of an actuary biennially instead of triennially, and specifically report on retirees receiving a pension of over $100k. The reports are to include: classification, department or agency, and pension amount.

SB 820 (Walters) State Employer Contribution Rates

This bill would require PERS to submit annual contribution rate reports and would limit scope to include only contribution rates for the state employer. The PERS board would be required to include a calculation of the liabilities of the fund using discount rates equal to (1) the average rate of investment return since establishment of the fund, and (2) the average rate of investment return since Jan 1, 1984.



Following are important dates/deadlines for the 2011 legislative year:

May 27 – Last day for fiscal committees to hear and report bills introduced in their house

Jun. 3 – Last day to pass bills out of house of origin

Jun. 15 – Budget Bill must be passed by midnight (ha!)

July 8 – Last day for policy committees to hear and report bills

July 15 – Summer Recess

Aug. 15 – Legislature reconvenes

Aug. 26 – Last day for fiscal committees to hear and report bills to the Floor

Sept. 2 – Last day to amend on the Floor

Sept. 9 – Last day for any bill to be passed

Oct. 9 – Last day for Governor to sign or veto bills

Nov. 2 – General Election.


Feel free to contact PARS with any question or requests for further information. Additional news, and an archive of past Legislative Alerts, is available on the PARS website at www.pars.org.

Thank you,

Maureen Toal
Vice President, Public Affairs
Public Agency Retirement Services (PARS)
(800) 540-6369 ext. 135

The contents of this publication reflect PARS’ understanding of the facts. Before taking any action based on this information, consult professional advisors regarding your agency’s specific objectives and circumstances. For further information, contact PARS.


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