Legislative Alert – June 2011Categories: Legislative Updates
The California Legislature finally passed an on-time budget on June 15. Unfortunately for legislators and their wallets, the budget was vetoed the next day by Governor Jerry Brown. Democrats pushed the plan on a majority vote (now allowed by Prop 25 of last year, because it did not include tax increases) because Republicans blocked a November ballot measure on tax extensions. Brown’s veto message directly cited allowing a public vote on tax extensions. He also mentioned “not a balanced solution…deficits for years to come…billions of dollars of new debt…costly borrowing…”
However, on June 28, the Legislature again passed a majority vote budget, this time apparently with Brown’s blessing. What’s different about this budget plan? Well, a structural $5 billion deficit means an unbalanced solution, deficits for years to come, billion in new debt, costly borrowing, etc. This budget, though, does incorporate a rosy forecast of state tax revenue, with a $4 billion increase. It provides roughly the same amount of funding for K-14 schools as the previously vetoed budget, redirects 1% of state sales tax revenues to local government for realignment costs (which also reduces the Prop 98 minimum guarantee for education), and includes a trigger that will apply midyear reductions of $2.6 billion (targeted mostly to education) if actual revenues do not keep pace with the new estimates.
The plan was pushed by Democrats to narrow a $9.6 billion deficit as an alternative to Gov. Brown’s original proposal which was unable to win the two-thirds majority support needed because it included plans to raise taxes. Additionally, this year, for the first time, legislators faced losing pay for each day the budget was late, which no doubt added pressure to move forward with the majority vote plan. There were no pension reform measures included in the budget, something Brown has been adamant he wanted included in any solution, so we will have to wait and see if any such reforms make trailer bills or will need to go through the normal legislative process.
… RETIREMENT-RELATED BILLS
Following are the public employee 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 their house of origin by the June 3 deadline. We will keep tracking these 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, after January 1, 2012, would prohibit a person who has been retired for service from a ’37 Act County retirement system from being re-employed in any capacity without reinstatement into the system for 6 months. This bill was amended to also prohibit a variety of payments, including unscheduled overtime, payments for unused vacation, sick leave, or compensatory time off, and housing and vehicle allowances 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 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 in obtaining the award of, or in negotiating, a contract or contract amendment with PERS or STRS. 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 “payrate” 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 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. This bill has passed both houses and was sent to the Governor on June 21.
SB 349 (Negrete McLeod) STRS Housekeeping Bill
The STRS housekeeping bill makes various technical and minor policy (and sometimes not so minor) changes to increase the efficiency of the pension plan and its programs. Among other technical provisions, this bill makes conforming changes to reconcile differences between the defined benefit pension plan and the Cash Balance plan. The bill removes the $500 late-reporting penalty for the DB and Cash Balance Benefit (CB) programs and specifies that retired DB members are not allowed to make contributions to the CB Program. The bill also specifies that the zero-dollar earnings limit for members who retire under the normal retirement age of 60 applies to a member’s age at the most recent retirement and makes conforming changes to reconcile the differences between the DB and the CB post-retirement employment limitations; including reducing the time CB retirees must wait to return to work to the earlier of 180 days or age 60, allowing retirees over 60 to perform service without limitation, and requiring post-retirement earnings limit exemption paperwork to be filed within 60 days.
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.
2 Year Bills – Dead for the Year
AB 558 (Portantino) Retirement Plan Distribution Penalties
For taxable years beginning 2011 and 2013, this bill would 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 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 and 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 758 (Wieckowski) STRS Postretirement Earnings Exemptions
This bill extends 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 prohibits PERS members first hired on and 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 now prohibits collective bargaining of pension benefits for public employees.
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 its website. The Controller will develop the form. A hearing date for this bill has been scheduled for April 6.
SB 115 (Strickland) Public Employee Felony
This bill now requires 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 also would authorize a school district to deviate from seniority when reappointing employees or offering substitute service.
SB 520 (Walters) PERS Hybrid Plan
SB 520 requires 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 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 members 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 prohibits 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 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 now requires 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 now requires 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:
June 3 – Last day for each house to pass bills introduced in that house
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.
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.