Legislative Alert – March 2012

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CalPERS gave final approval in March to reduce its investment return forecast a quarter-point from 7.75% to 7.5%. CalPERS actuarial staff proposed lowering the discount rate to 7.25% but the Board of Administration decided against the larger decrease due to the fiscal pressure it would put on local agencies. The lowered forecast will raise the contribution rates for local governments. CalPERS is planning a two-year phase in of rate increases using the “smoothing” approach they have used in the past to soften the impact.

CalPERS has averaged 8.4% gains over the past two decades but earned just 1.1% in the 2011 calendar year. The lower discount rate will force increased projected contribution rates for public employers of 1 to 2% of payroll for miscellaneous plans and 2 to 3% of payroll for safety plans. Service credit purchase costs will increase 5 to 13% and members who elect some beneficiary benefit will see a 2% cost increase. School districts, which use CalPERS for classified employees, will also have to contribute an extra $137 million.



Over the past few months, we tracked six pension reform initiatives that had been cleared by the Secretary of State for circulation. In March, the sixth and final remaining initiative was announced to have failed to gather enough signatures to qualify for the November 2012 ballot. With this failure, and the California Pension Reform group choosing not to pursue signature gathering for either of its ballot measures, pension reform in 2012 now rests squarely on the shoulders of the Governor and Legislature, where a joint committee on pension reform will report its findings and any proposed legislative measures in the coming months.



The following is a full list of retirement-related bills that have either carried over from 2011 or were newly introduced this year for the 2011-12 Legislative Session. We don’t expect to see much movement on these bills until the joint legislative committee on pension reform reports its findings and legislative proposals in the coming months.

AB 340 (Furutani) County Employee Post-Retirement Service

AB 340 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 also prohibits unscheduled overtime, payments for unused vacation, sick leave, or time off, and housing and vehicle allowances from being included in final compensation calculations.

AB 344 (Furutani) PERS Retiree Appointments

This bill would eliminate 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 preceding years for employees not in a group or class.

AB 1184 (Gatto) Excess Compensation

This bill is in response to the City of Bell scandal. The bill requires PERS to develop guidelines so that an agency does not experience a significant increase in actuarial liability due to increased compensation paid by another agency to a non-represented employee, and to implement program changes to ensure that a contracting agency that creates a significant increase in actuarial liability due to increased compensation bears that associated liability. The bill also prohibits PERS from administering replacement plans for new hires.

AB 1248 (Hueso) Social Security Mandate

AB 1248 requires cities and counties to provide social security coverage to all employees not covered under a defined benefit plan, unless they are already covered under an alternate benefit plan for part-time, seasonal, and temporary employees by July 1, 2011 (proposed amendments will change that date to July 1, 2012). The bill would significantly restrict the ability of any city or county from moving their part-time, seasonal, and temporary employees in social security or a defined benefit plan to a less costly alternative defined contribution plan in the future.

AB 1320 (Allen) Taxpayer Adverse Risk Prevention Account

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

AB 1633 (Wagner) Retirement Benefit Cap

AB 1633 caps retirement benefits for new hires of any public retirement system at $100,000 if the member is not covered by Social Security and $80,000 if they are.

AB 1639 (Hill) Benefit Formula Compensation Cap

This bill prohibits retirement benefits from being based on any amount exceeding federal revenue limits under section 401(a)(17) – which is now $250,000.

AB 1653 (Cook) Pension Forfeiture for Felony

This bill would require any public officer or staffer, hired after Jan 1, 2013, convicted of a felony to forfeit all retirement benefits.

AB 1908 (Alejo) Layoff Notices

AB 1908 changes the advance written notice requirement for classified employees of a school district or community college district from at least 45 days to 60 days if the termination date of a specially funded program is other than June 30, or if a classified employee is subject to layoff as a result of a bona fide reduction or elimination of a service performed by a department.

AB 1949 (Cedillo) 403(b) Vendors

This bill allows education agencies to limit the amount of vendors allowed to market 403(b) plans to their employees. The bill authorizes a school district, county office of education, or charter school to select 4 or more 403(b) vendors.

AB 2224 (Smyth) Retirement Reform Bill

This bill makes the following retirement reforms: (1) eliminates air time; (2) eliminates retroactive benefit enhancement; (3) requires hybrid pension plan option; (4) bases final compensation on 3 years average; (5) requires the normal cost of retirement contributions to be paid each year; (6) prohibits employer pickup of employee contributions; (7) prohibits reemployment without reinstatement to the retirement system except in an emergency; and (8) vests employer paid contributions for retiree healthcare at 50% for 15 years of service and 100% for 25 years of service.

AB 2275 (Achadjian) STRS Postretirement Earnings

This bill extends STRS postretirement earnings limit exemptions until June 30, 2014.

AB 2416 (Mansoor) Retirement Reserve Funds

AB 2416 requires every public retirement system to create a reserve fund if it does not have one. The bill requires any excess funds to be placed in the reserve fund to be used against deficiencies in other fiscal years, and prohibits assets in the reserve fund from being used for benefit payments.

AB 2663 (Assembly Retirement Committee) STRS Housekeeping Bill

Among other things, the STRS Housekeeping Bill: (1) requires, for employees of multiple employers, unused excess sick leave days to be paid for by the employer for which the member was eligible to use those excess sick leave days; (2) allows retired members to perform postretirement work for “creditable service” under the Cash Balance Benefit Program; and (3) prohibits certain reductions in an annuity payment for retired members of the Cash Balance Program who perform creditable service.

ACA 22 (Smyth) Retirement Reform

ACA 22 requires each public retirement system to provide a hybrid pension plan, bases final compensation on an average of 3 consecutive years, prohibits retroactive benefit increases, and prohibits employer “pickup” of employee contributions.

ACA 26 (Smyth) Retirement Forfeiture

This constitutional amendment requires forfeiture of retirement benefits for any public employee convicted of certain felonies.

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

For both PERS and STRS members, SB 27: (1) prohibits a retiring member, after January 1, 2013, 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 retirement benefit calculations; and (3) prohibits final compensation increases from exceeding the average increase received in the 2 preceding years by employees in the same or a related group. 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.

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 827 (Simitian) Conference Committee

This is the Senate bill that also convened the conference committee on public pension reform.

SB 1141 (Walters) Retiree Healthcare in Cities/UC

SB 1141 prohibits a public employer, for employees first hired on or after January 1, 2013, from entering into a collective bargaining agreement that provides for defined retiree healthcare benefits unless each employee pays at least 50 percent of the actuarially required contributions to fund those benefits.

SB 1142 (Walters) Retiree Healthcare Ban

This bill prohibits all public employers from providing postemployment healthcare benefits for employees first hired on or after January 1, 2013 unless it fully funds those benefits.

SB 1143 (Walters) Retiree Healthcare Funding

This bill requires all public employers to fund retiree healthcare benefits in accordance with generally accepted accounting principles for governments to ensure that those benefits are fully funded.

SB 1176 (Huff) Pension Reform Bill

This bill also puts into legislation the Governor’s pension reform proposals, including: (1) eliminates airtime; (2) prohibits retroactive benefit increases; (3) requires public employers to offer a hybrid retirement plan; (4) any elected employee who commits a felony forfeits retirement benefits; (5) bases final compensation calculations on 3 consecutive years average; (6) prohibits employer pickup of employee contributions; (7) prohibits postretirement employment without reinstatement to the pension system except during an emergency; (8) limits employer contributions for retiree healthcare to 50% with 15 years of service with 100% contribution only after 25 years of service.

SB 1231 (Walters) ’37 Act County Retirement COLAs

SB 1231 prohibits cost of living increases in ’37 Act counties if the retirement system is not fully funded, or if the benefit will require additional county contributions or create an unfunded liability.

SCA 13 (Cannella) Retirement Reform Amendment

This Senate Constitutional Amendment: (1) prohibits retroactive benefit increases; (2) requires any defined benefit pension plan to be offered only as part of a hybrid plan and can only be based on 3 year average final pay; (3) raises employee contribution rates 5% until a plan is 90% funded; (4) allows contribution holidays only if a plan is 120% funded; (5) prohibits employer pickup of employee contributions; (6) eliminates airtime purchases; (7) prohibits retiree reemployment; and (8) requires 25 year vesting for full retiree healthcare benefits.

SCA 18 (Huff) Public Employee Retirement Reform

SCA 18 would require each public retirement system to: (1) provide a hybrid pension plan; (2) base final compensation on an average of 3 consecutive years final pay; (3) prohibit retroactive benefit increases; (4) prohibit employer pickup of employee contributions; and (5) eliminate airtime service credit purchases.



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

March 29 Spring recess

April 9 Legislators return from spring recess

May 15 Governor’s May Revision for the budget

June 15 California Constitution requires Budget Bill passed by midnight

June 30 Constitution requires the Budget Bill be enacted by the Governor

July 6 Last day for policy committees to meet, summer recess begins

August 6 Legislature returns from summer recess

August 31 Last day for Legislature to pass bills and send to Governor

September 30 Last day for Governor to sign or veto bills


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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