Legislative Alert – May 2012

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A month ago, the Assembly Public Employees, Retirement, and Social Security Committee referred nine public pension reform bills to the joint legislative Conference Committee on Public Employee Benefits. Committee Chair Warren Furutani had previously stated that bills addressing pensions and benefits would need to be reviewed by the Conference Committee before being considered. The question remains whether any other retirement-related bills will be referred to the Conference Committee or if the rest are now dead. The Conference Committee will be reporting its legislative recommendations soon. The bills referred are as follows:

Bill # (Author)


AB 1633 (Wagner, R-Irvine) Caps retirement benefits for new hires of any public retirement system at $80,000 if the member is covered by Social Security and $100,000 if not.
AB 1639 (Hill, D-South San Francisco) Prohibits retirement benefits from being based on any amount exceeding federal revenue limits under section 401(a)(17) – which is now $250,000.
AB 1649 (Smyth, R-Santa Clarita) Requires a public employee convicted of any violent or serious felony or a sex offense arising out of his or her official duties to forfeit retirement benefits.
AB 1653 (Cook, R-Yucaipa) Requires any public officer or staffer hired after Jan 1, 2013 to forfeit all retirement benefits if convicted of a felony.
AB 1681 (Smyth, R-Santa Clarita) Requires a school employee convicted of a felony arising out of his or her official duties to forfeit retirement benefits.
AB 1874 (Mansoor, R-Costa Mesa) Closes the Legislators’ Retirement System to new members first elected on or after January 1, 2013. They would instead become CalPERS members.
AB 2224 (Smyth, R-Santa Clarita) Makes the following retirement reforms: (1) eliminates air time; (2) eliminates retroactive benefit enhancement; (3) requires a 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 re-employment without reinstatement to the retirement system except in an emergency; and (8) vests employer contributions for retiree healthcare at 50% for 15 years of service and 100% for 25 years of service.
AB 2275 (Achadjian, R-San Luis Obispo) Extends STRS postretirement earnings limit exemptions until June 30, 2014.
AB 2429 (Hagman, R-Chino Hills) Prohibits local officials elected to office on or after January 1, 2013 and working less than full time from becoming members of a retirement system or receiving health benefits during service or postemployment health benefits.



The CalPERS Board approved new contribution rates that will go into effect July 1, 2012.

The CalPERS contribution rate for school employers of 11.417 percent was approved by the CalPERS Board at its May 16, 2012 meeting. That rate is an increase of nearly 0.5 percent over the current 10.923% in 2011-12.  Employer contribution amounts for classified school members will be $1.2 billion. This increase over last year’s contribution rates is partially due to the CalPERS Board lowering the expected investment return rate (discount rate) from 7.75 to 7.5 percent in March. Contribution increases would have been even higher had the Board not adopted a gradual phase-in for increasing rates.


The CalSTRS Board determines the amount of the postretirement earnings it allows retirees to earn each year. The Board voted in May to continue the 2011-12 limit of $31,020 through June 30, 2013. Earnings over this limit by a retired CalSTRS member that returns to CalSTRS-covered work will cause a dollar-for-dollar reduction in their retirement benefit. The law allowing a number of exemptions from this earnings limitation is due to sunset on June 30, 2012.

Assembly Bill 2275 (Achadjian) was introduced this year to extend the current earnings limit exemptions through 2013-14. This bill has an urgency clause, meaning that if passed it will take effect as soon as it is signed by the Governor, but it also requires a two-thirds vote of each house of the Legislature for passage. Along with most other retirement-related legislation, the bill was referred to the Conference Committee on Pension Reform. The Committee is not expected to issue its report until after the Budget Act is signed, which could be after the exemptions expire.

The CalSTRS Board also recently adopted the June 30, 2011 actuarial valuation of the pension program. The valuation reflects a two-percent decrease in the funding status from the previous year as the final impact of the extraordinary losses in 2008-09 is recognized. This year was the 3rd and final of the three year smoothing period CalSTRS used to phase in the investment losses. The latest valuation shows a funding level of 69 percent, leaving the fund with a $64.5 billion funding shortfall.


The following is a list of retirement-related bills not already mentioned that are still alive for the 2011-12 Legislative Session.  Most of them are two-year bills meaning they survived year one and are therefore technically still viable. We don’t expect to see much movement on these bills until the conference 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 re-employed 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 originally required cities and counties to provide Social Security coverage to all employees not covered under a defined benefit plan, and would have made it extremely difficult for those employers to move 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. On May 21, however, the bill was amended to pertain only to the City of San Diego. The amended out language could be included in some form when the pension reform conference committee reports this summer so we will keep watch for any such developments.

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 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.

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

For both PERS and STRS members, SB 27: (1) prohibits a member retiring 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. (Two-year bill)

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.


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

June 1 – Last day for bills to pass their house of origin

June 15 – California Constitution requires Budget Bill passed by midnight

June 30 – Constitution requires Budget Bill enacted by the Governor

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

August 6 – Legislature returns from summer recess

August 17 – Last day for fiscal committees to meet and report bills to the Floor

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. Go to “News Center” and then click on “Legislative Updates”.

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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