Legislative Alert – June 2012Categories: Legislative Updates
…PENSION REFORM RUMORS
While we are still awaiting bill language to be released by the Conference Committee on Pension Reform, there are rumors swirling that this could come soon after a budget is signed (which occurred on June 28th). A few of the proposals are ideas taken from the Governor’s previous 12-point plan, with some tweaks. Proposals rumored to be in the package include: eliminating “air-time” service credit purchases, prohibiting retroactive benefit increases, forfeiting benefits if convicted of a felony, prohibiting contribution “holidays”, and restricting the use of retirees to fill positions. A new “hybrid” retirement plan could be included with a defined benefit component supplemented by a defined contribution component – possibly a cash balance-type plan. Benefits are also likely to be capped. Cost for the retirement benefits could either be shared on a mandatory 50-50 employee/employer basis, or a split could be bargained at the local level. The new plan is likely to apply to all new employees of all public retirement systems.
In addition to the Conference Committee’s eventual proposals, Governor Brown is lobbying to reduce the use of retirees collecting a pension for filling state positions. The idea is to eliminate the practice of “double-dipping” – when employees collect both a paycheck and pension benefits at the same time from the state. In fact, Brown and SEIU recently came to an agreement where the Union agreed to a 5% pay reduction via twelve furlough days and the removal of retired workers from payroll by Sept 1.
… PENSION REFORM REALITIES
In additional to pension reforms at the state level, there are major pension reforms that have already occurred at the local level. Early in June, voters in San Diego and San Jose, two of the ten largest cities in the nation, overwhelmingly voted to curb public employee pension benefits.
In San Diego, Proposition B freezes the defined benefit pension plan, moving new hires into a defined contribution plan with a city match – much like a private sector 401(k). San Diego’s payroll will also be capped for five years at its 2011 level with only base salary used to compute pensions.
In San Jose, Measure B allows current employees to keep pension credits already earned but they must now choose to pay up to 16 percent more of their salary to continue that benefit or move to a lower benefit for the rest of their city employment. Future hires will be required to pay half the cost of their pension and “bonus” pension checks to retirees will be eliminated. In addition, voter approval will be required for any future pension increases.
Both ballot measures passed by over two-thirds, 66 percent and 71 percent in San Diego and San Jose, respectively. There will, however, be lawsuits to block implementation. Similar measures could be on the horizon in other localities..
… OTHER RETIREMENT-RELATED BILLS
The following is a list of retirement-related bills still alive for the 2011-12 Legislative Session. Some have not moved since last year but are technically still alive based on where they are in the process. We have omitted the bills previously reported as being considered through the Pension Reform Conference Committee. With the legislature summer recess scheduled to begin July 6, we don’t expect to see movement on these bills until after the Committee reports its legislative proposals.
AB 178 (Gorell) STRS Postretirement Earnings
This bill is the one exception to those not moving. AB 178 was amended May 31 to extend certain STRS postretirement earnings limit exemptions until June 30, 2013. Eligible exempted positions include retired members approved by the Superintendent of Public Instruction, California Community College Board of Governors, or a county superintendent to serve as a trustee, administrator, or fiscal advisor for districts to address academic or financial weaknesses. Also exempted are retired members that do not work for at least 12 consecutive months after retirement and then return to perform CalSTRS-eligible work. The bill also has an urgency clause and appears to be moving quickly.
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. (On Senate inactive file)
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: City of San Diego
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 2663 (Assembly Retirement Committee) STRS Housekeeping Bill
Among other things, the STRS 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. (On Assembly inactive file)
SB 987 (Negrete McLeod) – PERS’ Housekeeping Bill
This is the annual bill sponsored by PERS to “clean up” the provisions in the law it administers. There are several technical issues included in this bill, like the inclusion of the term “domestic partner” in certain code sections that currently only refer to spouses. A more significant “fix” in this housekeeping bill would expand the ability for a PERS member to purchase service credit for the time spent away from work. Under current law, an employee can purchase retirement service credit if they have been on an extended leave of employer-approved absence for temporary disability or have had a serious illness. PERS wants to add “injury” to that list. Various provisions of the PERL relating to benefits for members experiencing a work-related disability have been conditioned on the member suffering some form of illness or injury. But, as these statutes were amended over the years, the phrase “or injury” was inadvertently omitted from a section of the PERL that authorizes service credit purchases for a work-related temporary disability.
SB 1234 (DeLeon) Golden State Retirement Savings Plan
DeLeon’s bill would create a state sponsored retirement plan for private sector employees which would involve a risk-free savings vehicle for employees based on voluntary contributions by private sector employees. The bill is co-authored by Senate Pro Tem Darryl Steinberg.
…2012 LEGISLATIVE CALENDAR
Following are important dates/deadlines for the upcoming legislative year
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”.
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.