Legislative Alert July 2012Categories: Legislative Updates
In this Alert:
…CalPERS AND CalSTRS REPORT LOW EARNINGS
…PUBLIC OPINION ON PENSION REFORM
… CALPERS and CALSTRS REPORT LOW EARNINGS
California’s public pension funds continue to struggle as the economic recovery and stock market have been shaky. At the end of the fiscal year, both CalPERS and CalSTRS reported investment returns far shy of their anticipated rates. CalPERS reported a 1% annual return while CalSTRS’ return was a little better at 1.8%. Both systems now use a discount rate of 7.5%, which is what the funds expect their investments to return in the long term. These low earnings will likely lead to higher contribution rates for the state and CalPERS participating agencies, on top of contribution rates that continue to rise from the smoothing of the market losses of 2008-09. However, while CalPERS has authority to impose higher contributions on the state and local government agencies, CalSTRS needs the Legislature’s permission to raise rates and made just such an appeal in July.
To make matters worse, the Government Accounting Standards Board (GASB) released new rules recently overhauling how public pension funds report on their financial health, requiring government employers to recognize costs earlier and, in certain cases, make more conservative projections of future fund earnings. The changes will increase transparency, but could further negatively impact funding levels. According to a recent study, CalPERS was 83% funded in 2010 under the old accounting rules, but only 65% funded under the new rules. CalSTRS, which was 71% funded in 2010, would have dropped to 60% or below under the new rules. The new rules go into effect in two years.
…PUBLIC OPINION ON PENSION REFORM
A July Field Poll found conflicting views on pension reform from California voters. The poll showed 37% of likely voters believe public pensions are too generous, while 36% think benefit levels are about right. 17% said benefits are not generous enough, and 10% had no opinion. However, 67% did favor limiting how much of an employee’s salary is used for pension calculations, while 60% think the public employee retirement age should be raised. In addition, responders were asked about whether they would support stripping public sector employees of their bargaining rights (as happened in Wisconsin). That idea was opposed by a majority of responders at 50%, versus 40% in favor. The poll also found that the passage of pension reform would have little to do with how voters will act on the tax increase initiative on the November ballot.
… 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 out on summer recess until August 6, we don’t expect to see movement on these bills until after the Conference Committee on Pension Reform reports its legislative proposals.
AB 178 (Gorell) STRS Postretirement Earnings
This bill was the one exception to those not yet 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. This bill was signed by the governor as Chapter 135 on July 17 and immediately became law as a result of an urgency clause.
Bills Still Alive
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 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 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 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:
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
Please contact PARS with any questions 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.