RPVCCA_CC_SR_2012_09_18_04_Ordinance_Adopting_Second_Tier_Retirement_FormulaMEMORANDUM
TO:
FROM:
DATE:
SUBJECT:
REVIEWED:
HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL
CAROLYNN PETRU,DEPUTY CITY MANAGER®
SEPTEMBER 18,2012
ORDINANCE ADOPTING A SECOND TIER 2%@ 60
RETIREMENT BENEFIT FORMULA (Supports 2012 City Council
Goal of Government Efficiency,Fiscal Control and
Transparency)
CAROLYN LEHR,CITY MANAGER
RECOMMENDATION
1)Adopt Ordinance No._U;an Urgency Ordinance of the City of Rancho Palos
Verdes Authorizing an Amendment to the Contract Between the City of Rancho Palos
Verdes and the Board of Administration of the California Public Employees'Retirement
System;and,2)Authorize the City Clerk to execute the compliance certificates
associated with the adoption of the Second Tier 2%@ 60 retirement benefit formula.
BACKGROUND
On September 20,2011,the City Council approved a Second Tier based on the 2%@
60 retirement benefit formula with the determination of final compensation based on the
average earnings of the three highest years.Staff was directed to request a contract
amendment with CaIPERS.On August 21,2012,the City Council adopted Resolution
No.2012-61,a Resolution of Intention to amend the City's contract with CalPERS to
establish the Second Tier.The City Council is now being asked to adopt an Urgency
Ordinance authorizing the contract amendment.In compliance with state law,the
adoption of the ordinance is at least 20 days after Council adoption of the Resolution of
Intention.If adopted,the Urgency Ordinance would go into effect immediately,so that
the Amendment to Contract with CalPERS would commence on September 21,2012,
which is the first day of the next payroll period.Pursuant to Government Code Section
20475,the City could not amend its contract with CalPERS for three years.
DISCUSSION
On August 31,2012,subsequent to the Council's adoption of Resolution No.2012-61,
the state legislature adopted AB 340,the Public Employee Pension Reform Act of 2013
(PEPRA).The legislation,which Governor Brown signed on September 1ih ,will
become effective on January 1,2013.AB 340 includes ten of the twelve points in
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Topic:2%@ 60 Second Tier Retirement Formula
Date:September 18,2012
Page 2
Governor Brown's pension reform proposal,including benefit changes to state,school
and local agency retirement benefit plans for both new members (future employees,as
discussed below)as well as current members.The attached League of California Cities
Conference Report compares League Policy with the Conference Committee Report on
Public Employee Pensions.The report also highlight's the League's preliminary
analysis of AB 340 and the current understanding of how the legislation will affect
pension plans throughout the state..
One of the most significant aspects of the legislation is the creation of a new retirement
benefit formula of 2%at age 62 for all new miscellaneous employees hired after
January 1,2013,with an early retirement age of 52 and a maximum benefit factor of
2.5%at age 67.The key lies with the definition of "new"employee.Currently,except in
the case of part-time employees (see discussion under Additional Information),
contracts between individual cities and CalPERS are not dependent on whether the
new hire is already a member of CaIPERS.However,the new benefit plan required by
AB 340 would only apply to full-time employees who are "new members"to CalPERS
and not simply new employees of the City of Rancho Palos Verdes.Pursuant to the
legislation,a "new member"includes:
o An individual who has never been a member of any public retirement system
prior to January 1,2013;
o An individual who moved between retirement systems with more than a 6-month
break in service;or
o An individual who moved between public employers within a retirement system
after more than a 6-month break in service.
In its analysis of the legislation,the League of California Cities concurs with this
conclusion and states that individuals who are employed by any public employer before
January 1,2013 and who become employed by another reciprocal employer after the
reforms proposed in AB 340 take effect will be offered the retirement plan given to
employees by the subsequent employer before AB 340 took effect.
Therefore,with the execution of the contract amendment,any employees hired after
September 21,2012 who are already members of CalPERS or have less than a 6-
month break in service moving between retirement systems or between public
employers would be hired in at the Second Tier 2%@ 60 retirement benefit formula.
Any "new members"hired after January 1,2013 would be hired in at what will in effect
become the City's Third Tier,the 2%@ 62 retirement benefit formula established by AB
340.
However,if the City had not decided to establish the Second Tier,any employees hired
between September 21,2012 and December 31,2012,and any employees hired after
January 1,2013 who did not fall into one of the three categories listed above,would be
enrolled in the City's First Tier 2.5%@ 55 retirement benefit formula.
V:\CAROLYNN\REPORTS\2012\20120918_CaIPERS Second Tier.doc
4-2
Topic:2%@ 60 Second Tier Retirement Formula
Date:September 18,2012
Page 3
ADDITIONAL INFORMATION
Under current federal requirements,when the City hires a new part-time employee who
is not already a member of CaIPERS,the employee is enrolled in Social Security.
However,once the part-time employee has worked more than 1,000 hours in a given
fiscal year,the City must then enroll and maintain the employee in CaIPERS,even if
they work less than 1,000 hours during any subsequent years of employment with the
City.This is often referred to as the "once in,always in"rule.The City currently has a
handful of employees that participate in Social Security rather than CaIPERS.Most of
the City's part-time employees are Recreation Leaders working at the City's various
park sites and typically work between 20 and 32 hours per week,which equates to
between 1,020 and 1,664 hours per fiscal year,thus surpassing the CalPERS
threshold.Even following the implementation of the City's Second Tier and the state's
Third Tier,new part-time employees who are not already members of CalPERS will
continue to be enrolled in Social Security unless and until they exceed the 1,000 hour
threshold.New non-PERS part-time employees who exceed the threshold prior to
January 1,2013 would be enrolled in the 2%@ 60 formula,while those who exceed it
after that date would be enrolled in the 2%@ 62 formula.In a related matter,staff is
currently exploring the option of offering non-PERS part-time employees a substitute
retirement plan,such as PARS,in place of Social Security.Staff will present its findings
to the City Council Compensation Subcommittee once the analysis has been
completed.
FISCAL IMPACT
Following the contract amendment,CalPERS has calculated the future annual,costs,
based on the June 30,2010 actuarial,as follows:
First Tier (2.5%@ 55)
Employer Contribution Rate:13.941%
Employee Contribution Rate:8.0%
Second Tier (2%@ 60)
Employer Contribution Rate:7.846%
Employee Contribution Rate:7.0%
Attachments:
Ordinance No._U;
Draft Amendment to Contract
Summary of Major Provisions of the 2%@ 60 Formula
League of California Cities'Conference Report
V:\CAROLYNN\REPORTS\2012\20120918_CalPERS Second Tier.doc
4-3
ORDINANCE NO._U
AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDES
AUTHORIZING AN AMENDMENT TO THE CONTRACT BETWEEN THE
CITY OF RANCHO PALOS VERDES AND THE BOARD OF
ADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM FOR THE 2%@ 60 RETIREMENT BENEFIT
FORMULA AND DECLARING THE URGENCY THEREOF
WHEREAS,on September 20,2011,the City Council approved and directed staff
to request a contract amendment with CalPERS to establish a Second Tier based on the
2%@ 60 retirement benefit formula with the determination of final compensation based
on the average earnings of the three highest years;and,
WHEREAS,on August 21,2012,the City Council adopted Resolution No.2012-
61,a Resolution of Intention to amend the City's contract with CalPERS to establish the
Second Tier;
NOW,THEREFORE,THE CITY COUNCIL OF THE CITY OF RANCHO PALOS
VERDES HEREBY ORDAINS AS FOLLOWS:
Section 1:An amendment to the contract between the City Council of the City of
Rancho Palos Verdes and the Board of Administration,California Public Employees'
Retirement System is hereby authorized,a copy of said amendment being attached
hereto and marked as Exhibit "A",and by such reference made a part hereof as though
herein set out in full.
Section 2:The Mayor of the City of Rancho Palos Verdes is hereby authorized,
empowered,and directed to execute said amendment for and on behalf of said Agency.
Section 3:The City Clerk shall certify to the adoption of this ordinance and shall
cause the same to be posted in the manner prescribed by law.
Section 4:Urgency Findings
The City Council finds and determines that the immediate preservation of the
public peace,health,and welfare requires that this ordinance be enacted as an urgency
ordinance pursuant to Government Code Section 36937(b)and take effect immediately
upon adoption.It is in the City's interest that the Second Tier retirement benefit formula
become effective immediately so that any new employees that are hired by the City shall
be within the Second Tier,which will save the City monies with respect to the future
retirement benefits that the City will be required to pay for those employees upon their
retirement,assuming the employees are qualified to receive such benefits.Thus,if this
Ordinance does not become effective immediately,but instead becomes effective thirty
days after its second reading,ambiguity and confusion regarding the applicability of the
City's Second Tier could result.Therefore,this Ordinance is necessary for the
immediate preservation of the public peace and welfare and its urgency is hereby
declared.
1491525vl 4-4
Section 5:This Ordinance is an urgency ordinance and shall take effect
immediately upon adoption.
PASSED,APPROVED and ADOPTED the 18th day of September 2012.
Mayor
ATTEST:
City Clerk
STATE OF CALIFORNIA )
COUNTY OF LOS ANGELES )ss
CITY OF RANCHO PALOS VERDES )
I,Carla Morreale,City Clerk of the City of Rancho Palos Verdes,do hereby certify
that the whole number of members of the City Council of said City is five;that the
foregoing Ordinance No._U was duly and regularly adopted by the City Council of
said City at a regular meeting thereof held on September 18,2012 and that the same
was passed and adopted by the following roll call vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
City Clerk
1491525vl 4-5
A
CalPERS
EXHIBIT
California
Public Employees'Retirement System
----+----
AMENDMENT TO CONTRACT
Between the
Board of Administration
California Public Employees'Retirement System
and the
City Council
City of Rancho Palos Verdes
----+----
The Board of Administration,California Public Employees'Retirement System,
hereinafter referred to as Board,and the governing body of the above public agency,
hereinafter referred to as Public Agency,having entered into a contract effective
December 1,1974,and witnessed October 15,1974,and as amended effective April 1,
1978,September 16,1983,February 11,1993,September 2,2000,April 21,2001 and
September 29,2007 which provides for participation of Public Agency in said System,
Board and Public Agency hereby agree as follows:
A.Paragraphs 1 through 12 are hereby stricken from said contract as executed
effective September 29,2007,and hereby replaced by the following paragraphs
numbered 1 through 14 inclusive:
1.All words and terms used herein which are defined in the Public
Employees'Retirement Law shall have the meaning as defined therein
unless otherwise specifically provided."Normal retirement age"shall
mean age 55 for local miscellaneous members entering membership in
the miscellaneous classification on or prior to the effective date of this
amendment to contract and age 60 for local miscellaneous members
entering membership for the first time in the miscellaneous classification
after the effective date of this amendment to contract.
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2.Public Agency shall participate in the Public Employees'Retirement
System from and after December 1,1974 making its employees as
hereinafter provided,members of said System subject to all provisions of
the Public Employees'Retirement Law except such as apply only on
election of a contracting agency and are not provided for herein and to all
amendments to said Law hereafter enacted except those,which by
express provisions thereof,apply only on the election of a contracting
agency.
3.Public Agency agrees to indemnify,defend and hold harmless the
California Public Employees'Retirement System (CaIPERS)and its
trustees,agents and employees,the CalPERS Board of Administration,
and the California Public Employees'Retirement Fund from any claims,
demands,actions,losses,liabilities,damages,judgments,expenses and
costs,including but not limited to interest,penalties and attorneys fees
that may arise as a result of any of the following:
(a)Public Agency's election to provide retirement benefits,
provisions or formulas under this Contract that are different than
the retirement benefits,provisions or formulas provided under
the Public Agency's prior non-CaIPERS retirement program.
(b)Public Agency's election to amend this Contract to provide
retirement benefits,provisions or formulas that are different than
existing retirement benefits,provisions or formulas.
(c)Public Agency's agreement with a third party other than
CalPERS to provide retirement benefits,provisions,or formulas
that are different than the retirement benefits,provisions or
formulas provided under this Contract and provided for under
the California Public Employees'Retirement Law.
(d)Public Agency's election to file for bankruptcy under Chapter 9
(commencing with section 901)of Title 11 of the United States
Bankruptcy Code and/or Public Agency's election to reject this
Contract with the CalPERS Board of Administration pursuant to
section 365,of Title 11,of the United States Bankruptcy Code
or any similar provision of law.
(e)Public Agency's election to assign this Contract without the prior
written consent of the CalPERS'Board of Administration.
(f)The termination of this Contract either voluntarily by request of
Public Agency or involuntarily pursuant to the Public Employees'
Retirement Law.
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(g)Changes sponsored by Public Agency in existing retirement
benefits,provisions or formulas made as a result of
amendments,additions or deletions to California statute or to
the California Constitution.
4.Employees of Public Agency in the following classes shall become
members of said Retirement System except such in each such class as
are excluded by law or this agreement:
a.Employees other than local safety members (herein referred to as
local miscellaneous members).
5.In addition to the classes of employees excluded from membership by
said Retirement Law,the following classes of employees shall not become
members of said Retirement System:
a.ELECTED OFFICIALS;
b.CROSSING GUARDS;
c.WORK TRAINEES;
d.ADMINISTRATIVE INTERN;AND
e.SAFETY EMPLOYEES.
6.The percentage of final compel)sation to be provided for each year of
credited prior and current service as a local miscellaneous member in
employment before and not on or after September 29,2007 shall be
determined in accordance with Section 21354 of said Retirement Law
(2%at age 55 Full).
7.The percentage of final compensation to be provided for each year of
credited prior and current service as a local miscellaneous member in
employment on or after September 29,2007 and not entering membership
for the first time in the miscellaneous classification after the effective date
of this amendment to contract shall be determined in accordance with
Section 21354.4 of said Retirement Law (2.5%at age 55 Full).
8.The percentage of final compensation to be provided for each year of
credited current service as a local miscellaneous member entering
membership for the first time in the miscellaneous classification after the
effective date of this amendment to contract shall be determined in
accordance with Section 21353 of said Retirement Law (2%at age 60
Full).
9.Public Agency elected and elects to be subject to the following optional
provisions:
a.Section 21574 (Fourth Level of 1959 Survivor Benefits).
4-8
b.Section 20903 (Two Years Additional Service Credit).
c.Section 20042 (One-Year Final Compensation)for local
miscellaneous members entering membership on or prior to the
effective date of this amendment to contract.
d.Section 20475 (Different Level of Benefits).Section 21353 (2%@
60 Full formula)and Section 20037 (Three-Year Final
Compensation)are applicable to local miscellaneous members
entering membership for the first time in the miscellaneous
classification after the effective date of this amendment to contract.
10.Public Agency,in accordance with Government Code Section 20790,
ceased to be an "employer"for purposes of Section 20834 effective on
September 16,1983.Accumulated contributions of Public Agency shall
be fixed and determined as provided in Government Code Section 20834,
and accumulated contributions thereafter shall be held by the Board as
provided in Government Code Section 20834.
11.Public Agency shall contribute to said Retirement System the contributions
determined by actuarial valuations of prior and future service liability with
respect to local miscellaneous members of said Retirement System.
12.Public Agency shall also contribute to said Retirement System as follows:
a.Contributions required per covered member on account of the 1959
Survivor Benefits provided under Section 21574 of said Retirement
Law.(Subject to annual change.)In addition,all assets and
liabilities of Public Agency and its employees shall be pooled in a
single account,based on term insurance rates,for survivors of all
local miscellaneous members.
b.A reasonable amount,as fixed by the Board,payable in one
installment within 60 days of date of contract to cover the costs of
administering said System as it affects the employees of Public
Agency,not including the costs of special valuations or of the
periodic investigation and valuations required by law.
c.A reasonable amount,as fixed by the Board,payable in one
installment as the occasions arise,to cover the costs of special
valuations on account of employees of Public Agency,and costs of
the periodic investigation and valuations required by law.
13.Contributions required of Public Agency and its employees shall be
subject to adjustment by Board on account of amendments to the Public
Employees'Retirement Law,and on account of the experience under the
Retirement System as determined by the periodic investigation and
valuation required by said Retirement Law.
4-9
B.
14.Contributions required of Public Agency and its employees shall be paid
by Public Agency to the Retirement System within fifteen days after the
end of the period to which said contributions refer or as may be prescribed
by Board regulation.If more or less than the correct amount of
contributions is paid for any period,proper adjustment shall be made in
connection with subsequent remittances.Adjustments on account of
errors in contributions required of any employee may be made by direct
payments between the employee and the Board.
This amendment shall be effective on the __day of _
BOARD OF ADMINISTRATION CITY COUNCIL
PUBLIC .EMPLOYEES'RETIREMENT SYSTEM CITY OF RANCHO PALOS VERDES
BY BY _
KAREN DE FRANK,CHIEF PRESIDING OFFICER
CUSTOMER ACCOUNT SERVICES DIVISION
PUBLIC EMPLOYEES'RETIREMENT SYSTEM
Witness Date
Attest:
Clerk
AMENDMENT CalPERS ID #3846845523
PERS-CON-702A
4-10
CALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM
Actuarial and Employer Services Branch
Public Agency Contract Services
(888)CalPERS (225-7377)
SUMMARY OF MAJOR PROVISIONS
2%@ 60 Formula (Section 21353)
Local Miscellaneous Members
SERVICE RETIREMENT
To be eligible for service retirement,a member must be at least age 50 and have five years of
CalPERS credited service.There is no compulsory retirement age.
The monthly retirement allowance is determined by age at retirement,years of service credit
and final compensation.The basic benefit is 2%of final compensation for each year of credited
service upon retirement at age 60.If retirement is earlier than age 60,the percentage of final
compensation decreases for each quarter year of attained age to 1.092%at age 50.If
retirement.is deferred beyond age 60,the percentage of final compensation increases for each
quarter year of attained age to 2.418%at age 63.
Final compensation is the average monthly pay rate during the last consecutive 36 months of
employment,or 12 months if provided by the employer's contract,unless the member
designates a different period of 36 or 12 consecutive months when the average pay rate was
higher.
DISABILITY RETIREMENT
Members substantially incapacitated from performing the usual duties for the position for his/her
current employer,and from performing the usual duties of the position for other CalPERS
covered employers (including State agencies,schools,and local public agencies),and where
similar positions with these other employers with reasonably comparable in pay,benefits,and
promotional opportunities are not available,would be eligible for disability retirement provided
they have at least five years of service credit.The monthly retirement allowance is 1.8%of final
compensation for each year of service.The maximum percentage for members who have
between 10.000 and 18.518 years of service credit is one-third of their final compensation.If
the member is eligible for service retirement the member will receive the highest allowance
payable,service or disability.If provided by the employer's contract,the benefit would be a
minimum of 30%of final compensation for the first five years of service credit,plus 1%for each
additional year of service to a maximum benefit of 50%of final compensation.
INDUSTRIAL DISABILITY RETIREMENT
If provided by the employer's contract,members permanently incapacitated from performing
their duties,as defined above under Disability Retirement,and the disability is a result of a job-
related injury or illness may receive an Industrial Disability Retirement benefit equal to 50%of
their final compensation.If provided in the employer's contract and the member is totally
disabled,the disability retirement allowance would equal 75%of final compensation in lieu of
the disability retirement allowance otherwise provided.If the member is eligible for service
retirement,the service retirement allowance is payable.The total allowance cannot exceed
90%of final compensation.
PRE-RETIREMENT DEATH BENEFITS
Basic Death Benefit:This benefit is a refund of the member's contributions plus interest and up
to six months'pay (one month's salary rate for each year of current service to a maximum of six
months).
PERS-CON-44 (Rev.2/05)4-11
1957 Survivor Benefit:An eligible beneficiary may elect to receive either the Basic Death
Benefit or the 1957 Survivor Benefit.The 1957 Survivor Benefit provides a monthly allowance
equal to one-half of the highest service retirement allowance the member would have received
had he/she retired on the date of death.The 1957 Survivor Benefit is payable to the surviving
spouse or registered domestic partner until death or to eligible unmarried children until age 18.
1959 Survivor Benefit:(If provided by the employer's contract and the member is not covered
under social security.)A surviving spouse or registered domestic partner and eligible children
may receive a monthly allowance as determine by the level of coverage.This benefit is payable
in addition to the Basic Death Benefit or 1957 Survivor Benefit.Children are eligible if under
age 22 and unmarried.
Pre-Retirement Optional Settlement 2 Death Benefit:(If provided by the employer's contract.)
The spouse or registered domestic partner of a deceased member,who was eligible to retire for
service at the time of death,may to elect to receive the Pre-Retirement Optional Settlement 2
Death Ben~fit in lieu of the lump sum Basic Death Benefit.The benefit is a monthly allowance
equal to the amount the member would have received if he/she had retired for service on the
date of death and elected Optional Settlement 2,the highest monthly allowance a member can
leave a spouse or registered domestic partner.
COST-OF-LIVING ADJUSTMENTS
The cost of living allowance increases are limited to a maximum of 2%compounded annually
unless the employer's contract provides a 3,4,or 5%increase.
DEATH AFTER RETIREMENT
The lump sum death benefit is $500 (or $600,$2,000, $3,000,$4,000 or $5,000 if provided by
the employer's contract)regardless of the retirement plan chosen by the member at the time of
retirement.
TERMINATION OF EMPLOYMENT
Members who have separated from employment may elect to leave their contributions on
deposit or request a refund of contributions and interest.Those who leave their contributions
on deposit may apply at a later date for a monthly retirement allowance if the minimum service
and age requirements are met.Members who request a refund of their contributions terminate
their membership and are not eligible for any future benefits unless they return to CalPERS
membership.
EMPLOYEE CONTRIBUTIONS
Miscellaneous members covered by the 2%@ 60 formula contribute 7%of reportable earnings.
Those covered under a modified formula (coordinated with Social Security)do not contribute on
the first $133.33 earned.
The employer also contributes toward the cost of the benefits.The amount contributed by the
employer for current service retirement benefits generally exceeds the cost to the employee.In
addition,the employer bears the entire cost of prior service benefits (the period of time before
the employer provided retirement coverage under CaIPERS).All employer contribution rates
are subject to adjustment by the CalPERS Board of Administration.
PERS-CON-44 (Rev.2/05)4-12
LEAGUE
OF CALIFORNIA
yCITIES
1400 K Street,Suite 400.Sacramento,California 95814
Phone:916.658.8200 Fax:916.658.8240
www.cacities.org
Comparing League Policy and the Conference Committee Report on Public
Employee Pensions (Conference Report)
AS 340 (Furutani)was amended Aug.28,2012 and is intended to implement
comprehensive pension reform through the enactment of the California Employees'
Pension Reform Act of 2013 (PEPRA)as well as other statutory changes.
This proposal applies to all public employers and pension plans on or after Jan.1,2013
with the exception of the University of California,as well as charter cities and charter
counties that do not participate in the California Public Employees'Retirement System
(CaIPER~)or the 37'Act System including the cities of Los Angeles,San Francisco,
Fresno,San Diego,and San Jose.The proposal also excludes any retirement plan
approved by the voters of any entity before Jan.1,2013.
Questions have been raised about whether the pension reform proposal applies to
current or new employees.The short answer is that most of the provisions in the
package apply to new employees while some of the provisions apply to current
employees.Please see the attached Addendum A for that information.
The following is a comparison of League policy that was adopted by the League board
of directors in July 2011.The Conference Report addresses the issues listed in the
chart below.
Pension Proposal Does League Policy and
Conference Report Align?
*Draft 8/30/2012 2:15 p.m.1
4-13
1.PENSIONABLE COMPENSATION CAP &HYBRID
Establishes a cap on the amount of compensation that
can be used to calculate a retirement benefit for all new
members of a public retirement system equal to the
Social Security wage index limit ($110,100)for
employees who participate in Social Security or 120%of
that limit ($132,120)if they do not participate in Social
Security.[GC.Sect.7522.1 0 (c)]
Adjustments to the cap are required annually based on
changes to the Consumer Price Index (CPI)for all Urban
Consumers.[GC.Sect.7522.10 (d)(1)]
Authorizes the Legislature to modify the CPI
prospectively.[GC.Sect.7522.10 (d)(2)]
Prohibits employers from offering a defined benefit or any
combination of defined benefits,including a privately
provided defined benefit,on compensation in excess of
the new cap.[GC.Sect.7522.10 (e)]
Authorizes employers to make contributions to a defined
contribution plan for employees so long as the plan and
contributions meet federal limits and requirements.[GC.
Sect.7522.10 (f)(1)]
Except that employer contributions made to a defined
contribution plan for an employee above the cap is
limited.[GC.Sect.7522.10 (g)]*See attached Addendum
8 for further explanation.
Provides that a contribution made by an employer to an
employee's deferred contribution plan is not a vested
right.[GC.Sect.7522.10 (f)(2)]
Prohibits employers from providing new members with a
supplemental defined benefit plan.[GC.Sect.7522.18
(a)(b)]
Prohibits employers from making contributions for new
members to any qualified retirement plan on pensionable
compensation above the amount specified in Section
401(a)(17)of Title 26 of the United State Code
($250,000).[GC.Sect.7522.42 (a)]
x
*Draft 8/30/2012 2:15 p.m.2
4-14
Provide employers with a hybrid pension system option
that caps the defined benefit PERS pension at an annual
maximum retiree benefit equal to 70 percent of the
retiring employees'eligible base pay and supplement the
defined benefit plan with a risk managed PERS defined
contribution plan.A defined contribution plan should
inte rate with a defined benefit Ian not substitute for it.
League policy and the Conference Report diverge considerably on this
particular issue.League policy suggests that employees should be
guaranteed a percentage of their income when they retire provided by
a defined benefit plan and that any defined benefit plan should be
substituted with a professionally managed defined contribution plan.
The Conference Report does not guarantee a percentage of income
replacement.Instead it caps pensionable compensation for the
defined benefit and does not provide a guaranteed hybrid option.
However,it permits employers to provide defined contribution plans
above the new defined benefit structure.The plan also seems to limit
employer contributions that can be made to a defined contribution plan
for hi hi com ensated em 10 ees.
INCREASE RETIREMENT AGE &NEW FORMULAS
Increases retirement ages for new members.
The formula option for miscellaneous members will be
2%at 62.The formula will be adjusted to encourage
longevity.The formula will be adjusted to a maximum
retirement factor of 2.5%at age 67.[GC.Sect.7522.20
(a)]
There will be three formula options offered to safety
members including:2%at 57;2.5%at 57;and 2.7%at
57.[GC.Sect.7522.25 (a)(b)(c)(d)]
Give government agencies through the collective
bargaining process the option to extend retirement ages
for miscellaneous employee up to social security
retirement ages.
Seek minimum (floor)retirement age of 60 for
miscellaneous employees and 55 for safety employees
before earing full retirement benefits.
Repeal SB 400/AB 616 formulas returning to more
sustainable PERS benefit formulas.
*Draft 8/30/2012 2:15 p.m.3
4-15
Differences
Provide a broader range of formula choices with lower
benefit local options for all types of member classes.
While League policy and the Conference Report do not align exactly
on this issue,League policy overall supports an increase in retirement
age including repeal of the SB400/AB 616 formulas.
3.COST SHARING &EMPLOYER PICK-UP
Requires new members to pay at least 50%of normal
cost and prohibits employers from paying this contribution
on the employee's behalf.[GC.Sect.7522.30 (c)]
Provides that new members can pay more than 50%of
the normal cost if the increase has been agreed to in
collective bargaining and under the following conditions:
(1)An employer is prohibited from contributing a
greater rate to the plan for non-represented,
managerial,or supervisorial employees than the
employer contributes to other public employees.
(2)An employer can only increase employee
contribution rates if agreed to in a memorandum
of understanding (MOU)that has been collectively
bargained.
(3)An employer cannot use impasse procedures to
implement greater cost sharing above the 50%of
normal cost.
[GC.Sect.7522.30 (e)(1 )(2)(3)]
Authorizes employers to require (subject to good faith
bargaining)after Jan.1,2018 current employees to pay
at least 50%of the normal cost so long as the employee
contribution does not exceed 8%for miscellaneous,12%
for police and fire,and 11 %for all other local safety
members.[GC.Sect.20516.5 (b)(c)]
Authorizes employers and employees to agree to share
the costs of the employer contribution and prohibits the
use of impasse procedures from being used to implement
a cost sharing arrangement on any contribution amount
above what is required in law.[GC.Sect.20516 (a)(b)]
Member cost sharing under GC.Sect.20516 may be
bargained on a unit-by-unit basis if agreed to in an MOU.
[GC.Sect.20516(c)]
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Give employers greater flexibility at the collective
bargaining table to get at current costs of employee
pensions including unfunded liabilities.Allow for greater
cost sharing mechanisms in the PERL that do not
currently exist.
Require that employees pay the employee share of
PERS (e.g.7-8%for miscellaneous employees and 8-9%
for safety employees.)Also eliminate the availability of
Em 10 er Paid Member Contributions EPMC
No major differences.League policy and the Conference Report align
closely on this issue.The Conference Report gives local employers
greater flexibility to share costs with current and future employees.
First,after Jan.1,2018 local employers can require current employees
to pay 50%of the normal cost subject to limits and collective
bargaining.The report also gives employers greater flexibility to
bargain with current employees over paying a portion of the employer
contribution.This strengthens the statutory framework for cost sharing
arrangements between employers and employees on sharing a portion
of the employer's costs.
Second,the plan requires that new employees pay one-half of the
normal cost.
Third,the measure prohibits employer piCk-Up of the new member's
normal cost contribution.
4.PROHIBIT PENSION SPIKING
Requires for new members that final compensation shall
by calculated on the highest average annual pensionable
compensation earned by a member during a period of at
least 36-consecutive months.[GC.Sect.7522.32 (a)]
This is otherwise known as the 3-year average.
Base final retirement salary on three highest paid years
worked.
I Differences I No major differences.
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5.RESTRICTIONS ON RETIREES
Requires newly retired persons to sit out for at least 180
days before returning to work for an employer in the
same retirement system that which they receive a
retirement allowance.[GC.Sect.7522.56 (f)]
An exception can be made if the governing body certifies
that the nature of the employment and that the
appointment is necessary to fill a critically needed
position and the 180 days has not yet passed.This also
requires governing body approval in a properly noticed
public meeting and cannot be placed on a consent
calendar.[GC.Sect.7522.56 (f)(1)]
This 180-day sit out rule does not apply to a public safety
officer or firefighter.[GC.Sect.7522.56 (f)(4)]
Provides that a retiree that accepted a retirement
incentive (e.g.,handshake or cash incentive)upon
retirement must sit out the 180 days and the exception
cannot be used.[GC.Sect.7522.56 (g)]
League policy in this area has always been very broad to allow
employers to use retired annuitants because in many cases it can be a
cost saving measure.However,when several pension bills were being
considered a year ago in the Legislature the proposal before us was
an outright 6-month restriction.The proposal in the Conference Report
represents a deal struck with CSAC and the League to allow local
agencies to bring back retirees when a need was evident.
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6.BASE RETIREMENT ALLOWANCE ON REGULAR,RECURRING P=A=Y==
~ign?··
Defines "pension compensation"for a new member of
any public retirement system as the normal monthly rate
of payor base pay of the member paid in cash to
similarly situated members of the same group or class of
employment for services rendered on a full-time basis
during normal working hours,pursuant to a publically
available pay schedule.[GC.Sect.7522.34 (a)]
Also provides that pension compensation does not
include:
•compensation paid to enhance a retirement
benefit;
•compensation previously provided "in-kind"and
converted to cash in the final comp period;
•one-time or ad hoc payments;
•terminal pay;
•pay for unused sick leave or time off;
•pay for work outside of normal hours;any
employer provided allowance including uniform,
housing,vehicle allowances;
•pay for overtime,except planning overtime,
extended duty workweek,or pay defined in
federal labor code section 207(k)of Title 29 of the
United States Code.[GC.Sect.7522.34 (c)(1-12)]
Supports calculating benefits only on base salary
eliminating all "spiking."No overtime,vacation or sick
leave should be included in the pension calculation.
Eliminate the CalPERS contract option to include
Employer Paid Member Contributions (EPMC)in the
calculation of an employees'base pay for retirement
ur oses.
IDifferences I No major differences.
7.FORFEIT PENSION BENEFITS UPON FELONY CONVICTION
Requires public officials and employees to forfeit pension
benefits if they are convicted of a felony related to the
performance of official duties,related to seeking an
elected office or appointment,in connection with
obtaining salary or pension benefits,or committed
against a child who the official or employee has contact
with as art of his or her official duties.GC.Sect.
x
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4-19
7522.72 (b)(1)and (2),(c)(1);GC.Sect.7522.74 (b)(1)
and (2),(c)(1)]
Only pensions benefits earned or accrued after the
earliest date of the commission of the felony are subject
to forfeiture.Benefits earned or accrued prior to this date
are not SUbject to forfeiture [GC sec.7522.72(c);GC sec.
7522.74(c)]
These provisions apply to employees hired both before
and after January 1,2013.[GC.Sect.7522.72 (a);GC.
Sect.7522.74 (a)]
Both the Conference report and League policy address felonies that
arise in connection with fraudulently obtaining pension benefits.The
</</1 report goes beyond this by including felonies committed in obtaining
.....•..•......1 disability retirement or "other benefits".The report further goes beyond
the League policy and addresses felonies that arise out of or in the
performance of one's official duties,felonies in the pursuit of office or
appointment,or felonies committed against children by employees
who come in contact with the child as art of their official duties.
8.ELIMINATE AIRTIME
Prohibits a public retirement system from allowing the
purchase of unqualified service credit.[GC.Sect.
7522.46(a)]
11111111111111111111111111 ~fuc~~rt~o~I~~~=~ng the purchase of "air time"(purchase
I Differences I No major differences.
9.PROHIBIT RETROACTIVE BENEFIT INCREASES
Requires that any retirement enhancements to formulas
or benefits must occur prospectively and not retroactively.
[GC.Sect.7522.44]
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:::::&!II!I::.III!I~:!:::Prohibit retroactive benefit increases.
IDlfIerences INo major differences.
10.PROHIBIT PENSION HOLIDAYS
Prohibit all employers from suspending employer and/or
employee contributions necessary to fund annual pension
normal costs.[GC.Sect.7522.52(a)]
Allows a public retirement system to suspend
contributions under limited circumstances:
•The plan is funded more than 120%
•The excess earnings could result in
disqualification of plans tax deferred status
•The board finds that additional contributions
would conflict with its fiduciary responsibility
GC.Sect.7522.52 b 1 2 3
Prohibit employers and employees from taking
contribution "holidays."
I No major differences.
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Addendum A
Which proposals apply to current and new employees?
The new benefit plan required by this proposal applies to public employees who are
"new members."A New member includes:
1)An individual who has never been a member of any public retirement system
prior to Jan.1,2013.
2)An individual who moved between retirement systems with more than a 6-month
break in service.
3)An individual who moved between public employers within a retirement system
after more than a 6-month break in service.
Provides that individuals who are employed by any public employer before Jan.1,2013
and who become employed by another reciprocal public employer after the reforms
proposed 'in SB 340 take effect will be offered the retirement plan given to employees by
the subsequent employer before SB 340 takes effect.
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Addendum B
Maximum Overall Cap on Combined Defined Benefit and Defined Contribution Payments
to Employees Over $110,000
GC 7522.10 (g)in AB 340 (p.12 -13)reads as follows:
(g)Any employer contributions to any employee defined contribution plan above the
pensionable compensation limits in subdivision (c)shall not,when combined with the
employer's contribution to the employee's retirement benefits below the compensation limit,
exceed the employer's contribution level,as a percentage of pay,required to fund the retirement
benefits of employees with income below the compensation limits.
Examples of what this means:
Employer's Contribution as %of Salary
10%15%20%
To Employees Below 110,000 DB Pension
Cap
Maximum Contribution to $250,000
employee
First $110,000 salary $11,000 $16,500 $22,000
(D.B.)
Next $140,000 salary $14,000 $21,000 $28,000*
(D.C.)
TOTAL $25,000 $37,500 $50,000
*Currentfederallimit on employer contributions to D.C.Plan:$50,000
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