PARS
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2/28/07
The California State Legislature has convened the 2007-2008 session. Public employee retirement bills from last year that were not signed by the governor are now dead, but may be recycled this session. February 24th was the deadline for bill introduction. We’re still digesting the new arrivals and will have a more complete list in the March Alert. We predict a quiet year for retirement/benefit issues bills. The reason: Schwarzenegger has tasked a new commission with researching and recommending ways to address pension and retiree health care unfunded liabilities. The legislature will therefore likely defer significant action, awaiting the outcome of the commission report. GOVERNOR REVIVES PENSION REFORM WITH NEW COMMISSION As predicted in last February’s “Legislative Alert”, Governor Schwarzenegger has created a new commission to study pension/benefits issues. The governor signed an executive order from his hospital bed (following his ski accident) on December 28 creating the “Public Employee Post-Employment Benefits Commission.” The Commission is charged with identifying how to address the state’s unfunded pension and healthcare liabilities. The twelve-member commission must make a formal report to the Legislature and Governor by January 1, 2008. The Governor has directed the Commission to do the following:
The less contentious commission approach revives pension reform again, while coupling it with post-retirement healthcare liability issues. As the same time, the commission deflects focus from Schwarzenegger, while keeping him involved in the future direction of public pensions. OTHER POST-EMPLOYMENT BENEFITS “OPEB” TRUSTS EMERGE PERS and County Act Systems are now setting up trusts to help agencies with their post-retirement healthcare obligations, as a result of legislative and regulatory actions taken in late 2006. These programs come on the heels of already established multiple employer trusts created by others, such as PARS and the California School Boards Association. As previously reported, the governor vetoed PERS legislation authorizing development of its GASB 45 program for all public agencies. PERS then moved quickly to amend the Public Employees' Medical and Hospital Care Act (PEHMCA) regulations, to permit PERS to set up a 115 trust for PEHMCA agencies only. This “all public agency” bill has popped up again this session. The outcome of this legislation is uncertain since the governor may be reluctant to grant PERS broad reach over post-retirement healthcare assets at this point. This session, the County Act Systems plan to introduce technical clean-up language to fine-tune and add more flexibility to their trust programs. AB 256 (Chapter 708 of 2005) required that the PERS Board conduct a study to examine the feasibility and cost-effectiveness of creating a single statewide healthcare pool that would cover all public school employees working in school districts, county offices of education, and community colleges, or a pool that would include all school employees under the PERS PEMHCA program. The study was scheduled to be completed by December 31, 2006, but there are reportedly delays due to funding for the study. STRS established a taskforce of various stakeholders and representatives of certificated and classified employees to discuss ways STRS and PERS can address health benefit issues for actives and retirees. The taskforce is awaiting the PERS study before possibly making some recommendations to the Teachers’ Retirement Board in the future. The following bills have recently been introduced or are expected to be introduced shortly. There are few retirement/pension bills this year, since some issues will be under the purview of the Governor’s Commission, rather than considered by the legislative retirement committees. We will cover more bills in the next Alert. General Legislation AJR 5 (Hernandez) Retirement benefits: teachers This measure would request that Congress and the President enact the Social Security Fairness Act, which would repeal the Government Pension Offset and the Windfall Elimination laws that reduce the Social Security benefits of public employees receiving pensions. AB 36 (Niello) Public Employees' Retirement Fraud This bill makes it a crime for persons to make or present false material statements and representations in connection with retirement systems' benefits and applications, or to aid or abet someone in this regard. The bill would also make it a crime for persons to knowingly accept payments they knew they were not entitled to, with the intent to keep for personal benefit. This bill was introduced last session by a Democrat. Although preventing pension fraud is a popular concept, the bill stalled for technical reasons. The bill has now been picked up by a Republican member, making it is unlikely that the Democrat-controlled legislature will move this particular bill. AB 221 (Anderson) Investments in Iran Last session we saw the passage of legislation prohibiting PERS and STRS from investing public employee retirement funds in any company with active business operations in Sudan. Likewise, this bill would prohibit the systems from investing public employee retirement funds in a company with business operations in Iran. The bill would require PERS and STRS to sell or transfer any investments in a company with business operations in Iran, until sanctions have been lifted. PERS Legislation SB 14 (Negrete-McLeod) National Guard Service This bill permits California National Guard personnel, after filing with the PERS Board, to become state members of PERS. The bill also authorizes these new members to receive service credit for their service in the U.S. armed forces and prior service in the California National Guard if they pay additional contributions to the retirement system. AB 219 (Jeffries) Disability Retirement Medical Examinations AB 219 allows PERS to discontinue retirement allowances for disability retirees who refuse to submit to a medical examination. The bill applies to retirees over minimum retirement age and receiving a retirement allowance for less than 36 months. The benefit can be discontinued until the withdrawal of the refusal. The bill would limit the number of required medical examinations to 2 in a 36-month period. County Act System Legislation AB 246 (Torrico) County Retirement Boards This bill from last session would prohibit a member or employee of a county retirement board or board of investments from selling or providing any investment product that would be considered an asset of the retirement fund. SB 134 (Cedillo) Mandatory Retirement for LA County The bill would exclude the County of Los Angeles, upon approval by the Board of Supervisors in Los Angeles County, from County Employees Retirement Law that permits a county to require sheriffs, under-sheriffs, and marshals who are safety members to be retired at 60 or 70 years of age. STRS Legislation Revision of Post-Retirement Earnings Limits Imposing employer contributions for post-retirement work is one of the components of STRS’ strategies for confronting the pension program’s unfunded actuarial obligation. As a result, the STRS Board has also given the green light for additional legislation in 2007 to address post-retirement limits. AB 1733 (Chapter 896, Statutes of 2000) removed the earnings limit for members who return to teaching at least one year after their retirement date. Education Code Section 24216.5 exempts retired administrators from STRS earning limitations. Approximately 32% of retired members who have returned to work are employed under an earnings limit exemption. Exemptions were scheduled to expire on January 1, 2008, so the issue needed to be addressed prior to sunsetting. The legislation will extend current post-retirement earnings limits exemptions only until June 30, 2008, whereupon they will be replaced with the following changes:
This legislation will help STRS further address its unfunded actuarial obligation and simplify return-to-work rules and school administrative processes. The proposal may be unpopular with school districts and retirees, as it imposes additional retirement contribution costs for employers and reduces the ability of retired members under age 60 to return immediately to work on more than a part-time basis. AB 1432 (Soto) State teachers' retirement STRS is introducing legislation that will, for the first time, allow teachers to buy service credit for teaching outside the US. This was made possible courtesy of a recent federal law change. Although CalSTRS allows the purchase of service credit for teaching in other states, it does not permit the purchase of service credit for teaching abroad. AB 1316 (Bass) State teachers' retirement: disability STRS members who apply for a disability benefit can not receive a service retirement allowance while waiting for their application for disability to be processed. In response to this, STRS is now introducing legislation that will allow members who are eligible to retire for service to receive a retirement allowance pending determination of their disability claim. Upon approval of the application for disability, the member’s service retirement application will be automatically cancelled, the disability benefit will begin, and any service retirement benefit overpayment will be recovered. GOVERNOR PROPOSES 2007-2008 BUDGET On January 10th, Governor Schwarzenegger proposed a $131 billion budget for 2007 – 2008, constituting a less than 1% increase in General Fund spending. Retirement System Budget Issues: CalSTRS The budget proposes reducing the statutorily-required contribution to the purchasing power of the STRS pension program by $75 million on an ongoing basis. This contribution is intended to ensure that the retired teachers’ benefits are not eroded by inflation. In exchange for the payment reduction, the administration will be proposing language to guarantee the inflation protection benefit for retirees. The remaining payment stream, after the reduction, is assumed to be sufficient to keep the program actuarially sound. This proposal has already encountered opposition from teacher retiree groups. Pension Obligation Bonds Last year the State authorized the sale of pension obligation bonds to cover a portion of the state’s retirement costs. The money from the sale of these bonds will go to help pay for pension fund liabilities that have already been promised. The budget assumes that the administration will sell these bonds in 2007-08 for a net General Fund benefit of $525 million. The sale of the bonds has been repeatedly delayed due to court decisions that concluded that the sale is unconstitutional without voter approval.
Feel free to contact me if you need additional information. Additional information will be available in the next edition of the PARS Legislative Watch newsletter (including a federal legislation update) and on our website at www.pars.org. Thank you,
Maureen Toal PARS HAS ESTABLISHED TWO INNOVATIVE MULTIPLE-EMPLOYER TRUSTS TO ASSIST PUBLIC AGENCIES WITH PRE-FUNDING THEIR OPEB (POST RETIREMENT HEALTH CARE) OBLIGATIONS UNDER GASB 45. FOR MORE INFORMATION, CONTACT:
MAUREEN TOAL 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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PARS
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