PARS
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3/30/07
… GOVERNOR’S PENSION COMMISSION CONVENES With hundreds of thousands of California public employees expected to retire over the next decade, a special commission convened on March 9th to address the financial consequences of retiree pension and healthcare liabilities for state and local government. The Commission is chaired by Gerald Parsky, chairman of Aurora Capital Group, who has served as a member of the University of California Board of Regents since 1996. Parsky also served as an assistant secretary within the U.S. Treasury Department in the 1970’s. The local government representatives on the commission are Anaheim Mayor Curt Pringle and Tulare County Supervisor Connie Conway. Chairman Parsky spoke as the hearing commenced: “The healthcare and pension benefits promised to state employees are vitally important...The Governor has said these obligations must and will be paid." However, some warn that the state faces severe burdens in meeting needs of retirees due to soaring healthcare costs and a large number of state workers leaving their jobs at age 55. Tax groups and others suggested that California consider raising the state's full-benefit retirement age from the current 55 to 62 or 65 for non-safety employees and setting safety retirement at 55 with 30 years of service. They proposed putting new-hires into a defined contribution plan. State and local public employee representatives argued that worker pension funds are in sound fiscal health and that financial remedies can be found for unfunded retiree healthcare costs. They cautioned the commission against assuming that it needs to propose a drastic overhaul of employee benefits and the public retirement system. After hearings around the state, the commission is expected to propose plans to meet long-term obligations in a report to the Legislature and Governor due January 1st of next year.
Newly-introduced legislation would make Texas the first state to reject Governmental Accounting Standards Board Statement 45 (GASB 45) reporting requirements. Some Texas state and local officials are lining up against the nationwide accounting rule that requires them to start tallying the long-term costs of providing retiree healthcare. Sen. Robert Duncan (R-Lubbock) and Rep. Vickie Truitt (R-Keller) filed legislation on March 2nd that rejects the accounting standard for the State of Texas and every other governmental body in the state. Duncan argues that the rule improperly requires the state to account for benefits that are not a legal obligation and that can be adjusted or eliminated at any time. Accounting experts said the legislation is an ill-advised attempt to minimize the financial effect of long-term obligations and they warned that the bill could damage the state's credit (bond) rating, thus raising the cost of borrowing money. Texas, like many states, has traditionally reported its costs for retiree benefits on a pay-as-you-go basis. Last year, Texas spent $626 million on those benefits.
…STRS DELAYS FUNDING LIABILITY PROPOSAL In recent PARS legislative publications we reported that the Teachers’ Retirement Board approved draft legislation to address STRS’ continuing unfunded pension obligation by mandating employer and employee contribution rate increases and post-retirement healthcare contributions. However, the anticipated legislation was not introduced by the February bill deadline and will probably not be seen this year. This proposal was controversial with school districts and the state because it would have created additional financial burdens through new contribution mandates.
... NEW PUBLIC EMPLOYEE RETIREMENT COMMITTEE CHAIRS Due to term limits, legislative chairmanships are a game of musical chairs. The new chair of the Senate Committee on Public Employment and Retirement for the 2007-2008 session is veteran legislator Senator Patricia Wiggins. Senator Wiggins is a Democrat representing the Second Senate District, which spans from the North Bay to the North Coast. The new chair of the Committee on Public Employees, Retirement and Social Security is freshman Democratic Assemblyman Ed Hernandez. Assemblyman Hernandez’s district includes the cities of Azusa, Baldwin Park, Covina, La Puente, West Covina, and Irwindale. Hernandez, an optometrist, has stated that his legislative priority is “working toward providing health insurance for the uninsured in California.”
… UPDATED LIST OF STATE RETIREMENT BILLS In the last Alert, we listed bills introduced to date. The following are other public employee retirement-related bills of note introduced by the end-of-February bill-filing deadline. AB 275 (Soto) Local Safety Member Industrial Disability Retirement This bill would provide a third option for calculating the industrial disability retirement allowance of local safety members who are not eligible to retire but who have earned enough service to exceed the 50% of final compensation provided in current law. Current law establishes the industrial disability retirement allowance for local safety members as one of two options: (1) 50% of the member's final compensation plus an annuity purchased with the member's accumulated additional contributions if the member is not eligible to retire, or (2) the member's service retirement allowance if it would be greater than 50% and the member is eligible to retire. AB 376 (Nava) Local Safety Member: airport police officers. This bill would allow contracting agencies to include their airport law enforcement officers as local safety members through an optional contract amendment. These bills extending lucrative “safety” benefits to other types of classifications are typically seen each year. Safety unions are very careful about protecting this designation and are highly discerning about allowing new members into the safety designation. Local governments are concerned about the costs, so these bills are not always successful. AB 554 (Hernandez) PEMHCA: Pre-funding Retiree Healthcare Benefits Program Based on recent PERS regulatory changes, only an employer who has contracted for health coverage under PEMHCA may elect to participate in the PERS OPEB Pre-funding Program. This bill would provide authority to the board to expand eligibility to this program to public entities that do not participate in PEMHCA. Governor Schwarzenegger vetoed this bill last year, and it is still unclear whether he will support expanding the system’s domain over post-retirement healthcare assets to many more public agencies. AB 591 (Dymally) CCD Part-Time Temporary Faculty – Comparable Pay and Benefits AB 591 would require that a temporary faculty employee receive pay and benefits that are equal to those of tenured and tenure track faculty of comparable qualifications doing comparable work. The bill requires that non-tenure track faculty members teaching at least 40% of a full load be eligible for the same healthcare benefits as tenured and tenure track faculty in that district. We have seen similar bills in the past to give the large number of part-time faculty pay and benefits in line with their full-time colleagues. However, the bill comes with a price-tag and circumvents the local bargaining process. AB 596 (Dymally) County employees' retirement: safety members: physicians This bill would require that physicians working in a county jail or county mental health facility in Alameda County or Los Angeles County be classified as safety members without a board of supervisors’ resolution, but would allow those members to elect not to become safety members. This is a highly unusual bill to expand doctors into the safety classification. AB 757 (Committee on Public Employees, Retirement and Social Security) STRS Maternity/Paternity Leave This bill would permit a STRS member to purchase additional service credit for time spent on approved maternity or paternity leave, not to exceed 24 consecutive months. This bill would additionally prohibit STRS from calculating service retirement based upon service credited for unused leave of absence for education. AB 775 (Niello) County Post-retirement Employment Prohibitions The County Employees Retirement Law of 1937 authorizes a county to employ a retired member in a position requiring special skills or knowledge without reinstating them from retirement. Under the law, a retired member may not work more than 90 working days in any 12-month period. The law authorizes a board of supervisors to extend that re-employment period up to 120 working days in any 12-month period. This bill would prohibit the re-employment of a retiree who was employed within the prior 12 months and received unemployment insurance compensation following the termination of an appointment with the same employer. AB 789 (Mullin) STRS Purchase Power Payments This bill requires that 2.5% (as adjusted by the Teachers' Retirement Board of STRS) of creditable compensation be credited to the Supplemental Benefit Maintenance Account (SBMA) each year for 4 years commencing July 1, 2008 to fund “purchase power protection” payments to STRS retirees as an inflation protection. The SBMA is in place to ensure at least 80% purchasing power of retiree pensions, lessening the erosion impact of inflation on benefits. This bill was introduced to protect the state contribution to the SBMA. The Governor’s new budget proposal attempts to make an “unconditional guarantee” of the 80%-of-purchasing-power benefit in exchange for lowering the current state contribution to the SBMA from 2.5% to 2.2% as a budgetary savings device. Fearing a situation similar to the state’s withholding of the contribution in 2003-2004, this bill counters the Governor’s proposal and guarantee that the account will be funded at its current rate. AB 1124 (Karnette) County Post-Employment Benefits Karnette’s bill would clarify that a county retirement system's action to establish a Post-Employment Benefits Trust Account is discretionary and not mandatory. The bill would also eliminate the requirement that the retirement system account for the Trust funds on the books of the system. This bill makes modifications to AB 2863 which was enacted last year authorizing county act systems to set up trusts or accounts to pre-fund post-retirement healthcare obligations. AB 1307 (Krekorian) PERS Supplemental Contribution Program This bill would give PERS the authority to accept employer contributions on behalf of participating employees (or employer “pick-up” contributions) in the Supplemental Contribution Program (SCP). SCP is a little known supplemental defined contribution plan previously available only to judges, legislators and a few others under PERS. The bill would also expand eligibility for participation to all California public agencies, including school employers, and their employees that contract for the SCP, without being members of the PERS pension plan. AB 1377 (Nakanishi) PEMHCA: Public Employees’ Health Savings Fund This bill would require PERS to offer a high-deductible health plan and a health savings account (HSA) option to public employees and annuitants. HSAs are special consumer-driven healthcare accounts created by the Bush Administration in late 2003 as an alternative to traditional health insurance. HSAs enable employees to pay for current health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. The accounts must be coupled with a high- deductible health plan. The bill would require employee and employer contributions to the Public Employees' Health Savings Fund, for payment of qualified medical expenses of employees and annuitants who elect to enroll in the high deductible health plan and participate in the health savings account option. AB 1567 (Garrick) School District Retiree Health Benefits AB 1567 would require school districts that provide retiree health and welfare benefits to develop a long-term plan that identifies how they will fund those benefits for current and future retired employees. The requirement would be phased in over the 2007-08 to 2009-10 fiscal years based on each district's total revenue in the 1998-99 fiscal year. A school district would be required to complete its long-term plan or updates to an existing plan within 6 months of being advised to complete an actuarial assessment. The school board would be required to include the long-term plan in its public budget hearing and annual budget. The county superintendent of schools would also be required to determine whether the adopted budget includes the amount necessary to fully fund the long-term plan of the district for retired employee health and welfare benefits for that fiscal year, and “to make other specified determinations regarding those benefits if the adopted budget does not include that necessary amount of funding.” A similar bill died in the legislature last year. SB 369 (Vincent) Annual Study of School District Retiree Health Benefits This bill would require the STRS board to file with the Legislature an annual study of school districts that do not provide health benefits for retired teachers. SB 461 (Ashburn) Divesting from Companies in Foreign Terrorist States This bill would prohibit PERS and STRS from investing public employee retirement funds in a company with business operations in a foreign terrorist state and would require the retirement systems to sell or transfer any investments in these companies within specific timeframes and report to the Legislature regarding these investments. SB 579 (Wiggins) Safety Member: PERS Certification This bill would require PERS to certify to the Internal Revenue Service and specified health insurance plan providers for tax purposes that a member is a retired public safety officer when the member retires for disability or based upon years of service after attaining the normal retirement age. SB 608 (Wiggins) PERS Housekeeping Bill This annual PERS “housekeeping” bill makes various PERS law changes including: adds local safety officers to provisions that require that contract amendments must apply uniformly to all safety members; replaces language requiring an employee to demonstrate administrative error when filing retroactive retirement benefits over 9 months after separation with a provision that retirement benefits would begin upon receipt of application; requires spousal notification for refund of benefits; and makes technical revisions to contracts that extend Social Security benefits to local agency safety members. SB 840 (Kuehl) Universal Healthcare Coverage: Single-Payer System This bill would make all California residents eligible for universal healthcare benefits under the “California Health Insurance System”. This is the same universal healthcare bill vetoed by the Governor last year. The Governor referred to the single payer healthcare program as “socialized medicine” in his veto message and then subsequently unveiled his own proposal to address California healthcare concerns and the uninsured. SB 853 (Ridley-Thomas) Los Angeles CCD – Retiree Healthcare Pre-funding This bill would allow Los Angeles Community College District to participate in the PERS Fund to pre-fund healthcare coverage. LACCD is not in PEHMCA so can not participate in the PERS program, unless it joins the PERS healthcare program or unless AB 554 passes. SB 901 (Padilla) STRS Post-retirement earnings This bill would make significant changes to STRS post-retirement earnings rulings, some of which sunset at the end of the year. The bill does the following:
All but one of the current exemptions were scheduled to expire on January 1, 2008, so the issue needed to be addressed prior to sun-setting. Imposing employer contributions for post-retirement work is one of the components of STRS’s strategies for confronting the pension program’s unfunded actuarial obligation. According to STRS, this legislation will help it 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. SB 1032 (McClintock) Disability Retirement: Medical Examinations This bill would permit PERS to request a medical reevaluation of a member, retired for disability, who is over the minimum age for voluntary retirement applicable to members of his or her class and has been retired for 36 months or less. Current law only allows a medical re-evaluation for those under the minimum retirement age.
Pension Protection Act Cleanup Bill Anticipated A technical corrections bill for the federal Pension Protection Act (PPA) is in the making. Although the new law was aimed at shoring up pensions for private companies, measures in the bill made significant improvements and changes to governmental plans. On the public side, the PPA extends contribution limits and portability of governmental plans, clarifies the purchase of “air-time” for service credit, exempts public safety employees from the 10% early withdrawal penalty, allows tax-free distributions on public safety retiree health and long-term care from pension plans, and permits retirement plan providers to offer investment advice. We will provide an update on this anticipated bill as the year progresses with any changes that apply to public employees and governmental plans. Senator Feinstein Introduces Pension Offset and Windfall Elimination Bill S. 206 (Sen. Feinstein, CA), the Social Security Fairness Act of 2007, would repeal: (1) government pension offset requirements that reduce the Social Security benefits of the spouse of a public employee based on the employee’s pension; and (2) windfall elimination requirements that reduce a public employee’s Social Security benefits based on their own pension. There are a number of bills like Senator Feinstein’s that are introduced every year repealing the government pension offset and windfall elimination provisions that reduce Social Security benefits for employees and their spouses with public pensions. These bills have historically not passed because they would reduce revenue coming into the fiscally “fragile” Social Security Trust Fund. With the Democrats now in control, we will have see how these bills fare.
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. Thank you,
Maureen Toal PARS has established two innovative multiple-employer trusts to assist public agencies with pre-funding their OPEB (post-retirement healthcare) 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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