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05/27/2009
…CALPERS CHANGES “SMOOTHING” POLICY At a May meeting, the PERS Board gave preliminary approval to a new smoothing method plan to buffer public agencies against the recent investment losses sustained by the retirement system. As mentioned previously, the losses from this year will be applied to the June 30, 2009 actuarial valuation, which is used to establish contribution rates for the 2011-12 fiscal year. This is when agencies would see larger contribution rate increases, particularly if PERS ends this plan year (as of June 30) with 25% or greater investment losses. The smoothing changes would have the effect of phasing in the impact of the investment loss in 2008-2009 over 3 fiscal years. The employer contribution rate changes would occur in fiscal year 2010-2011 for the State and Schools plans and for fiscal year 2011-2012 for local public agency employers. The changes would prevent employer rates from increasing dramatically in subsequent fiscal years if the investment markets were to rebound in 2009-2010 or 2010-2011. However, it is important to note that unless the investment markets recover, delaying increases in contribution rates only means that more money will have to be collected in the future. Technically, PERS would temporarily expand the 80%-120% funding level corridor on June 30, 2009 until June 30, 2011 and amortize all gains and losses during fiscal year 2008-2009, 2009-2010 and 2010-2011 over fixed and declining 30-year periods (as opposed to the current rolling 30-year amortization). …CALSTRS PUSHING RATE INCREASES In the last Alert, we provided unofficial reports about the unfunded situation of STRS. On Tuesday, STRS staff reported publicly that the fund has sustained 28% losses since last July 1 (as of April 30th) and a staff report estimates that contributions would have to increase 3.7% to shore up the funding deficit, even without factoring in investment losses of the last fiscal year. However, unlike PERS, STRS does not have the ability to change employer rates at will to shore up its pension system. The STRS contribution rate is set in statute and any changes would need to be made through the legislature. A report in the Sacramento Bee (May 27) states that STRS is preparing to request higher contribution rates from the state, school districts, and teachers. According to the newspaper, “The request might not come for another year so, and the higher rates might not kick in until even further down the road. But the California Teachers’ Retirement System is laying the ground work now, prepping lawmakers and lobbyists on an issue that could meet with considerable resistance…” In the early part of 2009, the state legislature focused on passing a budget to deal with the deficit shortfall for the current fiscal year and one looming for the next fiscal year (’09-’10). Unfortunately, due to the state's continued deteriorating economy, the budget deal that was made is already short of revenue expectations by $8 billion. Since the Governor’s May Budget Revise and the voter rejection of ballot measures that were part of the original budget package, the latest estimates put the deficit at nearly $24 billion. Ongoing budget deficit pressures will therefore continue to pre-occupy the governor and legislature this session. In both houses, there is a rule this session that any bill resulting in even nominal costs will not move. Therefore, we saw a smaller-than-usual number of retirement/public employee benefits bills filed this spring. Governor Schwarzenegger sent lawmakers a plan this week to cut more than $5 billion in spending and his aides said he would propose another $3 billion in cuts by the end of the week. The cuts came after other severe spending reductions in a separate $16-billion plan that the governor unveiled two weeks ago. …UPDATE ON RETIREMENT-RELATED BILLS The following updates the status of the retirement-related bills that were introduced for the 2009-10 Legislative Session. It is important to keep in mind that new language can be amended into previously unrelated bills as the session continues. May 22nd was the last day for bills to be heard in their policy committees and the last day for bills to be heard in fiscal committees is May 29th. All bills must pass their house of origin by June 5th. AB 8 (Brownly) Education Finance AB 8 would require the Finance Director and the Legislative Analyst to convene a working group to make findings and recommendations to the Legislature and the Governor on or before December 1, 2010, regarding restructuring California's school finance system. This bill is in the Assembly Appropriations Committee. AB 86 (Nava) Airport Police Officers The bill would authorize agencies to include certain airport law enforcement officers in the local safety member classification. AB 86 has passed the Assembly and is in the Senate policy committee. AB 104 (Calderon) Public Safety Distribution Penalty Waiver This bill conforms state law to recent changes in the federal Pension Protection Act by waiving the 10% early withdrawal penalty tax on distributions from governmental retirement plans for health and long-term care insurance for public safety employees. This bill is in the Assembly Appropriations suspense file. AB 125 (De Leon) PERS Savings Program for Private Sector AB 125 creates the California Employee Savings Program to be administered by PERS to offer one or more individual retirement accounts or defined benefit plans to California private employees. A similar bill received a great deal of press last year because it expands the reach of CalPERS into the private sector. CalPERS itself had concerns and the bill stalled in the legislature. Currently, the bill is in the Assembly Appropriations suspense file. AB 232 (Hill) STRS Benefit Payment Information This bill would eliminate a requirement that STRS send a copy of the benefit payment information to any retired member, disabled member, or beneficiary who has payments transmitted by direct deposit or by mail to a financial institution. AB 232 has passed the Assembly and is now in the Senate Committee on Public Employees and Retirement. AB 360 (Ma) Part-time Community College Faculty Study This bill would state that the Legislature encourages STRS to conduct a study that would examine the feasibility and cost-effectiveness of either creating a new program for part-time instructors or making modifications to the pension program to more appropriately reflect the career of a part-time instructor. The bill is in the Assembly Appropriations suspense file. AB 399 (Brownly) PERS – Accumulated Contributions This bill requires PERS to provide members who have separated from all service, and who have attained age 70, with an election form to take a refund of their retirement account contributions or apply for retirement if vested. AB 399 has passed out of the Assembly and is now in the Senate policy committee. AB 446 (Niello) PERS Service Credit “Air Time” Report This bill would require PERS to prepare a report to the Legislature on the use of the purchase of additional PERS retirement service credits known as “air time” by PERS participants. The author asserts that these “air time” purchases may be adding to PERS unfunded liabilities. The bill has passed the Appropriations Committee and was sent to the Assembly consent calendar. AB 506 (Furutani) STRS Post-Retirement Earnings Limits This bill extends and changes the post-retirement earnings limits under STRS until June 30, 2012. It applies a limitation of $0 to retired employees during the first six months after service retirement if the member is below normal retirement age of 60. AB 506 has passed out of the Assembly and moved over to the Senate policy committee. AB 637 (Hill) Interest on PERS Payments AB 637 would require contributions made to PERS to be done by electronic funds transfer. It would also allow PERS to charge interest at the actuarial interest rate on any amount due and unpaid by a contracting agency until payment is received. This bill has passed through the Assembly and is now in the Senate policy committee. AB 654 (Mendoza) STRS – Penalties and Fees This bill would allow STRS to: 1) charge interest on installment payments to purchase “air-time”, 2) charge interest on delinquent contributions, and 3) assess penalties or fees on late or improper reports from schools and agencies. The bill is currently in the Assembly Appropriations suspense file. AB 704 (Calderon) PERS – Deferred Retirement Option Program This bill would establish the “Deferred Retirement Option Program” or “DROP,” a voluntary program in PERS for certain state employee groups. The program would provide eligible members a lump sum at retirement in addition to a monthly retirement allowance. The bill is in the Assembly Appropriations suspense file. AB 966 (Committee on Public Employees, Retirement and Social Security) PERS Housekeeping Bill Among other provisions, this bill would provide that an employee whose appointment or employment contract does not fix a term of full-time, continuous employment in excess of 6 months be excluded from PERS membership unless exceptions apply, such as if it requires service equivalent to an average of 20 hours a week for one year or longer or if a person completes 125 days or 1,000 hours. This bill is similar to the PERS housekeeping bill from last session that was vetoed by the governor. The bill has passed out of the Assembly and is now in the Senate policy committee. AB 1267 (Eng) STRS Credit This bill would make permanent the “longevity bonus” for STRS members who have 30 or more years of service. Currently the bonuses are scheduled to sunset as of December 31, 2010. It is unclear whether the STRS Board will support this bill, given the longer term future costs of extending these benefits. The bill is currently in the Assembly Appropriations Committee. AB 1354 (Fong) County Employees Retirement 415 Limits This bill would prohibit the amount payable to a County Act Retirement System member to exceed Internal Revenue Code 415 limits. Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under retirement plans, which are adjusted annually for cost-of-living increases. AB 1354 has passed out of the Assembly and has been referred to the Senate Committee on Public Employees and Retirement. AB 1477 (Krekorian) Retired PERS School Member Death Benefit This bill would increase the current death benefit payment from $2,000 to $6,163 for the designated beneficiary of a retired PERS school member. The bill has been placed on the Assembly Appropriations suspense file. SB 92 (Aanestad) Healthcare Reform This bill would require PEMHCA to offer a high-deductible health plan and a Health Savings Account (HAS) option to public employees. Unions do not like HSA accounts since they shift burden of health costs to employees, although they give employees more control over their costs. The bill failed passage in committee. SB 280 (Calderon) STRS Golden Handshake This bill eliminates the provision that a STRS member would forfeit his or her 2 years of service credit golden handshake if re-employed within 5 years after retirement as a substitute teacher from the same school district from which he or she retired. SB 280 was introduced to deal with an incident where 20 retirees had to pay back their retirement benefit after coming back to work at the district’s request. The retirees alleged they were not properly informed of the STRS rule. The bill was placed on suspense in Senate Appropriations. SB 519 (Ashburn) PERS Death Benefits This bill would delete the provisions for PERS preretirement death benefit eligibility that would change the law on January 1, 2010, to spouses attaining age 62 instead of 60, and would instead maintain indefinitely the benefits that are currently in effect. SB 519 was placed on the Senate Appropriations suspense file. SB 634 (Committee on Public Employees and Retirement) STRS Housekeeping Bill Among others, there is a provision to make membership election irrevocable for substitute teachers and other part-time employees who optionally select to participate in the STRS Defined Benefit Program (participation in STRS is not mandatory for part-time employees) which would remain in effect until the member terminates employment. The bill also covers changes in eligibility for reduction-in-service, domestic partner rights, documentation for post-retirement earnings, beneficiary law, and other matters. SB 634 has passed out of the Senate and is now in the Assembly policy committee. Following are important dates/deadlines for the rest of the 2009 legislative year: May 29 – Last day for fiscal committees to hear and report bills introduced in their house to floor. June 5 – Last day for bills to be passed out of their house of origin. June 15 – Budget must be passed by midnight. (Yeah, right.) July 10 – Last day for policy committees to meet and report bills. July 18-August 17 – Summer Recess August 28 – Last day for fiscal committees to meet and report bills to the floor. September 11 – Last day for each house to pass bills. October 11 – 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. Thank you, 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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