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06/26/2009
…CALPERS “SMOOTHING” POLICY CHANGES On June 17, the PERS Board officially approved modifications to their “smoothing” method for schools and local agencies. The new plan temporarily buffers public agencies against the recent investment losses sustained by the retirement system. PERS took this action to keep from adding unnecessary stress to already strained government budgets. 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 2008-2009 investment losses over 3 fiscal years. 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. And while PERS believes that the global market decline is temporary, 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. Even if PERS earns its assumed 7.75% investment return in the next two years, employer rates will still increase to levels we would see under the current smoothing method, but two years later. Technically, PERS would temporarily expand the funding level corridor (from 80-120% to 60-140% in the first year, to 70%-130% in the second year, then back to 80-120% in the third year) 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). The PERS Board approved the smoothing policy change in spite of objections made by Governor Schwarzenegger. The Governor opposed the move, questioning PERS’ optimistic view of its investments and willingness to defer pension contributions to future generations. Below are the net investment return numbers for the PERS Total Fund (with a market value of $176 billion) as of April 30, 2009:
Ongoing budget negotiations continued to pre-occupy the Governor and legislature just as State Controller Chiang released a statement recently that California will soon run out of cash and will need to begin issuing IOUs for some bills beginning in July. Backing away from his tax-raising proposals from last year, Governor Schwarzenegger recently told the Legislature that he would also veto any plan for balancing the state budget that included tax increases or state fee hikes. Schwarzenegger also expressed unhappiness that lawmakers were willing to raise taxes but unwilling to cut state workers' salaries. Since then, the state Assembly approved budget revisions intended to keep the state from having to issue IOUs. But before the bills even reached the Governor, they were defeated in the Senate. The three bills freed up cash by cutting school spending and delaying some payments to schools and local government agencies. No Republican senators voted for any of the measures, and several Democratic senators did not vote on one or all of them. Meanwhile, hundreds of California cities continue to declare a “State of Severe Financial Hardship” and promise to sue the State if its new fiscal budget includes "stealing" local gas tax funds. …RETIREMENT-RELATED BILLS THAT HAVE “DIED” The following are some key retirement-related bills that were introduced this session but did not meet deadlines to get out of committee/house and are dead for this year (but can be revived next year). It is important to keep in mind that new language can be amended into previously unrelated bills (called “gut and amend”) as the session continues. All bills had to pass their house of origin by June 5th and all policy committees must report bills from the other house by July 10th (see calendar below). We will update you next month about continuing bills. AB 360 (Ma) Community College Faculty Retirement This bill would state that the Legislature encourage 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 defined benefit program to more appropriately reflect the career of a part-time instructor. The bill was held in Assembly Appropriations and is now dead for the year. 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 at retirement a lump sum in addition to a monthly retirement allowance. The bill was held in the Assembly Appropriations suspense file and is now dead for the year. 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 did not move out of the Assembly Appropriations Committee and is now dead for the year. 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 did not move out of Assembly Appropriations and is now dead for the year. SB 92 (Aanestad) Healthcare Reform This bill would require PEMHCA to offer a high-deductible health plan and a Health Savings Account option to public employees. The bill failed passage in committee and is now dead for the year. 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 in 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 held in Senate Appropriations and is now dead for the year. Following are important dates/deadlines for the rest of the 2009 legislative year:
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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