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07/28/2009
California's two largest public pension funds lost nearly $100 billion combined in the just completed fiscal year (6/30/09). The year-end results confirmed that CalPERS and CalSTRS have been crushed by the stock market, real estate and other investments. CalPERS’ loss of 23.4 percent was the biggest one-year decline in its history. The big losses mean local government employers and employees will have to contribute more in the coming years to stabilize the two funds. CalPERS will require higher contributions from the state beginning July 2010 and local contracting agencies a year later. The amount of increases will be disclosed in October or November. CalSTRS, on the other hand, cannot demand higher payments, because their rates are set in statute, but are in preliminary negotiations with legislators to draft legislation raising the contribution rates. The investment losses have forced downgrades in both funds' credit ratings, which will likely raise borrowing costs for the municipalities using the CalPERS and CalSTRS municipal borrowing programs. CalPERS’ portfolio shrank by $56.2 billion over the past year. CalPERS' stock portfolio fell by 28 percent for the year while its real estate holdings fell by 36 percent and private equity by 31 percent. CalSTRS’ total portfolio fell by about 25 percent, losing $43.4 billion. Both funds have altered their portfolios somewhat in recent months, putting less money into the stock market in favor of private equity and other investments. No information is available yet on losses to the CalPERS OPEB program. Governor Arnold Schwarzenegger signed the latest 2009-10 State Budget revision bill package into law on July 28, 2009, line-item vetoing more than $650 million in expenditures, mainly to non-Proposition 98 programs to close the $24 billion budget gap and to build a $500 million reserve. After a marathon 20-hour session, lawmakers last week completed a plan to (almost) close a $26.3 billion deficit in California's budget through huge cuts, borrowing heavily from local governments, and reducing state workers' pay through furloughs, with a few reforms. The Assembly killed two of the most controversial parts of the deal – shifting gas tax money from local governments and allowing offshore oil drilling – still leaving the budget over $1 billion short. That gap will have to be bridged with Governor Schwarzenegger’s line item veto pen. The budget package reduces the state's general fund budget to about $84.1 billion, 18% below the budget two years ago. The plan includes deep cuts into funding for elementary and high schools and community colleges, but includes a pledge that all of the cuts will be restored in future years. The package cuts a total of $5.7 billion from elementary and high schools and community colleges and $2.8 billion from state colleges and universities. The budget came 28 days into the new fiscal year, though analysts are already projecting that this budget plan, the third in less than a year, could again be falling apart at the seams within 6 months. Furthermore, the budget is meeting with heavy criticism. Various local governments are threatening to sue the state while state workers are preparing to go on strike …UPDATE ON RETIREMENT-RELATED BILLS The following updates the status of the few key retirement-related bills that were introduced this session that are still alive or those that recently died. Bills that are dead for this year 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”). After finally passing a budget, the Legislature is now in recess and will return in mid-August to attempt to finish all other business. We will update you next month about continuing bills. BILLS THAT ARE ALIVE AB 86 (Nava) Airport Police Officers The bill would authorize agencies to include certain airport law enforcement officers in the local safety member classification. This bill was introduced last session but was resisted by public agencies and public safety unions for cost reasons and to restrict which groups receive safety benefits. AB 86 has passed both houses. 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. 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 both houses. 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 both houses. 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 through the Senate policy committee to Senate Appropriations. 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 both houses. 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. 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 is 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 both houses. 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 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 the 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. BILLS THAT ARE DEAD 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. AB 446 (Niello) PERS Service Credit Purchase Report This bill would require PERS to prepare a report to the Legislature by February 1, on the use of the purchase of additional PERS retirement service credits by PERS participants. 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. Following are important dates/deadlines for the rest of the 2009 legislative year: July 27-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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