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10/30/2009
...BILLS SIGNED INTO LAW AS SESSION ENDS FOR YEAR The following summarizes the public employee retirement-related bills signed into law by the Governor by the deadline for the year (October 12th). These are the bills that PARS hasd been tracking during the first year of the 2009-10 session. As the fiscal problems of the State continue there is a fair chance that there will continue to be a relatively low number of retirement bills put forward and/or acted upon in the second year of this next session. AB 86 (Nava) Airport Police Officers This bill would authorize agencies to include certain airport law enforcement officers in the local safety member classification. This bill passed both houses last session but was vetoed by the Governor with the blanket “budget crisis” explanation. Similar bills have been resisted by public agencies and public safety unions in the past for cost reasons and to restrict which groups receive safety benefits. The main argument against allowing more employee groups into the safety classification is that the Labor Code restricts participation to “employees who face certain risks on a daily basis and are more prone to be injured by these events than other employees.” However, the case was made that in the wake of September 11, Airport Patrol Officers, who are armed and emergency first respondents in airports, now have greater responsibility and face significant injury risk in the performance of their duties to deter potential terrorists. (Chapter 79) 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. (Chapter 90) 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. (Chapter 240) 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 prohibits STRS members from returning to work during the first six months after retirement if they are under the age of 60. (Chapter 306) 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. (Chapter 249) AB 966 (Committee on Public Employees, Retirement and Social Security) PERS Housekeeping Bill Among other provisions, this bill excluded from PERS membership any employee whose appointment or employment contract does not fix a term of full-time, continuous employment over 6 months, unless exceptions apply such as if it requires service of an average of 20 hours a week for one year or longer or if the person completes 125 days or 1,000 hours. (Chapter 130) AB 1584 (Committee on Public Employees, Retirement and Social Security) Placement Agents Disclosures This bill requires public retirement system boards to develop and implement a policy requiring the disclosure of payments to placement agents, the middlemen between the pension systems and the investment firms. The financial and pension industries have suffered a series of corruption scandals due to two key factors: lack of transparency and the role of campaign contributions. Because placement agents are not hired directly by the pension funds, there has been limited disclosure of who is involved, fees they charge and what is done to earn them. Critics say there is a widespread problem with investment managers and placement agents giving campaign contributions to politicians who can make or influence decisions about who gets investments. The bill also expands post-employment restrictions on high level officers and investment staff of local pensions funds ('37 Act funds), so that they are consistent with restrictions that currently apply to officers and staff members of CalPERS and CalSTRS. (Chapter 301) SB 519 (Ashburn) PERS Death Benefits This bill deletes 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 instead maintains the current benefits indefinitely. (Chapter 188) 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. (Chapter 304) SB 752 (Correa) Voluntary 2nd Tier in Orange County Retirement System This bill establishes a voluntary 2nd tier in the pension system in Orange County. New hires must elect to join one of the two tiers when they are hired. The new tier has a reduced pension formula combined with a defined contribution account. (Chapter 362) The latest report of bad news for CalPERS is that it will now have to battle a $17.2 million lawsuit from Lehman Brothers. Lehman, the brokerage firm whose bankruptcy filing helped trigger the collapse of the stock market is demanding payment from CalPERS to fulfill a financial deal called a swap contract. CalPERS, already struggling to recover from a $56 billion investment loss, acknowledges the Lehman debt but says it shouldn't have to pay yet since it was owed money by Lehman prior to the bankruptcy filing. Four days after Lehman filed for bankruptcy protection last September, CalPERS terminated the swap contract while still owing Lehman $17.2 million. CalSTRS, on the other hand, is looking inward to alleviate some of the pressure after a 25 percent drop in investment earnings during the year ending June 30. While a CalSTRS board committee that approved delaying staff bonuses in June rescinded that action, they received approval of the full board to take a broader look at pay policy this fall. State Controller John Chiang recommended in a letter that the compensation committee “consider…reducing or eliminating incentive awards during years when overall fund investment returns are low or negative.” At a time when CalSTRS may be asking the Legislature for a contribution increase, Chiang asks: “should we be handing out bonuses to staff?” After the Department of Finance reported last month that state revenues for August fell well short of projections, state Controller John Chiang recently released information that during the first quarter of the fiscal year, state revenues came in more than a billion dollars under the budget's forecast. Other key assumptions in the budget are also failing which is widening the gap the deficit of a budget that is only three months old. The administration has already forecast a $7.4 billion deficit for 2010-11, and that’s as long as the rest of the budget assumptions hold up. Some pundits are forecasting a more negative figure around a $10 billion-plus deficit for 2010-11. And because the temporary taxes enacted last February will expire and some of the spending deferrals and loans from the budget will have to be repaid, the administration thinks the state is looking at annual deficits around $15 billion for 2011-12 and 2012-13. That figure could even balloon as high as $20 billion a year. Either way, the state is almost definitely in for more big spending cuts, especially given the improbability of raising taxes again. ...LAST CHANCE FOR MID-YEAR RETIREMENT INCENTIVES IN SCHOOLS On October 11 the Governor signed Assembly Bill (AB) 506 (Chapter 306/2009) making this the last fiscal year in which K-14 districts will be able to do midyear retirement incentives, at least in the current format. Districts using early retirement incentives to achieve fiscal savings will no longer be able let employees retire mid-year and have the retired employees come back as long-term substitutes or Emeritus teachers for the remainder of the school year. As of July 1, 2010, STRS retirees who are under the “normal retirement age” of 60 will be prohibited from working in any STRS-related service for six months after they retire. A retiree who violates this will have their retirement allowance reduced up to the total annual retirement allowance that year. This keeps districts from being able to utilize a midyear retirement incentives to reduce costs, though traditional retirement incentives are still in play. AB 506 makes the following specific changes to the STRS postretirement earnings limitations:
...RICHMAN TRIES FOR PENSION REFORM AGAIN Former Assemblyman Keith Richman is once again attempting to qualify another ballot initiative for 2010 to reform defined benefit plans. This time, instead of getting rid of defined benefits plans and moving to defined contribution plans, he wants to keep the pension plans but reduce the benefits employees would receive. The new plan would also raise the normal retirement ages for public safety employees from 50 to 55 (or 60) and for general employees to the Social Security retirement age (65 to 67). New final compensation will be calculated by taking the highest consecutive five years of base wages instead of the highest one year. Under the plan, retiree health benefits would only be available to new employees who work ten years for one or more public agencies and have at least five consecutive years immediately prior to retirement. Retroactive increases in pension or retiree health benefits would also be prohibited. In addition, public agencies would be required to make full payments to their pension and retiree healthcare funds each year, regardless of their funding status. If passed, the changes would affect only new hires, beginning January 1, 2011. The new maximum benefit calculation formulas are listed below. Local agencies could exceed the pension benefit formulas in the initiative, but only with the approval of a two-thirds vote of their constituents during a statewide general election.
NOTE: This will be the last Legislative Alert for the year since the Legislature is no longer in regular session. We will begin tracking any new bills that are introduced for next year starting in December and January, which we will update in our monthly “Legislative Alert” email publication to be sent out again beginning in February 2010. 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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