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5/27/2010
Governor Schwarzenegger recently released his May revision of the budget proposal to a mixed reception around the State. The 2-year budget gap currently stands at $19.1 billion, which is slightly lower than the January deficit estimate of $19.9 billion. K-14 education held to nearly the January Budget level, but it comes at a price to other budget areas, particularly to health and social service programs, which will impact the counties significantly. In addition, the Controller projects cash flow problems early in the next fiscal year without a budget agreement. Major provisions of the May Revision include:
…PERS MAY ADD TO STATE BUDGET PRESSURE PERS is now considering a $600 million increase in the State budget appropriation next year to cover state and school pensions. The fund's actuaries are recommending that the PERS Board request $3.9 billion for the new fiscal year, $400 million more than Gov. Schwarzenegger planned for in his original 2010-11 budget proposal. PERS is responding to a recent actuarial study that revealed longer-than-expected member life expectancies, earlier retirements ages, and higher salary levels. Last June, the fund estimated that it had about 60 percent of the assets it needed to cover the pension promises made to state workers. That level has improved somewhat with the stock market's gains over the last year, but the long term funding status is still below the 80 percent funding level regarded as the acceptable minimum for public pension funds. Even with the new recommended contribution increase, the funding level estimate would only improve to 76 percent by 2042. The following are the retirement-related bills that are still active in the 2009-10 Legislative Session. We will continue to monitor these bills and any others for “gut-and-amends”. With the Governor’s May budget revise just released, the Legislature will probably be preoccupied with budget negotiations in the near future, but pension reform looks like it could become part of those considerations this year. Most of the bills are now under consideration in the Appropriations Committees. AB 104 (Calderon) Public Safety Distribution Penalty Waiver This two year bill brings California into conformity with federal tax laws of the Pension Protection Act by waiving the 10% early withdrawal penalty tax on certain distributions of pension plans for public safety employees. The Franchise Tax Board estimated that this bill would cost the state $200,000 in lost tax revenue in 2010-11, so though it made it out of the Assembly, it did not pass the Senate. AB 125 (De Leon) PERS Savings Program for Private Sector The bill, from the past session, 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. This bill has been controversial because it puts PERS in the business of offering and administering retirement plans for private sector employees. According to the author, 43% of the state’s workforce work at a job that does not offer them a pension or retirement savings plan to supplement Social Security. AB 446 (Niello) Study on the Cost of Airtime This bill would require PERS to prepare a report to the Legislature on the use of the purchase of additional PERS retirement service credits by PERS participants, otherwise known as “airtime”. Assembly Member Niello, a Republican from Sacramento, is concerned that airtime purchases may impact PERS’ growing unfunded liability. Airtime is supposed to be “cost-neutral” to the employer and Niello wants verification of this. The bill was watered down and is likely dead at this point, but could turn into a vehicle for another retirement cause as a two-year bill. AB 609 (Conway) County Employees Retirement Administrative Costs County Retirement Act systems are the only system required to annually adopt a budget covering the entire expense of administration of the retirement system and prohibits the expense incurred in any year from exceeding 18/100 of 1% of the total assets of the retirement system. This became an issue because assets dropped recently but operational expenses and needs do not. This bill would instead prohibit expenses incurred in any year from exceeding 18/100 of 1% of the approved actuarial liability of the retirement system rather than be based on assets. Labor had some concerns about the bill and it did not pass last year, but may take on new life again since it is a big priority for the State Association of County Retirement Systems (SACRAS). AB 1651 (De La Torre) Furloughed School Employees This new bill requires that the calculations for retirement allowances for CalPERS school members that are subject to mandatory furloughs include the amount of service and compensation that would have been credited and paid had the member not been subject to mandatory furloughs. AB 1743 (Hernandez) Placement Agents The bill would define placement agents as lobbyists in accordance with the state’s Political Reform Act. Placement agents would be subject to strict gift limits, campaign contribution prohibitions, and be prohibited from receiving compensation contingent upon any investment decision. Placement agents, their firms and employers would be required to report quarterly on their fees and compensation and on any honoraria or gifts. The law would apply to CalPERS, CalSTRS and local retirement systems. Placement agents are persons hired in connection with an investment transaction as a finder, solicitor, marketer, consultant, broker or other intermediary to raise money or investments or obtain access to a retirement system. Recent investigative and enforcement activities in New York and media coverage of PERS in California have revealed a lack of transparency and limited disclosure of placement agent involvement in public pension plan investments, the fees they charge, and the services they provide in exchange for these fees. AB 1764 (Portantino) State Employee Executive Salary Freeze AB 1764 would prohibit state employees earning more than $150,000 per year from receiving overtime pay and from receiving a salary increase while employed in the same position. Employees can be exempted by executive order of the Governor or if their salaries are set by the State Constitution. This bill attempts to reign in public employee compensation during the state’s current financial crisis and would be in effect until January 1, 2013. AB 1987 (Hernandez) Anti-Spiking Bill AB 1987 is an anti-spiking type bill that seeks to prevent changes in compensation principally for the purpose of enhancing a member's benefits in the final year of employment. The bill would limit the calculation of a member's final compensation to the average increase in compensation received within the final compensation period and the 2 preceding years by employees in the same group. The bill also requires each state and local public retirement system to establish an ongoing audit process to ensure that a change in a member's compensation is not made principally to enhance a member's retirement benefits. A 6 months separation from service would also be required before a retiree could perform services for a state or local public employer. This bill has passed the policy and Appropriations committees and could soon reach the Assembly floor for a vote. SB 919 (Hollingsworth) Public Employee Pension Reform Bill The bill would raise the retirement ages for non-safety employees from 55 to 65 while safety employees would be raised from 50 to 57. The bill would also scale back benefits for new hires and the number of employees who could qualify for some of the more lucrative benefits. New non-safety hires would be subject to a 2% at 65 retirement formula. Newly hired safety employees would be subject to a 2.5% or 2.7% at 57 retirement formula, depending on their bargaining unit. Pensions would be capped at 90% of final compensation, which would now be based on the highest three years of average annual compensation instead of the current highest one year. SB 1209 (Romero) Postretirement Death Benefits This bill now increases the death benefit for any school PERS member from $2,000 to $4,000 for deaths of retired school members occurring between January 1, 2011 and January 1, 2012; to $4,500 for deaths between January 1, 2012 and January 1, 2013; to $5,000 for deaths between January 1, 2013 and March 31, 2014. The benefit amount after April 1, 2014 would be an annually adjusted from $5,000. SB 1209 is similar to previous bills introduced in past sessions. The bill failed passage in committee on April 21 but reconsideration was granted. SB 1425 (Simitian, D- Palo Alto) Anti-Spiking Bill This bill is very similar in content to AB 1987 above but is further behind in the process. It has been sent to the Senate Appropriations Committee suspense file. Following are important dates/deadlines for the rest of the 2010 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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PARS
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