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ACA-8 Public employee defined contribution and hybrid plan.(2005-2006)

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ACA8:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2005–2006 1st Ext.

Assembly Constitutional Amendment No. 8


Introduced  by  Assembly Member Richman

April 14, 2005


A resolution to propose to the people of the State of California an amendment to the Constitution of the State, by adding Section 8 to Article XX thereof, relating to public pension or retirement benefits.


LEGISLATIVE COUNSEL'S DIGEST


ACA 8, as introduced, Richman. Public employee defined contribution and hybrid plan.
The California Constitution reserves a role for the elected officials of this state in the governance of public pension systems through several means, including the power to determine the appropriateness of retirement benefits for public employees.
This measure would establish the California Public Employee Defined Contribution and Hybrid Plans. The measure would provide that on and after July 1, 2007, any person hired by a public agency shall enroll only in a hybrid plan or in a defined contribution plan, as defined, of a public pension or retirement system, and is prohibited from enrolling in a defined benefit plan, as defined. The measure would permit an active member of a defined benefit plan, during a specified period, to transfer a sum equal to the member’s interest in the defined benefit plan to a defined contribution plan or hybrid plan.
The measure would prescribe contribution rates and other requirements for defined contribution plans and hybrid plans, would require disability and death benefits to be provided under those plans, and would specify the entities responsible for administering those plans.
The measure would require that any statute implementing the measure be enacted only if approved by a 2/3 vote of the membership of each house of the Legislature.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

WHEREAS, California’s state and local governments face severe budget crises because elected officials spend more than they receive in taxes. A fair and balanced approach to restoring long-term fiscal responsibility must include limiting the cost of government employee pensions, which have grown dramatically in recent years, threatening the long-term investments California needs in education, infrastructure, health care, and public safety; and
WHEREAS, California has among the nation’s most generous public pension plans, providing some employees with more than 100 percent of their final years’ salary at age 50. During the past 20 years, most private employers have moved to defined contribution plans, such as 401(k) plans, to limit costs, promote responsible budgeting, and improve fiscal accountability; and
WHEREAS, The struggle to meet the demands of generous pension plans negotiated by elected officials has increased state and local government debt by more than $12 billion, leaving more than $30 billion in additional unfunded costs for future retirees. Creating defined contribution and hybrid plans for all state and local government employees will eliminate new unfunded liabilities; and
WHEREAS, Under current law, existing state and local government employees cannot have their retirement plans changed by this measure. Promises made to all current public employee retirement system members will be kept under this measure. A switch from defined benefits to defined contribution and hybrid plans will only affect employees hired by public agencies on or after July 1, 2007; and
WHEREAS, Unlike current government pension plans, defined contribution and hybrid plans allow employees to enhance their credit standing, control their assets, move some or all of their pension assets from one job to another, and pass along remaining funds to their heirs; and
WHEREAS, Defined contribution and hybrid plans will make government officials more accountable for spending public money, reduce the long-term cost of retirement plans, provide greater budget predictability, and help restore fiscal responsibility to state and local budgets; now, therefore, be it
Resolved by the Assembly, the Senate concurring, That the Legislature of the State of California at its 2005-06 First Extraordinary Session commencing on the sixth day of January 2005, two-thirds of the membership of each house concurring, hereby proposes to the people of the State of California, that the Constitution of the State be amended as follows:

First—

 That Section 8 is added to Article XX thereof, to read:

SEC. 8.
 (a) The California Public Employee Defined Contribution and Hybrid Plans are hereby established and shall be offered by all public agencies to their employees as provided in this section.
(b) Notwithstanding any other provision of law or this Constitution, on and after July 1, 2007, any person hired as a new employee by a public agency shall not enroll in a defined benefit plan and shall enroll only in a hybrid plan offered by his or her employer, unless he or she elects to enroll in a defined contribution plan.
(c) On and after July 1, 2007, and before January 1, 2008, any active member of a defined benefit plan offered by any public agency may transfer a sum equal to the net present value of that member’s interest in the defined benefit plan to a defined contribution plan or a hybrid plan as defined in this section.
(d) As used in this section, the following terms apply:
(1) “Defined benefit plan” means a plan providing a pension benefit determined by a formula based on age, service credit, and salary.
(2) “Normal retirement age” means 55 years of age for public safety employees and 65 years of age or the applicable retirement age under Social Security for all other employees.
(3) “Public agency” includes, but is not limited to, the State of California, and any city, city and county, or county, including a charter city or charter county, district, school district, University of California, California State University or other political subdivision or public entity of, or organized under the laws of, this State, or any department, instrumentality, or agency thereof.
(4) “Public safety employees” means sworn peace officers and firefighters.
(5) “Salary” means an employee’s base salary excluding overtime pay, shift differential, vacation pay, and all other additional payments or allowances.
(e) As used in this section, a “defined contribution plan” means a plan providing a pension benefit that is equal to the combined employer and employee contributions plus interest and net investment earnings, less administrative expenses and other costs, that meets the following requirements:
(1) The plan shall be administered by the Public Employees’ Retirement System, the State Teachers’ Retirement System, or the University of California Retirement System. However, local government agencies and districts may contract with private fund managers to administer their plans if the administrative expenses are lower than those imposed by the retirement system.
(2) Except as otherwise provided in paragraph (3), the employer’s contribution to the plan may not exceed the following rates:
(A) Fourteen percent of salary for public safety employees who are excluded from coverage under Social Security.
(B) Ten percent of salary for teachers and other employees, other than public safety employees, who are excluded from coverage under Social Security.
(C) Seven percent of salary for all employees not described in subparagraph (A) or (B).
(3) An employer’s contribution to the plan may exceed the rate prescribed in paragraph (2) for any one or more employee groups only in the following circumstances:
(A) With respect to employees of the State, if the increased employer contribution rate is approved by a majority of the voters voting on the proposition at a statewide election.
(B) With respect to employees of local agencies and districts, if the increased employer contribution rate is approved by two‑thirds of the voters voting on the proposition at an election within the jurisdiction of the local agency or district.
(C) With respect to employees of the University of California, if the Regents of the University of California find that the increased employer contribution rate is necessary for recruiting and retaining employees in identified employee classes or positions.
(4) Disability and death benefits shall be provided under the plan. The cost of providing disability and death benefits for employees shall be paid from a portion of the employer’s contribution to the plan, unless otherwise paid by the State.
(f) As used in this section, a “hybrid plan” means a plan that is comprised of a defined benefit component that provides a pension benefit determined by a formula based on age, service credit, and salary, and a defined contribution component that provides a pension benefit equal to the employer and employee contributions to that component of the plan plus interest and net investment earnings, less administrative expenses, and that meets the following requirements:
(1) The plan shall be administered by the Public Employees’ Retirement System, the State Teachers’ Retirement System, or the University of California Retirement System.
(2) The employer’s contribution to the plan may not exceed the contribution the employer would be authorized to make on the employee’s behalf to a defined contribution plan under paragraph (2) or (3) of subdivision (e).
(3) Employer and employee contributions to the plan shall first be allocated to the defined benefit component of the plan, with the remaining contributions allocated to the defined contribution component of the plan.
(4) An employee may not retire under the plan, except for disability, until he or she has attained normal retirement age.
(5) With respect to the defined benefit component of the plan:
(A) The actuarial normal cost of the defined benefit for each class of employees may not exceed the maximum employer contribution described in paragraph (2) or (3) of subdivision (e) for that class of employees.
(B) The actuarial normal cost and payments for any unfunded liability shall be paid in equal amounts by the employer and employees, subject to the maximum employer contribution described in paragraph (2) or (3) of subdivision (e).
(C) The aggregate employer and employee contributions shall equal the actuarial normal cost and payments for any unfunded liability for each fiscal year. However, in any fiscal year in which the actuarial value of assets exceeds the accrued actuarial liability by 25 percent or more, the aggregate employee and employer contributions shall be reduced, during that fiscal year, to 90 percent of the actuarial normal cost.
(D) The defined benefits shall be calculated based upon the employee’s highest average salary over a period of three consecutive years.
(E) Disability and death benefits shall be provided under the plan. The cost of providing disability and death benefits for employees shall be paid from assets of the defined benefit component of the plan, unless otherwise paid by the State.
(F) Surplus assets shall be retained in the plan solely for the payment of the defined benefits, disability and death benefits, and administrative costs of the plan.
(g) An employee of a public agency who is hired on or after July 1, 2007, shall not be eligible for employer‑paid retiree health benefits until he or she attains normal retirement age and retires. This subdivision shall not apply to an employee who retires for disability. This subdivision applies only to employees of public agencies who provide health care benefits to retirees.
(h) After this section becomes effective, the Legislature may enact a statute that implements this section or that amends any statute that implements this section only by a bill passed in each house of the Legislature by rollcall vote entered in the journal, two-thirds of the membership concurring.

Second—

 That if this measure and any other measure relating to retirement plans of public employees appear on the same statewide election ballot, the provisions of that other measure shall be deemed to be in conflict with this measure. If this measure shall receive a greater number of affirmative votes than that other measure, the provisions of this measure shall prevail in their entirety, and the provisions of the other measure shall be null and void.

Third—

 That the provisions of this act are severable. If any provision of this act or its application is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.