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AB-1912 Public employees’ retirement: joint powers agreements: liability.(2017-2018)

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Date Published: 07/03/2018 09:00 PM
AB1912:v94#DOCUMENT

Amended  IN  Senate  July 03, 2018
Amended  IN  Senate  June 20, 2018
Amended  IN  Assembly  May 09, 2018
Amended  IN  Assembly  April 19, 2018
Amended  IN  Assembly  March 19, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill No. 1912


Introduced by Assembly Member Rodriguez

January 23, 2018


An act to amend Section 6508.1 of, to add Sections 6508.2, 20574.1, and 20575.1 to, and to repeal and add Section 20577.5 of, the Government Code, relating to public agencies, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


AB 1912, as amended, Rodriguez. Public employees’ retirement: joint powers agreements: liability.
(1) Existing law establishes various public agency retirement systems, including, among others, the Public Employees’ Retirement System, the State Teachers’ Retirement System, the Judges’ Retirement System II, and various county retirement systems pursuant to the County Employees Retirement Law of 1937. These systems provide defined pension benefits to public employees based on age, service credit, and amount of final compensation.
The Joint Exercise of Powers Act generally authorizes 2 or more public agencies, by agreement, to jointly exercise any common power. Under the act, if an agency is not one or more of the parties to the agreement but is a public entity, commission, or board constituted pursuant to the agreement, the debts, liabilities, and obligations of the agency are the debts, liabilities, and obligations of the parties to the agreement, unless the agreement specifies otherwise. The act also authorizes a party to a joint powers agreement to separately contract for, or assume responsibilities for, specific debts, liabilities, or obligations of the agency.
This bill would eliminate that authorization, and would specify that if an agency established by a joint powers agreement participates in, or contracts with, a public retirement system, member agencies, both current and former to the agreement, would be required, upon prior to a termination or a decision to dissolve or cease the operations of the agency, to mutually agree as to the apportionment of the agency’s retirement obligations among themselves, within 60 calendar days, themselves, provided that the agreement equals the total 100% of the retirement liability of the agency. If the member agencies are unable to mutually agree to the apportionment, the bill would require them to be jointly and severally liable for the retirement liability of the agency. the board to apportion the retirement liability of the agency to each member agency based on the share of service received from the agency, or the population of each member agency, as specified, and would establish procedures allowing a member agency to challenge the board’s determination through the arbitration process. The bill would also provide that if a judgment is rendered against an agency or a party to the agreement for a breach of its obligations to the retirement system, the time within which a claim for injury may be presented or an action commenced against the other party that is subject to the liability determined by the judgment begins to run when the judgment is rendered. The bill would specify that those provisions apply both retroactively to all parties, both current and former, to the joint powers agreement. a member agency, or current and former member agency, that has an agreement with the board on or before January 1, 2019, and to new agreements with the board on or after that date.
(2) The Public Employees’ Retirement Law (PERL) creates the Public Employees’ Retirement System (PERS), which provides a defined benefit to members of the system, based on final compensation, credited service, and age at retirement, subject to certain variations. PERL vests management and control of PERS in its Board of Administration.

(3)Existing

Existing law authorizes the governing board of a contracting agency to terminate its membership with PERS, subject to specified criteria. Existing law requires the PERS board to enter into a specified agreement with the governing body of a terminating agency, upon request of that agency, to ensure that final compensation is calculated in the same manner as benefits of nonterminating agencies, and that related necessary adjustments in the employer’s contribution rate are made and benefits adequately funded, including a lump-sum payment at termination, if agreed to by the terminating agency and the board. Existing law requires a terminating agency to notify the PERS board of its intention to enter into this agreement within a specified period of time. Existing law authorizes the PERS board to choose not to enter into an agreement to terminate if the board determines that it is not in the best interests of PERS. Existing law requires all plan assets and liabilities of a terminating agency to be deposited in a single pooled account, the terminated agency pool subaccount within the Public Employees’ Retirement Fund, a continuously appropriated fund.
This bill would also require the PERS board to enter into the above-described agreement upon request of a member agency of a terminating agency formed under the Joint Exercise of Powers Act, and would require a member agency to notify the PERS board of its intention to enter into this agreement within a specified period of time. The bill would authorize the board, if it determines that it is not in the best interests of the retirement system, to choose not to enter into that agreement. To the extent that the bill would increase any lump-sum payments made by a terminating agency and deposited into a subaccount within the Public Employees’ Retirement Fund, the bill would make an appropriation. The bill would also provide that if the governing body of a terminating agency or the governing bodies of its member agencies do not enter into an agreement, the member agencies would then assume the retirement obligations for their retirement systems.

(4)

(3) Existing law makes a terminated agency liable to the system for any deficit in funding for earned benefits, interest, and for reasonable and necessary costs of collection, including attorney’s fees. Existing law provides that the board has a lien on the assets of a terminated contracting agency, as specified, and that assets shall also be available to pay actual costs, including attorney’s fees necessarily expended for collection on the lien.
This bill would extend that liability and lien to all of the parties of a terminating agency that was formed under the Joint Exercise of Powers Act. To the extent that these changes would increase deposits in the Public Employees’ Retirement Fund, the bill would make an appropriation.

(5)

(4) Existing law authorizes the board of PERS to elect not to impose a reduction, or to impose a lesser reduction, on a terminated plan if the board has made all reasonable efforts to collect the amount necessary to fully fund the liabilities of the plan and the board finds that not reducing the benefits, or imposing a lesser reduction, will not impact the actuarial soundness of the terminated agency pool.
This bill would eliminate that provision. The bill would require the board, prior to exercising its authority to reduce benefits, to consider and exhaust all options and necessary actions, including evaluating whether to bring a civil action against any member agencies to a terminated agency formed by an agreement under the Joint Exercise of Powers Act to compel payment of the terminated public agency’s pension obligations. The bill would also specify that the board is entitled to reasonable attorney’s fees in addition to other costs. The bill would also set forth related legislative findings.
Vote: MAJORITY   Appropriation: YES   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares as follows:
(a) Retirement security is important to families, workers, and communities, as well as to the local, regional, and statewide economies, and provides financial security and dignity to those who retire.
(b) A defined benefit plan offers, among other types of retirement plans, a guarantee of financial security in retirement.
(c) A Joint Power Authority (JPA) created pursuant to the Joint Exercise of Powers Act (Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 of the Government Code) provides important services and benefits to its geographical areas and communities.
(d) A JPA may offer a defined benefit plan to attract, recruit, and retain highly skilled employees toward providing services and fulfilling its purpose.
(e) Employees who have been promised a retirement allowance and the other benefits of a defined benefit plan by their employer should be provided those benefits after reaching the requisite age, based on years of service and an established benefit formula, as promised by that employer.
(f) Further, an employee who accepts employment with a JPA employer that promises a defined benefit plan may detrimentally rely on the retirement benefit, as committed by the employer, during his or her employment and retirement from that employer.
(g) Moreover, a JPA might have limited sources of revenue, and an inability to increase, or secure additional sources of revenue, that may lead to financial distress or insolvency of the JPA, absent the financial surety of its member agencies and for the retirement benefits of the JPA’s employees.
(h) Thus, member agencies of a JPA should not be permitted to absolve themselves of financial liability, in whole or in part, that may result in a reduction of a retirement benefit to an employee or retiree of a JPA of which the agencies are, or were, members.
(i) Therefore, in order to ensure that the board of a public retirement system is meeting its fiduciary duties and responsibilities to its members and the system, the board should be required to consider and exhaust all options and necessary actions and be permitted to seek legal redress on behalf of its members if an action by the governing body of the JPA may result in a reduction of retirement benefits to the employees or retirees of a JPA.
(j) Further, to ensure that the board is meeting its fiduciary duties and responsibilities, contracts with the retirement system by a JPA must protect present and future retirees of the JPA.
(k) For purposes of this section, “public retirement system” means any pension or retirement system of a public employer, including, but not limited to, an independent retirement plan offered by a public employer that the public employer participates in or offers to its employees for the purpose of providing retirement benefits, or a system of benefits for public employees that is governed by Section 401(a) of Title 26 of the United States Code.

SEC. 2.

 Section 6508.1 of the Government Code is amended to read:

6508.1.
 (a) If the agency is not one or more of the parties to the agreement but is a public entity, commission, or board constituted pursuant to the agreement, the debts, liabilities, and obligations of the agency shall be debts, liabilities, and obligations of the parties to the agreement, unless the agreement specifies otherwise. However, the parties to the agreement may not agree otherwise with respect to the retirement liabilities of the agency if the agency contracts with a public retirement system.
(b) For purposes of this section, “public retirement system” means any pension or retirement system of a public employer, including, but not limited to, an independent retirement plan offered by a public employer that the public employer participates in or offers to its employees for the purpose of providing retirement benefits, or a system of benefits for public employees that is governed by Section 401(a) of Title 26 of the United States Code.

SEC. 3.

 Section 6508.2 is added to the Government Code, to read:

6508.2.
 (a) (1) Upon Prior to a termination pursuant to Section 20570, 20571, or 20572, or a decision by the governing body of the agency to dissolve or to cease the operations of the agency, member agencies of an agency established by agreement under this chapter that participates in, or contracts with, a public retirement system, member agencies, both current and former, to the agreement, including all amendments thereto, shall mutually agree as to the apportionment of the agency’s retirement obligations among themselves, within 60 calendar days, provided that the agreement equals 100 percent of the total retirement liability of the agency. A copy of this mutual agreement, signed by all parties thereto, shall be provided to the board, which shall be reflected in the agreement with the board. If the member agencies are unable to mutually agree to apportionment of the total retirement liability of the agency, pursuant to this section, the member agencies shall be jointly and severally liable for the retirement liability of the agency. agree, the board shall apportion the retirement liability of the agency to each member agency based on the share of service received from the agency, or population of each member agency, such that the apportionment equals one hundred percent of the retirement liability of the agency, which shall be reflected in the agreement with the board.

(2)This section also applies to an agency that merges or reforms and continues an agreement with the public retirement system.

(2) A member agency may challenge the determination by the board to apportion the retirement liability of the agency. However, a member, or a former member, that is not identified by the board pursuant to subdivision (a) shall not be permitted to challenge a determination by the board.
(A) A challenge pursuant to paragraph (2) of subdivision (a) shall be referred to an arbitrator who shall, at his or her discretion, apportion the liability among the member agencies such that the apportionment equals 100 percent of the retirement liability of the agency.
(B) The final decision by the arbitrator shall be binding on all member agencies to the decision, and all costs of arbitration shall be equally shared among the current, or current and former, members of the agency that are subject to the decision. The arbitrator shall submit an official copy of his or her final determination to the board within seven calendar days of the decision.
(3) Mutual agreement among the member agencies, or a determination by the board, as to the apportionment of the retirement liability of the agency pursuant to paragraph (1) of subdivision (a), or a decision by the arbitrator pursuant to paragraph (2) of subdivision (a), may include the apportionment of retirement liability to a former member of the agency.
(b) An agency shall not be permitted to terminate pursuant to Section 20570, 20571, or 20572, nor shall a decision by the governing body of the agency to dissolve, become effective until a final decision, pursuant to paragraph (1) or paragraph (2) of subdivision (a), is final.
(c) This section shall apply retroactively to a member agency, or current and former member agency, that has an agreement in existence with the board on or before January 1, 2019. In addition, this section shall apply to a new agreement between an agency and the board on or after January 1, 2019. However, this section shall not apply to an agency established pursuant to this chapter that has dissolved prior to January 1, 2019.

(3)

(d) For purposes of this section, “board” means the board of any pension or retirement system of a public employer, including, but not limited to, an independent retirement plan offered by a public employer that the public employer participates in or offers to its employees for the purpose of providing retirement benefits, or a system of benefits for public employees that is governed by Section 401(a) of Title 26 of the United States Code.

(b)

(e) Notwithstanding any other law, if a judgment is rendered against an agency or a party to the agreement for a breach to its obligations to the public retirement system, the time within which a claim for injury may be presented or an action commenced against any other party that is subject to the liability determined by the judgment begins to run when the judgment is rendered.

(c)This section shall apply retroactively to all parties, both current and former, to the agreement.

SEC. 4.

 Section 20574.1 is added to the Government Code, to read:

20574.1.
 In lieu of the procedure set forth in Section 20574, all parties to a terminating agency that was formed by an agreement under Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 shall be liable to the system for any deficit in funding for earned benefits, as determined pursuant to Section 20577, interest at the actuarial rate from the date of termination to the date the agency pays the system, and reasonable and necessary costs of collection, including attorney’s fees. The board shall have a lien on the assets of a terminated contracting agency and on the assets of all parties to the terminating contracting agency, subject only to a prior lien for wages, in an amount equal to the actuarially determined deficit in funding for earned benefits of the employee members of the agency, interest, and collection costs. The assets shall also be available to pay actual costs, including attorney’s fees, necessarily expended for collection of the lien.

SEC. 5.

 Section 20575.1 is added to the Government Code, to read:

20575.1.
 (a) Notwithstanding any other provision of this part to the contrary, upon request of a terminating agency formed by an agreement under Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 or of any member agency to the agreement, the board shall enter into an agreement with the governing body of a terminating agency or the governing body of the member agency in order to ensure that (1) the final compensation used in the calculation of benefits of its employees shall be calculated in the same manner as the benefits of employees of agencies that are not terminating, regardless of whether they retire directly from employment with the terminating agency or continue in other public service; and (2) related necessary adjustments in the employer’s contribution rate are made, from time to time, by the board prior to the date of termination to ensure that benefits are adequately funded or any other actuarially sound payment technique, including a lump-sum payment at termination, is agreed to by the governing body of the terminating agency and the board.
(b) A terminating agency formed by an agreement under Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 that will cease to exist or its member agency shall notify the board not sooner than three years nor later than one year prior to the terminating agency’s termination date of its intention to enter into agreement pursuant to this section. The terms of the agreement shall be reflected in an amendment to the agency’s contract with the board.
(c) If the board, itself, determines that it is not in the best interests of the system, it may choose not to enter into an agreement pursuant to this section.
(d) If the governing body of a terminating agency formed by an agreement under Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 or the governing bodies of its member agencies do not enter into an agreement pursuant to this section, the member agencies shall assume the retirement obligations on their retirement systems.

SEC. 6.

 Section 20577.5 of the Government Code is repealed.

SEC. 7.

 Section 20577.5 is added to the Government Code, to read:

20577.5.
 The board shall, prior to exercising authority granted pursuant to Section 20577, consider and exhaust all options and necessary actions, including evaluating whether to bring a civil action against any and all of the member agencies that are parties to a terminated agency formed by an agreement under Chapter 5 (commencing with Section 6500) of Division 7 of Title 1 to compel payment of the terminated agency’s retirement obligations pursuant to Section 20575.1, and shall be entitled to reasonable attorney’s fees in addition to other costs.