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SB-32 California Public Employees’ Pension Reform Act of 2018.(2017-2018)

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Date Published: 03/02/2017 09:00 PM
SB32:v98#DOCUMENT

Amended  IN  Senate  March 02, 2017

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 32


Introduced by Senator Moorlach

December 05, 2016


An act to amend Section 22217 of the Education Code, and to amend Sections 7522.34 and 20228 of, to add Sections 7512.5, 20140, 20141, 20418, and 20818 to, and to add Article 5 (commencing with Section 7523) to Chapter 21 of Division 7 of Title 1 of, the Government Code, relating to public employees’ retirement. retirement, and making an appropriation therefor.


LEGISLATIVE COUNSEL'S DIGEST


SB 32, as amended, Moorlach. Public employees’ retirement. California Public Employees’ Pension Reform Act of 2018.
(1) The Public Employees’ Retirement Law creates the Public Employees’ Retirement System (PERS), and the Teachers’ Retirement Law creates the State Teachers’ Retirement System (STRS), for the provision of service, disability, and other benefits to members. Existing law vests the Teachers’ Retirement Board, which administers STRS, and the Board of Administration of PERS with fiduciary responsibility over the assets of their respective retirement systems and requires the boards to, among other things, employ public accountants who are not in public employment to audit the financial statements of the systems, as specified.
This bill would create the Citizens’ Pension Oversight Committee to serve in an advisory role to the Teachers’ Retirement Board and the Board of Administration of PERS. The bill would require the committee, on or before January 1, 2019, and annually thereafter, to review the actual pension costs and obligations of PERS and STRS and report on these costs and obligations to the public and would require reports of audits of STRS and PERS conducted by the public accountants described above to be filed with the committee for this purpose.
(2) Under the Public Employees’ Retirement Law, benefits provided by PERS are funded by employer and employee contributions and investment returns. Existing law requires the Board of Administration of PERS to set and adjust employer contribution rates in relation to the system’s actuarial liability and provides for the deposit of employer contributions into the Public Employees’ Retirement Fund, a continuously appropriated fund. Existing law authorizes the board to adopt a funding period of 30 years to amortize unfunded accrued actuarial obligations for current and prior service for the purpose of determining employer contribution rates for contracting agencies and school employers and to adopt an amortization period of 40 years for any unfunded actuarial liability for the benefits applicable to all state miscellaneous members and all state peace officer/firefighter members.
This bill would require the board to determine what the level of the unfunded liability of PERS was in 1980 and would further require the board to reduce the unfunded liability of PERS to that level, to be achieved by 2030, with the goal of fully funding PERS. The bill, in any year in which the unfunded actuarial liability of PERS is greater than zero, would require the board to increase the employer contribution rate otherwise provided by law for the state, contracting agencies, and school employers by 10 percent. By increasing deposits into a continuously appropriated fund, the bill would make an appropriation.
(3) Existing law prescribes different benefit formulas for members of PERS depending on a member’s classification and date of entry into the system, among other factors.
This bill would require the Board of Administration of PERS, on or before January 1, 2019, to develop and submit to the Legislature for approval a hybrid plan consisting of defined benefit and defined contribution components, as specified, and would require the plan to be applied to members who elect to be subject to the plan or who are first employed by the state, a contracting agency, or a school employer and become members of the system on or after the approval of the plan by the Legislature. The bill would further require the board, on or before January 1, 2019, to review the duties of officers and employees in positions included in the safety member classification pursuant to certain provisions of the Public Employees’ Retirement Law and reclassify the positions according to specified criteria. The bill would apply this reclassification to persons who are first employed by the state and become state members of PERS on or after January 1, 2018.
(4) The California Public Employees’ Pension Reform Act of 2013 (PEPRA), on and after January 1, 2013, requires a public retirement system, as defined, to modify its plan or plans to comply with the act and, among other provisions, provides that the pensionable compensation of a new member of the system is the normal monthly rate of pay or base pay of the member paid in cash to similarly situated members, as specified. PEPRA also requires the final compensation used to determine a retirement benefit to be paid to the new member to be the highest average annual pensionable compensation earned by the member during a period of at least 36 consecutive months, or at least 3 consecutive school years if applicable, as specified.
This bill would prohibit a public retirement board from deeming certain forms of pay to be pensionable compensation and would make related legislative findings and declarations.
This bill would enact the California Public Employees’ Pension Reform Act of 2018 (PEPRA 2018). The bill, for an individual who becomes a member of any public retirement system, as defined, for the first time on or after January 1, 2018, and who was not a member of any other public retirement system prior to that date, would require the final compensation used to determine the member’s retirement benefits to be the highest annual pensionable compensation earned by the member during a period of at least 60 consecutive months, or at least 5 consecutive school years if applicable, as specified. The bill would also provide that if the member leaves the employment of a public employer participating in a public retirement system for other employment, as specified, and is subsequently reemployed by the public employer at least one year later, the member will be subject to the same benefits, contributions, and other terms and conditions applicable to an individual who becomes a member of the public retirement system for the first time on the date of the member’s return, for service rendered on or after that date.
(5) Existing law provides for the application of cost of living adjustments to allowances paid to persons retired under, or survivors or beneficiaries of members or persons retired under, various public retirement systems.
The bill, as part of PEPRA 2018, would prohibit a public retirement system from making a cost of living adjustment to any allowance payable to, or on behalf of, a person retired under the system, or to any survivor or beneficiary of a member or person retired under the system, for any year beginning on or after January 1, 2018, in which PERS or STRS is not fully funded.

The California Public Employees’ Pension Reform Act of 2013, on and after January 1, 2013, established various limits on retirement benefits generally applicable to a public employee retirement system in the state, with specified exceptions.

This bill would state the intent of the Legislature to enact legislation to resume the public employee pension reform begun in the California Public Employees’ Pension Reform Act of 2013.

Vote: MAJORITY   Appropriation: NOYES   Fiscal Committee: NOYES   Local Program: NO  

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


SECTION 1.

 Section 22217 of the Education Code is amended to read:

22217.
 (a) The board shall employ a certified public accountant or public accountant, who is not in public employment, to audit the financial statements of the system. The costs of the audit shall be paid from the income of the retirement fund. The audit shall be made annually and the audit report shall be incorporated into the annual report filed with the Governor and the Legislature pursuant to Section 22324. A copy of the audit report shall also be filed with the Citizens’ Pension Oversight Committee created by Section 7512.5 of the Government Code.
(b) These audits shall not be duplicated by the Department of Finance or the State Auditor. The system shall be exempt from a pro rata general administrative charge for auditing.

SEC. 2.

 Section 7512.5 is added to the Government Code, to read:

7512.5.
 (a) The Citizens’ Pension Oversight Committee is hereby created. The committee shall serve in an advisory role to the Board of Administration of the Public Employees’ Retirement System and the Teachers’ Retirement Board. The committee shall consist of no more than nine members, and no less than five members, jointly appointed by the Board of Administration of the Public Employees’ Retirement System and the Teachers’ Retirement Board from persons with experience in fiduciary matters who do not receive benefits from the Public Employees’ Retirement System or the State Teachers’ Retirement System.
(b) On or before January 1, 2019, and annually thereafter, the committee shall review the actual pension costs and obligations of the Public Employees’ Retirement System and the State Teachers’ Retirement System and report on these costs and obligations to the public. As part of this review, the committee shall review the audit reports filed with the committee pursuant to Section 22217 of the Education Code and Section 20228 of this code.

SEC. 3.

 Section 7522.34 of the Government Code is amended to read:

7522.34.
 (a) “Pensionable compensation” of a new member of any public retirement system means the normal monthly rate of pay or base pay of the member paid in cash to similarly situated members of the same group or class of employment for services rendered on a full-time basis during normal working hours, pursuant to publicly available pay schedules, subject to the limitations of subdivision (c).
(b) Compensation that has been deferred shall be deemed pensionable compensation when earned rather than when paid.
(c) Notwithstanding any other law, “pensionable compensation” of a new member does not include the following:
(1) Any compensation determined by the board to have been paid to increase a member’s retirement benefit under that system.
(2) Compensation that had previously been provided in kind to the member by the employer or paid directly by the employer to a third party other than the retirement system for the benefit of the member and which was converted to and received by the member in the form of a cash payment.
(3) Any one-time or ad hoc payments made to a member.
(4) Severance or any other payment that is granted or awarded to a member in connection with or in anticipation of a separation from employment, but is received by the member while employed.
(5) Payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off, however denominated, whether paid in a lump sum or otherwise, regardless of when reported or paid.
(6) Payments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise.
(7) Any employer-provided allowance, reimbursement, or payment, including, but not limited to, one made for housing, vehicle, or uniforms.
(8) Compensation for overtime work, other than as defined in Section 207(k) of Title 29 of the United States Code.
(9) Employer contributions to deferred compensation or defined contribution plans.
(10) Any bonus paid in addition to the compensation described in subdivision (a).
(11) Any other form of compensation a public retirement board determines is inconsistent with the requirements of subdivision (a).
(12) Any other form of compensation a public retirement board determines should not be pensionable compensation.
(13) (A) Any form of compensation identified that has been agreed to be nonpensionable pursuant to a memorandum of understanding for state employees bound by the memorandum of understanding. The state employer subject to the memorandum of understanding shall inform the retirement system of the excluded compensation and provide a copy of the memorandum of understanding.
(B) The state employer may determine if excluded compensation identified in subparagraph (A) shall apply to nonrepresented state employees who are aligned with state employees subject to the memorandum of understanding described in subparagraph (A). The state employer shall inform the retirement system of the exclusion of this compensation and provide a copy of the public pay schedule detailing the exclusion.
(d) (1) The Legislature finds and declares that “normal monthly rate of pay or base pay,” as used in subdivision (a), does not include, and was not intended to include, incentive pay, educational pay, premium pay, special assignment pay, or holiday pay.
(2) Pursuant to paragraph (1), a public retirement board shall not deem incentive pay, educational pay, premium pay, special assignment pay, or holiday pay to be a form of compensation consistent with subdivision (a).

SEC. 4.

 Article 5 (commencing with Section 7523) is added to Chapter 21 of Division 7 of Title 1 of the Government Code, to read:
Article  5. California Public Employees’ Pension Reform Act of 2018

7523.
 This article shall be known, and may be cited, as the California Public Employees’ Pension Reform Act of 2018.

7523.05.
 For the purposes of this article:
(a) “Member” means a public employee who is a member of a public retirement system.
(b) “New member as of January 1, 2018,” means an individual who becomes a member of any public retirement system for the first time on or after January 1, 2018, and who was not a member of any other public retirement system prior to that date.
(c) “Public employee” means an officer, including one who is elected or appointed, or an employee of a public employer.
(d) (1) “Public employer” includes:
(A) The state and every state entity, including, but not limited to, the Legislature, the judicial branch, including judicial officers, and the California State University.
(B) Any political subdivision of the state, or agency or instrumentality of the state or subdivision of the state, including, but not limited to, a city, county, city and county, school district, community college district, joint powers authority, joint powers agency, and any public agency, authority, board, commission, or district.
(C) Any charter school that elects or is required to participate in a public retirement system.
(2) Notwithstanding paragraph (1), “public employer” does not include an entity described in Section 9 of Article IX of, or Section 4 or 5 of Article XI of, the California Constitution, except to the extent that the entity elects to make this article, or any section thereof, applicable to the entity.
(e) (1) “Public retirement system” means the Public Employees’ Retirement System, the State Teachers’ Retirement System, the Legislators’ Retirement System, the Judges’ Retirement System, the Judges’ Retirement System II, county and district retirement systems created pursuant to the County Employees Retirement Law of 1937 (Chapter 3 (commencing with Section 31450) of Part 3 of Division 4 of Title 3), independent public retirement systems, and to individual retirement plans offered by public employers.
(2) Notwithstanding paragraph (1), “public retirement system” does not include a retirement system created by an entity described in Section 9 of Article IX of, or Section 4 or 5 of Article XI of, the California Constitution, except to the extent that the entity elects to make this article, or any section thereof, applicable to the entity.

7523.10.
 Notwithstanding Section 7522.32 or any other law, for the purposes of determining a retirement benefit to be paid to a new member as of January 1, 2018, of a public retirement system, final compensation shall mean the highest average annual pensionable compensation earned by the member during a period of at least 60 consecutive months, or at least five consecutive school years if applicable, immediately preceding his or her retirement or last separation from service if earlier, or during any other period of at least 60 consecutive months, or at least five consecutive school years if applicable, during the member’s applicable service that the member designates on the application for retirement.

7523.20.
 Notwithstanding any other law, except as otherwise required by Section 9 of Article I of the California Constitution, a public retirement system shall not make a cost of living adjustment to any allowance payable to, or on behalf of, a person retired under the system, or to any survivor or beneficiary of a member or person retired under the system, for any year beginning on or after January 1, 2018, in which either of the following is true:
(a) The unfunded actuarial liability of the State Teachers’ Retirement System, as determined by the Teachers’ Retirement Board, is greater than zero.
(b) The unfunded actuarial liability of the Public Employees’ Retirement System, as determined by the Board of Administration of the Public Employees’ Retirement System, is greater than zero.

7523.30.
 Notwithstanding any other law, a new member as of January 1, 2018, of a public retirement system who, on or after January 1, 2018, leaves the employment of a public employer participating in the public retirement system for employment with an employer that does not participate in the public retirement system and who is subsequently reemployed by the same public employer at least one year after he or she left, shall, upon the date of his or her reemployment, be subject to the same benefits, contributions, and other terms and conditions applicable to an individual who becomes a member of the public retirement system for the first time on that date, for service rendered on or after that date.

SEC. 5.

 Section 20140 is added to the Government Code, to read:

20140.
 (a) On or before January 1, 2019, the board shall develop and submit to the Legislature for approval a hybrid plan that consists of the following:
(1) A defined benefit component that utilizes low-risk investments.
(2) A defined contribution component under which an employee’s contributions will be matched by employer contributions up to a certain percent.
(b) Notwithstanding any other law, a member who is first employed by the state, a contracting agency, or a school employer and becomes a member of the system on or after the approval of the hybrid plan by the Legislature shall participate in the hybrid plan.
(c) A member not described in subdivision (b) may elect to participate in the hybrid plan.

SEC. 6.

 Section 20141 is added to the Government Code, to read:

20141.
 The board shall determine what the level of the unfunded liability of the system was in 1980 and shall reduce the unfunded liability of the system to that level, to be achieved by 2030, with the goal of fully funding the system.

SEC. 7.

 Section 20228 of the Government Code is amended to read:

20228.
 The board shall annually employ a certified public accountant, who is not in public employment, to audit the financial statements of this system. The costs of the audit shall be paid from the income of the retirement fund. The audit shall be made annually. The board shall file a copy of the audit report with the Governor, the Secretary of the Senate, and the Chief Clerk of the Assembly. Assembly, and the Citizens’ Pension Oversight Committee.
The board, for purposes of Section 7504, may file internally prepared financial statements with the Controller within six months of the end of the fiscal year, and shall file independently audited financial statements as soon as they are available.
The annual audits of the financial statements of the system shall not be duplicated by the Department of Finance or the State Auditor.
This section does not affect the ability of the State Auditor or the Department of Finance to conduct other types of audits of the system as otherwise authorized by statute. This system shall be exempt from a pro rata general administrative charge for auditing.

SEC. 8.

 Section 20418 is added to the Government Code, to read:

20418.
 (a) On or before January 1, 2019, the board shall review the duties of officers and employees in positions included in the safety member classification pursuant to this article and shall reclassify the positions, for the purposes of the system, as follows:
(1) “Patrol member,” “state peace officer/firefighter member” or “state safety member,” for positions with principal duties that place the employee or officer in the position in harm’s way. The board shall not reclassify a position as “patrol member,” “state peace officer/firefighter member,” or “state safety member” on the sole basis that the position involves law enforcement.
(2) “State miscellaneous member” or “state industrial member” for positions not described in paragraph (1).
(b) Notwithstanding this article or any other law, the reclassification of positions pursuant to subdivision (a) shall apply to any person who is first employed by the state and becomes a state member of the system on or after January 1, 2018.

SEC. 9.

 Section 20818 is added to the Government Code, to read:

20818.
 Notwithstanding any other law, in any year in which the unfunded actuarial liability of the system is greater than zero, the board shall increase the employer contribution rate otherwise provided by law for the state, contracting agencies, and school employers by 10 percent.

SECTION 1.

It is the intent of the Legislature to enact legislation to resume the public employee pension reform begun in the California Public Employees’ Pension Reform Act of 2013.