CalPERS Update on Impacts of AB 340 David Lamoureux Deputy Chief Actuary What is AB 340? • Pension reform legislation • Consists of California Public Employees’ Pension Reform Act (“PEPRA”) and amendments to PERL, 1937 Act, TRL, LRL and JRL • Takes effect on January 1, 2013 • PEPRA applies to all state and local public retirement systems and their participating employers 2 Definition of New Member • Never been a member of any public retirement system prior to January 1, 2013 • Moved between public retirement and was not subject to reciprocity - More than a six month break in service or no reciprocal agreement with CalPERS • Moved between public employers within a public retirement system after more than a six month break in service 3 Reduced Benefit Formulas • Applies to new members • Miscellaneous Formula – 2% at age 62 • Safety Formulas - Basic – 2% at age 57 - Option 1 – 2.5% at age 57 - Option 2 – 2.7% at age 57 4 Mapping for New Miscellaneous Formulas at CalPERS Current Formula Formula for New Members 1.5% at age 65 1.5% at age 65 2% at age 60 2% at age 62 2% at age 55 2% at age 62 2.5% at age 55 2% at age 62 2.7% at age 55 2% at age 62 3% at age 60 2% at age 62 5 Mapping for New Safety Formulas at CalPERS Current Formula Formula for New Members Half at age 55 2% at age 57 2% at age 55 2% at age 57 2% at age 50 2.7% at age 57 3% at age 55 2.7% at age 57 3% at age 50 2.7% at age 57 6 Other Benefits • Three year final compensation for all new members • Cannot be added for current members after January 1st • Existing optional benefit provisions and exclusions will be carried forward for new members • Contract with CalPERS does not need to be amended 7 What is Normal Cost? • It’s the cost to provide the current years benefit • What is the normal cost rate? - Normal cost expressed as a percentage of payroll - The combined employer and member normal cost contribution - Not the contribution on the unfunded liability/surplus 8 Member Contribution Rate New Members • Contribute at least ½ of the total annual normal cost or current contribution rate of “similarly situated” employees, whichever is greater – CalPERS interprets “similarly situated” as members under the same benefit formula • Prohibits employer paid member contributions (EPMC) • Unless MOU impaired 9 Member Contribution Rate Current Members i.e. Classic Members • No Changes • Encourages 50/50 sharing of normal cost and elimination of EPMC but doesn’t require it • Can impose 50% of normal cost starting in 2018 if negotiations have failed – subject to a cap (8%, 11% or 12%) 10 Member Contribution Rate & EPMC on January 1st Member Type Member Contribution Rate EPMC Allowed EPMC as Special Compensation New Member 50% of Normal Cost No. Unless MOU Impaired No Classic Member Same Yes Yes 11 Cost Sharing of Employer Contributions • PEPRA simplified cost sharing Current Rules New Rules (January 1st, 2013) Cannot Vary within an Employee Classification Can Vary by Tiers and Bargaining Unit Must be Tied to a Benefit Improvement Not Tied to a Benefit Improvement Can be Imposed Must be Bargained 12 Salary Cap on Pensionable Compensation • • • • • $113,700 for those with Social Security $136,440 for those without Social Security Subject to annual adjustment Member contributions must stop above the cap Employer contributions will continue - Reflected in the employer rate 13 Salary Cap on Pensionable Compensation • Cannot offer a defined benefit plan on compensation in excess of the cap • Can provide a defined contribution plan on compensation in excess of the cap subject to certain limits 14 Reportable Compensation • No changes for classic members • New definition of pensionable compensation for new members - Unclear as to whether special compensation is allowed • Still under review at CalPERS • On January 1st, no special compensation can be reported to CalPERS for new members - May change after review is completed 15 Limit post-retirement public employment • New 180 day waiting period • Applies to employment with employers within the same retirement system • Applies to all existing retirees • Retirees already working on December 31st will be grandfathered 16 Limit post-retirement public employment (continued) • Exception to the 180-day waiting period - Employer certification and/or governing body approval, - Retiree is a safety employee, or - Participating in the Faculty Early Retirement Program • If retiree received a retirement incentive, the waiting period is compulsory, no exceptions • Includes independent contractors • The bona fide separation rules still apply 17 Other provisions • Prohibit the purchase of air-time - Must have five years of service and CalPERS must receive application prior to January 1st, 2013 • Prohibit retroactive benefit increases - Excludes COLA’s - Includes optional benefit provisions that are service based • Prohibit pension holidays - Requires the combined employer and employee contributions to cover the annual normal cost 18 Other provisions (continued) • Improved industrial disability retirement - Applies to safety employees that retire after January 1st, 2013 Sunsets on January 1, 2018 Issue with current wording Will require clean up legislation • Contracting agency liability for excessive compensation • Felony benefit forfeiture 19 Questions? 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