CalPERS Update on Impacts of AB 340

David LamoureuxDeputy 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

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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

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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

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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

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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

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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

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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

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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

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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%)

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Member Contribution Rate & EPMC on January 1st

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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

Cost Sharing of Employer Contributions

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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

• PEPRA simplified cost sharing

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

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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

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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

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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

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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

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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

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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

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Questions?

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