Pension Reform Act of 2014, filed with California Secretary of State office 10/15/2013

7/27/2019 Pension Reform Act of 2014, filed with California Secretary of State office 10/15/2013

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M ~ . Ashley JohanssonInitiative CoordinatorOffice of the Attorney General1300 "I" StreetSacramento, CA 95814-2919

OctoberJ_ , 2013

Re: Request for Title and Summary for Proposed InitiativeDear Ms. Johansson:

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~ C E I V f DOCT 15 2013INITIATIVE COORDINATOR

ATTORNEY GENERAL'S OFFICE

Pursuant to Article II, Section 10( d) _of the California Constitution, this letterLrespectfully requests that the Attorney General prepare a circulating title and ~ u m m a r y of theenclosed proposed statewide initiative: "The Pension Reform Act of 2014." Also enclosedare the required signed statements pursuant to California Elections Code ~ e c t i o n s 9001 and9608, and a check in the amount of $200.Please direct all inquiries and correspondence regarding this proposed initiative to:James R. Sutton, Esq.Sutton Law Firm150 Post Street, Suite 405San Francisco, CA 94108415/732-7700j [email protected] you for your time and attention to this matter.i

Sincerely,C ~ ~ o RSignature of ProponentPrinted name

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Ms. Ashley JohanssonRequest for Title and Summary for Proposed Initiative"The Pension Reform Act of2014"

Printed name ~

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Ms. Ashley JohanssonRequest for Title and Summary for Proposed Initiative"The Pension Reform Act of2014"

w0vvv\_ K._ f < ~ Y ~ . . Q _ _Signature ofProponent

Printed name

Dateo c t ~ 20)3)


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Ms. Ashley JohanssonRequest for Title and Smmnary for Proposed Initiative"The Pension Reform Act of2014"

Signature of Proponent

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Ms. Ashley JohanssonRequest for Title and Summary for Proposed Initiative"The Pension Reform Act of 2014"

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THE PENSION REFORM ACT OF 2014SECTION L TJTLE,This measure shall be known and may be cited as "The Pension Reform Act of2014,"SECTION 2. FINDINGS.(a) Government has a responsibility to provide essential services that protect thesafety, health, welfare, mid quality -of life enjoyed by all Californians.Government also has an obligation to be fair to its employees and ensure that itsretirement benefit plans are sustainable, fiscally sound, and able to meet thecommitments made to its employees and retire-es.(b) The cost of California's current government employee retirement benefits isthreatening the government's ability- to achieve these goals. California'sgovernment reform agency, the Little Hoover Commission, issued a report inFebruary 2011 entitled "Public Pensions for Retirement Security." The reportstated, ''California's pension plans are dangerously undeifunded, the result ofoverly generous benefit promises, wisJiful thinking and an unwillingness to planprudently. " The Commission concluded that pension costs are impairing thegovernment's ability to provide essential services, and without aggressive reforms,cities and counties will be forced to slash services, reduce other forms ofcompensation, and lay of f more government employees. In fact, governmentempioyee retirement benefits are a primary factor behind the bankruptcies of thecities of Stockton and San Bernardino, and threaten dozens more jurisdictions withservice-level insolvency. And if these problems continue to grow and becomemore widespread, govefn.ment employees will be in peril of not receiving theretirement benefits they have earned.(c) The current situation was not foreseen when the State Legislature passedSenate Bi11400, which granted retroactive pension increases to state employees in1999. Back then, the California Public Employees Retirement System("CalPERS"), the state's largest pension plan; estimated that state pension costswould not increase for a decade . Instead, according to CalPERS, the cumulativeincrease in state pension costs topped $16 billion durin_g that decade. In addition,the Stanford Institute for Economic Policy Research has estimated that unfundedstate and local pension liabilities now exceed $500 billion. These dramatic costincreases and unfunded liabilities are not simply due to the recession or drops inthe housing and stock market several years ago, but are also attributable to inherent and systemic flaws in the government employee retirement benefitssystem. In a report issued in Apri l2013, CalPERS projected that retirement

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contributions will rise by up to an additional 50 percent during the next sevenyears, creating a burden-that will prove unbearable for many cities, counties andother local government agencies. The situation at the California State Teachers'Retirement System ("CalSTRS") is much worse. In September 2013, CalSTRSreported that, under currently accepted Governmental Accounting StandardsBoard standards, its pension plan was only 44.7 percent funded.(d) This voter-sponsored measure is necessary because attempts to reform thesystem through legislation and other initiatives have been inadequate. Even thoughthe Litt!e o o v ~ r C9lJ1llli_ssic:wlms 9 9 D f i r m ~ 9 "1:1111t (:aJiforilil:J. c a _ n n o t . s o l v ~ itpension problems without making prospective changes going forward for currentemployees, the pension reforms passed by the Legislature in 2012 did not includesuch necessary changes. In addition, more substantial pension reforms adopted bylocal governments are at-risk ofbeing overturned by the courts due to a lack of -clarity in the law. While private sector pension plans are governed by federal lawsthat allow the plan sponsors to prospectively change employee benefits andprovide for specific remedies when-the plans become fnianCially distressed, someargue that the language in some California judicial decisions hold that the samestandard does not apply to public pensions. Finally, the citizens ofCaliforniastrongly support pension reform and believe the 2012 state legislation did not fixthe problem.(e) This measure is fair and reasonable, serves an important public purpose,restores the integrity and stability of government pension systems, and isnecessary to preserve and protect the safety, health and welfare of the people ofCalifornia, for the followirig reasons: - - -

(1) This measure allows government employers and voters to modifypension and retiree healthcare benefits and to increase employee contributions infuture collective bargaining agreements for future years of service, whilep r o t e c t i n ~ benefits previously earned.

(2) Under federal law for private sector pension funds, pension plans areallowed to modify benefits for future years of service and are required to develop aplan for corrective action when they are underfunded. This measure would applysimilar standards to government employee pension and retiree healthcare plans, -allowing financially distressed government employers to make necessarymodifications and requiring agencies administering the plans to implement suchmodifications. . - - - -

(3) This measure provides long-term stability to retirement benefitprograms by providing comprehensive standards that permit governmentemployers to make and implement necessary modifications to pension and retiree


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healthcare plans that will provide fiscal ~ u s t a i n a b i l i t y for the governmentemployer, require implementation of such modifications by agenciesadministering such plans, and give the courts clear direction on how to adjudicatesuch important public policy goals. (f) Therefore, to enable the people ofCalifornia to meet the _goals outlined above,to prevent them from being encumbered with additional unsustainable burdens,and to protect government employees and retirees, this measure amends the

C o n 1 : 1 t i W t i ~ H 1 of S t l : l t ~ of Cl:llifomil:l,SECTION 3. PURPOSE AND INTENT.The People hereby enact this measure:(a) To amend the Constitution ofthe State ofCalifornia to enable the people ofCalifornia to take those actions necessary to attain fiscal sustainability and providefiscally responsible and adequately funded pension and retiree healthcare benefitsfor all-government employees and retirees.(b) To create an explicit constitutional amendment to Article I, Section 9 of theCalifornia ConstitUtion.(c) To prevail and control over any conflicting provisions in the CaliforniaConstitution, California Government Code or-other provision ofCalifornia law.(d) To supersede the portions of the California Supreme Court decisions in Kern v.City ofLong Beach (i 94 7) 29 Cal.2d 848, Miller v. California (1977) 18 Cal.3d808, and their progeny which have been construed as limiting the ability toprospectively modify pension and retiree healthcare benefits for work not ye tperformed by government employees. -(e) To authorize state and localgovernments to exercise their authority, includingthe exercise of heir inherent police powers, to provide and protect essential -government services, consistent with the United States Constitution.(f) To provide clear and reasonable guidelines to all California courts, governmentemployers and retirement plan administrators to address these serious pension andretiree healthcare benefit cost and underfunding problems in a manner consistentwith the United States Constitution's contract, takings, equal protection and dueprocess provisions.


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(g) To protect pension and retiree healthcare benefits based on work alreadyperformed, while a llowing reasonable modifications to such benefi ts for future

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SECTION 4. AMENDMENTS TO CALIFORNIA CONSTITUTION

A bill of attainder, ex post facto law, or law impairing the obligation of contractsmay not be passed. Section 12 ofArticle VII of he Constitution is deemed not toimpair the obligation o fcontracts.Section 12 is added to Article VII of he California Constitution, to read:Public Employee Retirement Benefits and ObligationsSEC. 12(a)(l) From the effective date of his Section, to the extent any governmentemployer corifers its current employees with vested contractual rights to pensionor retiree healthcare benefits ofany kind, such rights shall be earned and vestedincrementally, only as the recpient employee actually performs work, and only inproportion to the workperformed, subject to the vesting periods established by theapplicable plan.(2) Nothing in this subsection shall affect pension or retiree healthcare benefitsearned and accruedfor work already performed by emplo1ees or retirees.(b) For any government employee hired after the effective date o f his Section, tothe extent any government employer conftrs these employees with vestedcontractual rights topension or retiree healthcare benefits ofany kind, such rightsshall be earned and vested incrementally, only as the employee actually performswork, and only in proportion to the work performed, subject to the vesting periodsestablished by the applicable plan.(c) Any action by a government employer, labor agreement or voter initiativeprior to the effictive date of his Section shall not be found to have created avested contractual right tofuturepension or retiree healthcare benefits beforesuch work is performed by employees, unless the specific language o f heunderlying action, agreement or initiative expressly states that such benefits areV?$t?d Qr gr? Qth?rwts? irr?vQr;g!Jl?,(d) Nothing in this Section shall be construed as coriferring or vesting any rightsor benefits on government employees not expressly granted by the governmentemployer.

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(e) The terms ofa pension or retiree healthcare benefitplan for work notye tperformed may be amended through a labor agreement, an action by a legislativebody, or an initiative, referendum or other ballot measure initiated by the votersor by a legislative body. Any such amendments to pension or retiree healthcarebenefits made by a legislative body, whether by legislation or by placing ameasure on the ballot, shall comply with applicable collective bargaining laws.(f) Courts shall have exclusive jurisdiction to consider and adjudicate all disputesregarding laws relating to pension or retiree healthcare benefits enacted orproposed through an initiative, referendum or other ballot measure.(g)(1) Nothing in this Section shall alter any provisions ofa labor agreement ineffect as of he effective date of his Act, but this Section shal l apply to anysuccessor labor agreement, renewal or extension entered into after the effectivedate of his Act. - - (2) Anyprovision ofa labor agreement executed within 12 months before theeffoctive date of his Act which is inconsistent with any provision o f his Act shallbe invalid ifa court determines by a preponderance ofevidence that suchprovision of he labor agreement was entered intofor the purpose ofavoiding thisAct. - - - - - - --(3) For the purposes of his subsection, there shall be a rebuttable presumptionthat any labor agreement renewed or extended more than 6 months before itsexpiration date during the 12-month period before the effective date of his Actwas entered intofor the purpose ofavoiding this Act.(h) The amount employees are required topay for pension or retiree healthcarebenefits is a component ofan employee's compensation package, and may beamended through a labor pgreement, an action by a legislative body, or aninitiative, referendum or other ballot measure initiated by the voters or by alegislative body.(i)(1) Ifa government employer finds its pension or retiree healthcare plan issubstantially underfunded and is at risk ofnot having sufficient funds to paybenefits to retirees or uture retirees, or declares a fiscal emergency because thefinancial condition of he government employer impairs its ability io provideessential government services or to protect the vital interests of he community, thegovernment employer, in addition to its current powers and the powers set out inthis Section, shall have the authority to implement one or more of he followingactionsfor all employees, within the limits of he United States Constitution:


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(i) Reduce the rate ofaccrualfor pension or retiree healthcare benefits tobe earned in the future.

(ii) Reduce the rate ofcost of iving adjustments for pension or retireehealthcare benefits to be made in the future.(iii) Increase the retirement age fo r payment ofpension or retiree

healthcare benefits to be earned in the future.(iv) Require employees to pay a larger share of he cost o fpension or

retiree healthcare benefits.(v) Other reductions or modifications ofpension or retiree healthcare

benefits agreed upon during collective bargaining.(2) Ifa government employer takes any of he actions described in this subsection,such actions shall apply only to workperformedby employees after the date onwhich the government employer takes such actions.(3) If uch actions are within the mandatory scope o fcollective bargaining, theyshall be submitted to collective bargaining. If he government employer andrepresented employees do not reach an agreement within 180 days, thegovernment employer shal l have the authority to implement such actions.Retirementplan administrators shall be required to implement changes asdirected by the government employer unless ordered otherwise by a court.

(4) The government employer shall make factual findings establishing that suchactions are reasonable and necessary to serve an important public purpose andare consistent with the United States Constitution and the California Constitution,as modified by this Act.(5) Any such actions may be subsequently amended to take into account changesin circumstances, subject to the process established in this Section. -(j)(1) For any pension or retiree healthcare plan with assets equaling less than 80percent of he plan's liabilities, as calculated by the plan's actuary usinggenerally accepted accounting principles, the government employer shall preparea pension or retiree healthcare stabilization plan.(2) The pension or retiree healthcare stabilization plan shall specifY actionsdesigned to achieve 100 percent unding o f he plan within 15 years whilepreserving basic government services. Such plan shall identifY (i) the benefits tobe modified, ifany, (ii) the additional costs to be incurred by employees, ifany,


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(iii) the additional costs would be incurred by the government employer, ifany,(iv) the specific funding sources that to be used topay for such additional costs,(v) the investment return rates needed to be achieved to obtain suchfunding level,as well as information regarding the historical rates ofreturn earned by theapplicable plan, and (vi) the impact ofany existing pension obligation bondsissued by the government employer, and any additional actions that may beneeded to pay offsuch bonds.(3) The pension or retiree healthcare stabilization plan shall be published orpublic review within 180 days ofreceiving an actuarial valuation from theretirementplan administrator on the funding status of he pension or retireehealthcare plan.(4) The government employer shall holda public hearing to receive public inputand ormally accept the pension stabilizationplan within 270 days ofreceiving anactuarial valuation from the retirement plan administrator on the funding status of~ ~ . - .(5) Each year thereafter the government employer shall ollow the processestablished in this Section until the pension or retiree healthcare plan's actuaryreports that thepension or retiree healthcare plan is at least 100 percentfunded.(k) When a government employer modifies, freezes or terminates a pension orretiree healthcare plan, the government employer's obligation to ensure paymentfo r all employee benefits accrued prior to the date of uch action shallcontinue. For such modified, frozen or terminated plans, the retirementplanadministrator shall use the same discount rate applied to the plan administrator'sunmodifiedplans when establishing contribution rates and shall not impose apenalty or premium on such plans. The government employer and employees shallmaintain responsibility for all unfunded liabilities in such plans in accordancewith the terms of he labor agreement between the government employer andemployees, and shall make amortization payments-using the same methodologiesthat govern the retirement plan administrator's other plans. This provision shallnot apply to the obligations ofgovernment employers which are dissolving.(l) The power to amend the terms ofa pension or retiree healthcare benefit plan asallowed under this Section may not be prohibited or limited by labor agreement,statute, resolution, ordinance, or any other act by an executive, legislative body,pension board, or any other governmental entity. - -(m) Every government employer andpension board shall promptly implement anderiforce aliprovisions of his-Act. - - - - -

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(n) Should i t be determined that any provision of his Act is in conflict witl;l anyother provision of he California Constitution, the California Government Code orany other provision ofCalifornia law, the provisions of his Act shall prevail andcontrol.(o) As used in this Section, the following definitions shall apply:(1) "Act" shall mean the Pension Reform Ac t of2014.(2) "Government employee" and "employee" shall mean an employee, officer orelected official ofa government employer who is entit led to receive pension orretiree healthcare benefits.(3) "Government employer" and "employer" shall mean the state or a politicalsubdivision of he state, including but not limited to counties, cities, chartercounties, charter cities, charter city and counties, school districts, specialdistricts, boards, commissions, the Regents of he University ofCalifornia,California State University, and agencies thereof For the purposes of hissection, the Legislature shall serve as the government employerfor the membersof he California State Teachers Retirement System.(4) "Labor agreement" shall mean a memorandum ofunderstanding, collectivebargaining agreement, contract or similar agreement entered into between agovernment employer and a recognized employee organization representinggovernment employees.

(5) "Pension" or "pension benefits" shall mean a plan or trust providing adefined benefit determined by a formula based on factors such as age, years ofservice and compensation, or a defined contribution plan. It shall not includedisability b_enefits for government employees or death benefits for families ofgovernment employees, even i f hose benefits are provided as part ofa pension ordeferred compensation plan.(6) "Pension board" shall mean a retirement board as defined in section 17(h) ofArtideXVL(7) "Plan" and "retirementplan" shall mean any pension or retirement planoffered by a government employer for the purpose ofproviding retirement benefitsto government employees.(8) "Retiree healthcare" or "retiree healthcare benefits" shall mean aplan ortrust providing healthcare benefits to retired government employees, such ashealthcare services (including acute and chronic care), payment ofcapitation i.ees

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(including those for the United States Medicare Program), other medical services,and dental and vision services. It shall not include disability benefits forgovernment employees or death benefits for families ofgovernment employeeseven if hose benefits are provided aspar(ofa healthcare plan.SECTION 5. Effective Date.Except as otherwise provided herein, this Act shall become effective the day afterits approval by the voters, pursuant to section lO(a) ofArticle I I of the CaliforniaConstitution.SECTION 6. Conflicting Measures.This Act is intended to be comprehensive. It is the intent of the People that in theevent this Act and one or more measures relating to the same subject shall appearon the same statewide election ballot, the provisions of the other measure ormeasures shall be deemed to be in conflict with this Act. In the event that this Actreceives a greater number of affirmative votes, the provisions of this Act shallprevail in their entirety, and all provisions of he other measure or measures shallbe null and void.SECTION 7. Liberal Construction.This Act is an exercise ofthe public power ofthe people ofthe State of Californiafor the protection of the health, safety, and welfare of he people of the State ofCalifornia, and shall be liberally construed to effectuate its purposes.SECTION8. Severability.If any provision of this Act, or part thereof, or the applicability of any provision orpart to any person or circumstances, is for any reason held to be invalid orunconstitutional, the remaining provisions and parts shall not be affected, but shallremain in full force and effect, and to this end the provisions and parts of this Actare severable. The voters hereby declare that this Act, and each portion and part,would have been adopted irrespective ofwhether any one or more provisions orparts are found to be invalid or unconstitutional.SECTION 9. Defending the Pension Reform Act of2014.(a) The people of the State of California declare that the proponents of his Acthave a direct and personal stake in defending this Act and grant formal authority tothe proponents to defend this Act in any legal proceeding, either by intervening insuch legal proceeding, or by defending the Act on behalf of the people and the

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State in the event that the State declines to defend the Act or declines to appeal anadverse judgment against the Act.

(b) In the event that the proponents are defending this Act in a legal proceedingbecause the State has declined to defend it or to appeal an adverse judgmentagainst it, the proponents shall:(1) act as agents of the people and the State;(2) be subject to all ethical, legal, and fiduciary duties applicable to suchparties in such legal proceeding;(3) take and be subject to the Oath ofOffice prescribed by Article XX,section 3 of the California Constitution for the limited purpose of acting on behalf

of the people and the State in such legal proceeding; and(4) be entitled to recover reasonable legal fees and related costs from theState.

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Documents

Pension Reform Act of 2014, filed with California Secretary of State office 10/15/2013