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CalPERS Update on Impacts of AB 340

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

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CalPERS Update on Impacts of AB 340

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  1. CalPERS Update on Impacts of AB 340 David Lamoureux Deputy Chief Actuary

  2. 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

  3. 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

  4. 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

  5. Mapping for New Miscellaneous Formulas at CalPERS

  6. Mapping for New Safety Formulas at CalPERS

  7. 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

  8. 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

  9. 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

  10. 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%)

  11. Member Contribution Rate & EPMC on January 1st

  12. Cost Sharing of Employer Contributions • PEPRA simplified cost sharing

  13. 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

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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

  20. Questions?

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