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The California Public Employees’ Pension Reform Act of 2013 (PEPRA) California Municipal Treasures Association (CMTA) April 19, 2013. Presented By: Frances Rogers. Agenda. Who is Subject to PEPRA Retirement Formulas Under PEPRA Employee Contributions Under PEPRA Pensionable Compensation
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The California Public Employees’ Pension Reform Act of 2013 (PEPRA)California Municipal Treasures Association (CMTA)April 19, 2013 Presented By: Frances Rogers
Agenda Who is Subject to PEPRA Retirement Formulas Under PEPRA Employee Contributions Under PEPRA Pensionable Compensation Final Compensation Benefit Enhancements Air Time Post-Retirement Work Supplemental Plans Retiree Medical Pending Legal Challenges
Who is Subject to PEPRAEmployers All public employers, including MOST charter cities and counties Exception for charter cities and charter counties with an independent pension plan NOT subject to state-wide scheme such as PERL or ’37 Act Examples: Charter city with independent pension plan – NOT subject to PEPRA Charter city in PERS system – subject to PEPRA General law city with independent plan – subject to PEPRA
Employees Generally, only “new employees” and/or “new members” subject to PEPRA Current employees exempt from most of PEPRA Notable provisions that apply to current employees Prohibition against air time purchases New post-retirement work restrictions Most lateral hires from other public agencies who are not defined as “new members” are NOT subject to PEPRA
New Employee Hired on or after January 1, 2013; and Never worked in the public sector before January 1, 2013, or Worked in the public sector before January 1, 2013, but worked for an employer with a retirement plan that did not have reciprocity with the new employer’s plan
New Member An employee who becomes a member of a public retirement system for first time on or after January 1, 2013; and Was not a member of any public retirement system before January 1, 2013; or Was a member of a public retirement system before January 1, 2013 that is not subject to reciprocity with the new public employer’s plan; or Alternatively, anyone who was an active member of a retirement system, has a break in service of six months or more, and returns to active membership in the same system with a new employer.
Retirement Formulas Under PEPRA Miscellaneous Employees 2% @ 62 Ranges from 1% @ 52 to 2.5% @ 67 Minimum retirement age = 52 No further optional benefit formulas
Retirement Formulas Under PEPRA: Safety Employees Three different plans – must provide the one required by statute Basic Safety Plan 2% @ 57 (range from 1.426% @ 50 to 2%@ 57) Safety Option Plan One 2.5% @ 57 (range from 2.0% @ 50 to 2.5% @ 57) Safety Option Plan Two 2.7% @ 57 (range from 2.0% @ 50 to 2.7% @ 57)
Safety Employees– continued MUST provide plan that is closest (but lower) than current plan at age 55 Most will be required to provide 2.7% @ 57 Can provide a lower plan by agreement (for hires after effective date of plan)
Employee Contributions Under PEPRA Current employees’ not effected (until 1/1/18) Applies to “new members” as of 1/1/13* *Grace period for existing MOUs Must pay at least 50% of “normal cost” No employer “pick-ups” (EPMC) allowed Contribution rate not adjusted unless annual normal cost changes more than 1% Can agree that employees pay more if collectively bargained; and agency is not paying a higher percentage for non-represented, management, etc. in the same membership class
Employee Contributions Under PEPRA Cannot impose “new member” contribution greater than 50% of normal cost Can negotiate, but not impose, 50% normal cost contribution for current employees On and after 1/1/18, employer can impose, after completing full bargaining process, on current employees 50% of normal cost PERS Cap: 8% of payroll for misc., 12% for local police officers/firefighters and county peace officers, 11% other local safety ’37 Act Cap: 14% above normal rate of contribution for misc., 33% for local police officers/firefighters, and county peace officers; 37% for all other local safety
Employee Contributions Under PEPRA Sharing employer’s contribution PERS: can agree, but not impose, that members can share any part of employer’s contribution (does not have to be only additional amount for optional benefits) Contribution must be uniform for all in membership classification unless agreed to in an MOU Shall also apply for related nonrepresented employees PERS can reject if found to violate IRC Can still opt to do by way of contract amendment with PERS or only by MOU
Employee Contributions Under PEPRA Sharing employer’s contribution ’37 Act: Can agree, but not impose, that members pay all or part of contributions of a member or employer, or both, for any retirement benefits Automatically designated as EE contributions Must be uniform either: With respect to all members in bargaining unit; or Within membership classifications of: local misc., local police, local firefighters, county peace officers, or all other local safety Does not modify a BOS’ or governing board’s authority to change amount of member contributions
Pensionable Compensation – New Members • May not exceed: • 100% IRS limit for member whose service pays into Social Security • 120% if no Social Security • No combined contribution above these limits for all defined benefit plans offered by the employer • Contribution above limits to a defined contribution plan permitted as long as combined contributions do not exceed employer’s contribution required to fund benefits below IRS limits • Proposed Senate Bill 13
Pensionable Compensation – New Members • Base pay paid to similarly situated members of group or class for full-time services during normal working hours • Some Special Comp is pensionable • Special Comp that is excluded includes: • Bonuses • Out-of-comp pay • Uniform Allowance • ’37 Act – all cash outs of leave excluded in excess of 12 months of accrual • PERS sick leave conversion – does not appear to be impacted by PEPRA
Final Compensation – New Members For new members: Three year average (any 36 consecutive month period) – no single highest year allowed
Benefit Enhancements– All Employees • PERS and ‘37 Act previously permitted benefit increases to apply to all service earned by current employees, including service earned in prior years. • PEPRA now requires that any enhancements to formulas or benefits occur prospectively, not retrospectively. (See § 7522.44(a).) • Note: Increases to a retiree’s annual cost-of-living adjustment within the existing statutory limits shall not be considered to be an enhancement to a retirement benefit. (See § 7522.44(d).)
Air Time Employees can no longer purchase air time Applies to current and new employees Applications submitted before 12/31/12 that are subsequently approved are grandfathered Does not affect other types of service credit purchases
Post-Retirement Work Restrictions Applies to current and new employees Supersedes any prior restrictions that conflict To avoid reinstatement, Must be appointed by appointing power During an emergency to prevent stoppage of public business; or Because the retiree has skills needed to perform work of limited duration 960 hour limit per fiscal or calendar year (depending on administrator) Pay is no less than the minimum nor more than the maximum paid to other employees performing similar duties (divided by 173.333 to equal an hourly rate) Must have at least 180 day break between retirement and return to work unless: Public safety or firefighter; or The governing body certifies the appointment is necessary to fill a critically needed position. Must be done at public meeting – NOT on consent calendar Exceptions to 180 day requirement inapplicable where retiree took early retirement incentive No unemployment insurance within prior twelve (12) months for post-retirement work
Post-Retirement Work Restrictions - continued Issues unresolved: Are existing restrictions on following still applicable: No filling vacancies if appointed by appointing authority; Must the agency be actively recruiting for a vacancy where retiree appointed by governing body; Other exclusions for reinstatement (crossing guard, election worker, etc.); Length of appointment; Salary only- no benefits? There was no concurrent repeal or substantive amendment of the PERL or ‘37 Act statutes with respect to post-retirement employment exceptions at the time of PEPRA.
Supplemental Plans No new supplemental defined benefit plans after January 1, 2013 for any employees If existing supplemental defined benefit plan, employer cannot offer it to additional employee groups nor to any employee hired on or after January 1, 2013 Contributions to defined contribution plans limited to compensation at or below limits of USC 401 (a)(17). Limit is $250,000 in 2012
Retiree Medical Vesting • Vesting schedule for retiree medical benefits • Not more advantageous for management, elected, etc. than for non-managerial • Does not require that benefit be the same • Proposed Senate Bill 13
Status of Legal Challenges – PEPRA • San Diego County Deputy Sheriff’s Association • Ability to implement the new pension formulas and cost sharing ratios approved in PEPRA. • Alameda, Contra Costa, Marin and Merced County lawsuits • Allege an incorrect interpretation of PEPRA definition of pensionable compensation that limits what may be included in calculating a pension and pension spiking issues. • Contra Costa and Alameda challenges resulted in stay orders to temporarily prevent the Employees’ Retirement Associations from implementing Government Code section 31461 (part of PEPRA). • Orange County • Allege member contributions must be collectively bargained • Allege violation of 7522.30 re: employer pick-ups for managerial
THANK YOU! • Frances Rogers • Associate | San Diego Office • 619.481.5905 | frogers@lcwlegal.com • http://www.lcwlegal.com/Frances-Rogers