The Public Employee Pension Reform Act: What AB 340 & AB197 Means For Public Safety

1. The Public Employee Pension Reform Act: What AB 340 & AB197 Means For Public Safety Presented by Michael Jarvis Mastagni, Holstedt, Amick, Miller & Johnsen mjarvis@mastagni.com (916) 446-4612 Mastagni, Holstedt, Amick, Miller & Johnsen

2. ISSUES WE’LL COVER: • New Formulas for New Hires • The Pensionable Compensation Cap • Changes to Cost Sharing • Limits to Enhancements • Special Exclusions • New IDR Rules Mastagni, Holstedt, Amick, Miller & Johnsen

3. Definition of a New Employee • Any employee who is new to any Public Retirement System. • An employee who has had a break in service of 6 months or greater. Mastagni, Holstedt, Amick, Miller & Johnsen

4. Reduced Retirement Formulas for New Hires • 2 @ 57 Basic Safety Plan • 2.5 @ 57 Safety Plan Option 1 • 2.7 @ 57 Safety Plan Option 2 • If your latest retirement tier was 3 @ 50, 3 @ 55, or 2@ 50 the retirement tier for new employees will be Safety Plan Option 2 (2.7% @ 57). • All new retirement plans will be three year final Comp. • Retirement age remains at age 50. Mastagni, Holstedt, Amick, Miller & Johnsen

5. Laterals • Employees who were employed prior to 2013 shall move to the latest retirement plan offered by the new employer Pre-AB 340. • Must have reciprocity (CalPERS to 37Act or visa versa). • In any classification. Mastagni, Holstedt, Amick, Miller & Johnsen

6. The Pensionable Compensation Cap • Cap the annual salary that counts towards final compensation for all new employees at: • $110,100 for employees who receive Social Security. • $132,120 for employees who do not receive Social Security. • Increases annually based on the CPI for all Urban Consumers. • This is not the maximum earning, but rather the maximum salary used in the retirement calculation. Mastagni, Holstedt, Amick, Miller & Johnsen

7. Cost Sharing for New Hires • Requires employees contribute a minimum of 50% of the total normal cost rate. • Employer can not impose contributions of greater than 50%. • 7522.30 (f) If contracts “in effect on January 2, 2013, would be impaired by any provisions of this section, that provision shall not apply to the public employer and public employees subject to that contract until the expiration of that contract”. Mastagni, Holstedt, Amick, Miller & Johnsen

8. Cost Sharing for Existing Employees • Employers able to impose 50% of normal costs to take effect on January 1, 2018. • Impasse procedures must be followed (including fact finding). Mastagni, Holstedt, Amick, Miller & Johnsen

9. CalPERS Cost Share • Employee contribution capped at 12% County Peace Officers. • Employee contribution capped at 8% for Miscellaneous. • Employees can agree to pay greater than the above caps, but can not be forced to pay above the caps. Mastagni, Holstedt, Amick, Miller & Johnsen

10. 1937 Act Cost Share for Existing Employees • Employee contribution increases capped at 33% above the applicable normal rate of contribution. Mastagni, Holstedt, Amick, Miller & Johnsen

11. CalPERS Limits to Enhancements • For new employees only! • Pensionable compensation excludes: • Any compensation paid to increase retirement benefit. • Unused leaves (Vacation, Annual, Personal, Sick, or CTO). • Allowances (housing, vehicles, or uniforms). • Overtime (some exceptions). • Bonuses. Mastagni, Holstedt, Amick, Miller & Johnsen

12. 1937 Act Limits to Enhancements • “Compensation earnable” does not include: • Compensation that had previously been provided in kind or compensation paid to a third party, other than the retirement system, and which was converted to and received by the member in the form of a cash payment. • Any one-time or ad hoc payment made to a member, but not to all similarly situated members in the member’s grade or class. • Any payment that is made solely due to the termination of the member’s employment, but is received by the member while employed, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period regardless of when reported or paid. Mastagni, Holstedt, Amick, Miller & Johnsen

13. 1937 Act Limits to Enhancements • “Compensation earnable” does not include: • Payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off, however denominated, whether paid in a lump sum or otherwise, in an amount that exceeds that which may be earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid. • Payments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise. • Payments made at the termination of employment, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid. Mastagni, Holstedt, Amick, Miller & Johnsen

14. Prohibits Purchase of Airtime • Prohibited the purchase of Airtime. • Official applications had to be received prior to January 1, 2013. Mastagni, Holstedt, Amick, Miller & Johnsen

15. Felons Forfeit Pension Benefits • Employees would forfeit pensions if convicted of a felony: • In carrying out official duties. • In seeking an elected office or appointment. • In connection with obtaining salary or pension benefits. Mastagni, Holstedt, Amick, Miller & Johnsen

16. New IDR Rules • 7522.66 Sunsets January 1, 2018. • A Safety member shall receive an industrial disability retirement benefit equal to the greater of the following: • 50% of current compensable earnings. • Service retirement if of age. • If less than 50 years of age an actuarially reduced factor, as determined by the actuary, for each quarter year that his or her service age is less than 50 years of age, multiplied by the number of years of safety service subject to the applicable formula. • Pending revisions in state legislature as we speak! Mastagni, Holstedt, Amick, Miller & Johnsen