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 PEPRA applies to all state and local public retirement systems and their participating employers 2

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 3

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 4

Mapping for New Miscellaneous Formulas at CalPERS Current FormulaFormula for New Members 1.5% at age 65 2% at age 602% at age 62 2% at age 552% at age % at age 552% at age % at age 552% at age 62 3% at age 602% at age 62 5

Mapping for New Safety Formulas at CalPERS Current FormulaFormula for New Members Half at age 552% at age 57 2% at age 552% at age 57 2% at age 502.7% at age 57 3% at age 552.7% at age 57 3% at age 502.7% at age 57 6

Other Benefits Three year final compensation for all new members Cannot be added for current members after January 1 st Existing optional benefit provisions and exclusions will be carried forward for new members Contract with CalPERS does not need to be amended 7

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 8

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 9

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%) 10

Member Contribution Rate & EPMC on January 1 st 11 Member TypeMember Contribution Rate EPMC AllowedEPMC as Special Compensation New Member50% of Normal CostNo. Unless MOU Impaired No Classic MemberSameYes

Cost Sharing of Employer Contributions 12 Current RulesNew Rules (January 1 st, 2013) Cannot Vary within an Employee Classification Can Vary by Tiers and Bargaining Unit Must be Tied to a Benefit ImprovementNot Tied to a Benefit Improvement Can be ImposedMust 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 13

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 14

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 1 st, no special compensation can be reported to CalPERS for new members - May change after review is completed 15

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 31 st will be grandfathered 16

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 17

Other provisions Prohibit the purchase of air-time - Must have five years of service and CalPERS must receive application prior to January 1 st, 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 18

Other provisions (continued) Improved industrial disability retirement - Applies to safety employees that retire after January 1 st, Sunsets on January 1, Issue with current wording - Will require clean up legislation Contracting agency liability for excessive compensation Felony benefit forfeiture 19

Questions? 20