CalPERS Update on Impacts of AB 340 -

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
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
- 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
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
Mapping for New Miscellaneous Formulas at CalPERS
Current Formula
Formula for New Members
1.5% at age 65
1.5% at age 65
2% at age 60
2% at age 62
2% at age 55
2% at age 62
2.5% at age 55
2% at age 62
2.7% at age 55
2% at age 62
3% at age 60
2% at age 62
Mapping for New Safety Formulas at CalPERS
Current Formula
Formula for New Members
Half at age 55
2% at age 57
2% at age 55
2% at age 57
2% at age 50
2.7% at age 57
3% at age 55
2.7% at age 57
3% at age 50
2.7% at age 57
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
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
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
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%)
Member Contribution Rate & EPMC on January 1st
Member Type
Contribution Rate
EPMC Allowed
EPMC as Special
New Member
50% of Normal Cost
No. Unless MOU
Classic Member
Cost Sharing of Employer Contributions
• PEPRA simplified cost sharing
Current Rules
New Rules
(January 1st, 2013)
Cannot Vary within an Employee
Can Vary by Tiers and Bargaining Unit
Must be Tied to a Benefit Improvement
Not Tied to a Benefit Improvement
Can be Imposed
Must be Bargained
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
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
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
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
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
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
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

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