California Public Employees’ Pension Reform

Act (PEPRA) – AB 340Tulare County Office of Ed – December 12, 2012

PEPRA Summary of Reform Provisions Cap on Pensionable Compensation Types of Pensionable Compensation Member Contributions Employer Contributions Postretirement Employment Equal Health Benefits/Vesting Felon’s Forfeiture of Benefits Tier Membership Determinations Follow-up and Actions Needed Other/Resources/Questions

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Discussion Topics

New Members After January 1, 2013 ◦ Reduced Retirement Benefits

Normal Retirement Age Increase Age Factors Reduced Minimum Retirement Age Increased STRS Career Factor Eliminated Final Compensation Period Increased to 36 Months

◦ Pensionable Compensation is Capped $136,440 in 2013 for Those Without Social Security $113,700 for Those With Social Security Subject to Annual CPI (Consumer Price Index) Adjustment

◦ Changes in Types of Pensionable Compensation Limits on Compensation Not Included in Base Salary

◦ Member & Employer Contributions Requirements Minimums Established for New Members * Employer Paid Member Contributions (EPMC) Prohibited/Phased Out *

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Summary of Reform Provisions

All Members after January 1, 2013 ◦ Membership Status Can Change *◦ Employer Paid Member Contributions Phase Out *◦ Retroactive Benefits Are Prohibited◦ Postretirement Employment

New 180 Day Sit Out Period New Rules for Eligibility

◦ Equal Health Benefits/Vesting◦ Forfeit of Benefits for Felony Conviction *

From Time of Committing Felony New Employer Notice Requirement

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Summary of Reform Provisions – Continued

The New Cap Only Applies to New Members Cap of 120% of Social Security Wage Base

◦ $136,440 without Social Security for 2013◦ $113,700 with Social Security for 2013◦ Rate Adjusted by CPI Annually

No Defined Benefit on Compensation above Cap (Including DBS)

Employers Can Offer Defined Contribution (e.g., Employer TSA) for Compensation over Cap (rate cannot exceed DB rate) – more info to come

STRS will apply Cap to member and employer contributions

PERS will apply Cap only to member contributions

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Cap on Pensionable Compensation

New Type Restrictions Apply Only to New Members◦ Only Base Salary Paid on Salary Schedule Counts toward DB◦ Excludes Most Special Compensation (No CC6)◦ Salary Schedule Must be Publicly Available◦

◦ Retirement Boards Have Authority to Make Other Exclusions6

Types of Pensionable Compensation

STRS – Excluded PERS - OnlySpecial Comp (CC6) - Longevity Stipends; Degree Stipends

Normal Base

Allowances – Health, Auto, Cell Phone In Cash to Group

Bonuses – Pay for Performance, Off Salary Schedule Payment

Excludes Overtime in excess of 40 hours per week

Cash In-Lieu Excludes Special Comp – Bonus, Uniform Allowance (list coming)

Limited Number of Payments

Enhancing Benefits

STRS SPECIAL COMPENSATION EXAMPLE

RETIREMENT PLAN STRS TIER 1 STRS TIER 2

BASE MONTHLY SALARY 5,000.00 5,000.00

SEPARATE STIPEND (CC6) LONGEVITY STIPEND 100.00 100.00 HEALTH ALLOWANCE 1,000.00 1,000.00 CELL PHONE ALLOWANCE 50.00 50.00

TOTAL COMPENSATION 6,150.00 6,150.00

PENSIONABLE COMPENSATION 6,150.00 5,000.00

Only the employee's base salary on the salary schedule will be creditable for STRS Tier 2 plan members.

Districts should consider modifying salary schedule to include special compensation earnings in base salary.

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Types of Pensionable Compensation

New Members

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Member Contributions

STRS PERS

• 8% for 2013; Greater of 50% of Normal Cost* or Current Member Rate (Either Tier)

• 6% for 2013; Greater of 50% of Normal Cost* or Current Rate of Similarly Situated Employees (Same Tier unless Covered by Bargaining Agreement)

• Employer Not Permitted to Pay Employee Contributions

• Prohibits EPMC unless MOU is Impaired **

• Member Can Bargain to Pay Employer Contributions

• Member Can Bargain to Pay Employer Contributions

* Normal Cost – The cost to provide the current year’s benefit for services performed by today’s members. A lesser benefit (formula) will have a lower normal cost. This does not include unfunded liability/surplus for previous years.

** Applies to TCOE, Tulare Jt. Union, Farmersville, COS

Current Members

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Member Contributions - Continued

STRS PERS

• Set by Statute at 8% • Encourages Equal Sharing of Normal Cost Between Employer & Employee (Not Required)

• Employer can Continue to pay Member Contributions for Everyone in Same Class

• After 1/1/2018 Employer MAY Require Members to Pay 50% of Normal Cost

• AB 340 May Allow Retirement Board to Now Set Rates

• Required Employee Contributions are Capped at 8%

New Members

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Employer Contributions

STRS PERS

• 8.25% for 2013 • Rate Coming

• Employer Will Pay at Least Normal Cost Minus Employee Contributions

• Employer Will Pay at Least Normal Cost Minus Employee Contributions

• Employer is Not Permitted to Pay Employee’s Contribution Unless an Existing Bargaining Agreement is Impaired

• If EPMC is Impaired, May Continue Until Contract is Amended

Current Members

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Employer Contributions - Continued

STRS PERS

• 8.25% for 2013 • 11.417% Unchanged

• Employer May Continue to Pay Member Contributions for Entire Class

• Employer May Continue to Pay Member Contributions for Entire Class

RETIREMENT PLAN STRS STRS TIER I TIER II

2% @ 60 2% @ 62

TOTAL NORMAL COST 16.000% 16.000%EMPLOYEE CONTRIBUTION 8.000% 8.000%EMPLOYER NORMAL COST 8.250% 8.250%

AMORTIZATION OF 0.000% 0.000%UNFUNDED LIABILITY

TOTAL EMPLOYER RATE 8.250% 8.250%

CREDITABLE COMP LIMITWITHOUT SOCIAL SECURITY 250,000.00 136,440.00

EARNINGS CREDITABLE EMPLOYEE EPMC EMPLOYER EARNINGS SHARE SHARE

EXAMPLE NO EPMC PER MOUCLASSIC MEMBER TIER I 150,000.00 150,000.00 12,000.00 0.00 12,375.00

NEW MEMBER TIER II 150,000.00 136,440.00 10,915.20 N/A 11,256.30

EXAMPLE EPMC PER MOUCLASSIC MEMBER TIER I 150,000.00 150,000.00 0.00 12,000.00 12,375.00

NEW MEMBER TIER II 150,000.00 136,440.00 10,915.20 N/A 11,256.30

NOTES: STRS DOES NOT CURRENTLY RECOGNIZE MOU IMPAIRMENT FOR EPMC. EPMC NOT ALLOWEDFOR TIER 2 PLAN MEMBERS.

STRS DOES NOT CURRENTLY HAVE AUTHORITY TO SET CONTRIBUTION RATES.

UNTIL CLARIFYING LANGUAGE IS DEVELOPED, INTRODUCED, PASSED INTO LAW, CONTRIBUTION RATES FOR EXISTING AND NEW MEMBERS WILL REMAIN AT 8% AND EMPLOYER CONTRIBUTION RATE WILLREMAIN AT 8.25%

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STRS Employer/Member Contributions

RETIREMENT PLAN PERS PERS TIER I TIER II

2% @ 55 2% @ 62

TOTAL NORMAL COST 14.000% 12.000%EMPLOYEE CONTRIBUTION 7.000% 6.000%EMPLOYER NORMAL COST 7.000% 6.000%

AMORTIZATION OF 3.000%UNFUNDED LIABILITY

TOTAL EMPLOYER RATE 10.000% 6.000%

CREDITABLE COMP LIMITWITH SOCIAL SECURITY N/A 113,700.00 WITHOUT SOCIAL SECURITY N/A 136,440.00

EARNINGS CREDITABLE EMPLOYEE EPMC EMPLOYER EARNINGS SHARE SHARE

EXAMPLE NO EPMC PER MOUCLASSIC MEMBER TIER I 150,000.00 150,000.00 10,500.00 0.00 15,000.00

NEW MEMBER TIER II 150,000.00 113,700.00 6,822.00 N/A 9000.00

EXAMPLE EPMC PER MOUCLASSIC MEMBER TIER I 150,000.00 150,000.00 0.00 10,500.00 15,000.00

NEW MEMBER TIER II (SEE NOTE) 150,000.00 113,700.00 0.00 6,822.00 9000.00

NOTE: IF MOU IS IMPAIRED, EPMC CONTINUES UNTIL AGREEMENT IS MODIFIED OR EXPIRES; THEN NEWMEMBER MUST PAY THEIR SHARE.

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PERS Employer/Member Contributions

Equal Health Benefits/Vesting Public employers prohibited

from providing better health benefits and health vesting to management◦ Seeking Counsel clarification

that membership classification refers to classified and certificated, interpretation of extended retirement health benefits compliance, and of offering varying health vesting requirements

◦ Varying health packages should be reviewed for compliance

Felons Forfeit Pension Benefits Member forfeiture of pension

benefits for job-related felony◦ Retains benefits prior to

committing felony◦ Forfeiture processed upon

conviction, retroactive to date of committing felony

◦ Member & Prosecuting Agency – 60-day notice to public employer requirement

◦ Public employer & Member – 90-day notice to applicable retirement system requirement Notification procedures are pending

the retirement systems’ implementation of procedures and forms.

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Benefit and Notification Requirements

Retired Prior to 1/1/13◦ Restrictions apply to employment with employers within

CalSTRS Earnings limit for 2012-13 is $40,011. Narrow exemption in AB 178 extended through 2013-14. Must take 6 month break or reach full retirement age.

Retired on or after 1/1/13 (in addition to above) ◦ Must take 180-day break unless limited exemption is applicable.

Limited to critical vacancies Must be at or above normal retirement age Governing body approval through resolution at public meeting No retirement incentive or financial inducement to retire from any public

employer Termination of services cannot be a factor in hiring Required form and documentation must be received prior to the member

beginning work

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Postretirement EmploymentCalSTRS

Retired prior to 1/1/13◦ Restrictions apply to employment with employers within

CalPERS Limited circumstances for appointment 960-hour limit for all employers within the same system Hourly pay rate Rate of pay tied to employees performing similar duties Must meet full retirement age or wait 60 days

Retired on or after 1/1/13 (in addition to above)◦ Must take 180-day break unless limited exemption is applicable

Employer certification and/or governing body approval of exemption If retiree received a retirement incentive, the waiting period is

compulsory, no exceptions Must meet full retirement age of applicable formula

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Postretirement Employment CalPERS

CalSTRSDetermination of Tier2% @ 60 Formula - Current 2% @ 62 Formula - New

Individuals who are first hired to perform CalSTRS creditable activities before January 1, 2013. This includes:◦ Individuals that are placed on a

district substitute list.◦ Were CalSTRS members before

2013, terminated membership, & return to active membership on or after 1/1/13.

◦ Performed CalSTRS creditable activities even if they were subject to coverage under a different retirement system (elected CalPERS).

Individuals who are first hired to perform CalSTRS creditable activities on or after January 1, 2013.◦ The STRS system (SEW) will

default the individual to the new formula if the initial set up is completed on or after 1/1/13, regardless of the effective date. The individual will be required to petition for the 2% @ 60 formula if they qualify.

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CalSTRS Permissive

Member Election Form ES 350

Directions:• Employee must

complete all of “Employee Certification” section.

• Employer (school district) completes Employer section.

• Should be completed by the school district representative that provides the information and forms to the employees.

• Leave employee number and membership date blank.

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https://forms.calstrs.com/CalSTRSOnlineFormRequestWebUI/Root/Pages/OpenAttachment.aspx?FormId=0b9bcd0d-72bf-4d75-b3c4-1f072e1da663

CalPERSDetermination of Tier2% @ 55 - Current 2% @ 62 - New An individual who became a

member of CalPERS prior to 1/1/13.

An individual who became a member of a reciprocal system prior to 1/1/13, and moved to CalPERS within the reciprocity guidelines.

CalPERS membership must also meet reciprocity guidelines if the CalPERS membership was not under the School 2% @ 55 Formula.

An individual who has never been a member of any public retirement system prior to 1/1/13.

An individual who moved between public retirement and was not subject to reciprocity.

An individual who moved between public employers within a public retirement system after more than a six month break in service.

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Expand what agencies CalSTRS considers in determining a current member to recognize individuals who were first employed by a public employer to perform service subject to coverage in a concurrent retirement system on or before December 31, 2012. Intend to make it consistent with reciprocity which requires employee to have been employed to perform creditable service in the concurrent retirement system within the last six months.

Seek guidance to determine if the CalSTRS board can set rates.

Seek to change Cap on Creditable Compensation from calendar year to fiscal year.

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Potential Follow-Up Legislation

New Tier 2 Retirement Plans for STRS and PERS New plans can have member and employer rates

different than from existing Tier 1 plans New edits added to prevent reporting of non-

pensionable special compensation for new members

Compensation caps may be added to ensure contributions do not exceed new limits

System bargaining units will allow for member payment of employer contribution

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System Modifications

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Draft SACS Input Screen

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Human Resources◦ Determine if EPMC Bargaining Agreements are Impaired◦ Certify to PERS if EPMC Impaired – Form Pending◦ Review Special Compensation Payments for Modification

of Salary Schedule to include in Base Salary◦ Verify all pensionable compensation is included in a

publicly available salary schedule◦ Determine if needed and then amend Health Benefit

Vesting Schedules if required◦ Ensure employer gathers enough information from new

hires to determine correct tier◦ Submit any outstanding STRS Permissive Membership

Election Forms (ES 350) to Tulare COE by 12/21/2012◦ Monitor clean-up legislation◦ Determine sit out period when employees retire

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Follow-Up and Actions Needed

Business◦ Notify TCOE when EPMC Agreement is Amended, Extended or Renewed

to Coordinate Payroll System Changes◦ Review Independent Contractor & Third Party Agreements for New

Postretirement Limitations◦ Contact TCOE before starting Employer Paid Contributions to a TSA for

any New Member.◦ Watch for announcement for System Modifications Training Session

January 8th – Doe Ave starting at 8:30 – (pending need)

◦ CalPERS FAQs http://www.calpers.ca.gov/index.jsp?bc=/member/retirement/faq-pra-2013.xml

◦ CalSTRS FAQs http://www.calstrsbenefits.us/post/frequently-asked-questions-ab-340-public-employees-pension- reform-act-2013

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Follow-Up and Actions Needed - Continued

Thank you for attending

Tulare County Office of Education

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