California Assembly Bill AB1320 Amended / Bill

 BILL NUMBER: AB 1320AMENDED BILL TEXT AMENDED IN SENATE JUNE 23, 2011 AMENDED IN ASSEMBLY MAY 27, 2011 INTRODUCED BY Assembly Member Allen  (   Coauthors:   Assembly Members   Furutani   and Ma   )  FEBRUARY 18, 2011 An act to amend  Sections 20814 and   Section  20816 of, and to add Sections 20814.5 and 31453.7 to, the Government Code, relating to public employees' retirement. LEGISLATIVE COUNSEL'S DIGEST AB 1320, as amended, Allen. Public employees' retirement: employer contribution rates. (1) The Public Employees' Retirement Law prescribes employer contribution rates to the retirement fund for the Public Employees' Retirement System  (PERS)  . Existing law requires that the state's contribution rate be adjusted in the Budget Act based on rates established by the system's actuary. Existing law provides that the employer contribution rate for an employer other than the state shall be determined on an annual basis by the actuary, as specified. Existing law requires that the rate at which a public employer contributes to the system shall be based upon its experience, and not the experience of public agency employers generally. Existing law requires that all assets of an employer in the system be used to determine the employer's contribution rate. This bill, on and after January 1, 2013, would establish in the retirement fund for each employer a Taxpayer Adverse Risk Prevention Account. The account would be an employer asset, but would not be counted as an asset for the purpose of determining the employer's contribution rate. Deposits into the account would be made  with all or a portion of employer contributions  when the actuarial value of assets exceeds the  present value of benefits   accrued liability  , as specified. The bill would provide that the assets of the account would be drawn upon to pay a portion of the employer contribution when the employer contribution rate is greater than the  employer  normal cost of benefits, as specified.  The bill would require the employer to make an additional contribution when the employer's contribution rate is less than the employer normal cost of benefits, as defined, and that additional contribution would be credited to the employer's Taxpayer Adverse Risk Prevention Account  .  The bill would provide that the employer  contribution rate may be reduced, pursuant to a specified formula,   would not be required to make that additional contribution  when the employer's Taxpayer Adverse Risk Prevention Account exceeds an amount equal to 50% of the employer's assets, exclusive of the assets in the Taxpayer Adverse Risk Prevention Account. The bill would permit assets in an account to be used for specified transfers and contributions authorized under existing law. The bill would provide that assets in an account would be invested  with other system assets   according to investment strategies established by the Board of Administration of PERS  . (2) The County Employees Retirement Law of 1937 authorizes the board of retirement to determine county or district contributions on the basis of a normal contribution rate, which is computed as a level percentage of compensation which, when applied to future compensation of the average new member entering the system, together with member contributions, is sufficient to provide for the payment of all prospective benefits of a member. This bill, on and after January 1, 2013, would establish in each county or district's retirement fund a Taxpayer Adverse Risk Prevention Account. The account would be an employer asset, for that county or district, but would not be counted as an asset for the purpose of determining the employer's contribution rate. Deposits into the account would be made  with all or a portion of employer contributions  when the actuarial value of assets exceeds the  present value of benefits   accrued liability  , as specified. The bill would provide that the assets of the account would be drawn upon to pay a portion of the employer contribution when the employer contribution rate is greater than the normal cost of benefits, as specified.  The bill would require the employer to make an additional contribution when the employer's contribution rate is less than the employer normal cost of benefits, as defined, and that additional contribution would be credited to the employer's Taxpayer Adverse Risk Prevention Account.  The bill would provide that the employer  contribution rate may be reduced, pursuant to a specified formula,   would not be required to make that additional contribution  when the employer's Taxpayer Adverse Risk Prevention Account exceeds an amount equal to 50% of the employer's assets, exclusive of the assets in a Taxpayer Adverse Risk Prevention Account. The bill would permit assets in an account to be used for other specified contributions. The bill would provide that assets in an account would be invested  with other system's assets   according to investment strategies established by the board of retirement . Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no. THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:  SECTION 1.   Section 20814 of the Government Code is amended to read: 20814. (a) Notwithstanding any other provision of law, the state' s contribution under this chapter shall be adjusted from time to time in the annual Budget Act according to the following method. As part of the proposed budget submitted pursuant to Section 12 of Article IV of the California Constitution, the Governor shall include the contribution rates submitted by the actuary of the liability for benefits on account of employees of the state, as adjusted pursuant to Section 20814.5. The Legislature shall adopt the actuary's contribution rates and authorize the appropriation in the Budget Act. (b) The employer contribution rates for all other public employers under this system shall be determined on an annual basis by the actuary, adjusted pursuant to Section 20814.5, and shall be effective on the July 1 following notice of a change in rate.   SEC. 2.   Section 20814.5 is added to the Government Code, to read: 20814.5. (a) For the purposes of this section, the following definitions apply: (1) "Actual employer contribution rate" means the actual rate to be paid by the employer as a result of adjustments made pursuant to subdivision (b) to the employer contribution rate by the actuary. (2) "Employer contribution rate" means a rate for payment of the total employer contribution, as determined by the actuary according to the most recently completed valuation of the total liability for the benefits on the account of the employees of the employer. (3) "Normal cost of benefits" means a rate for payment of normal cost, as determined by the actuary according to the most recently completed valuation. (b) Notwithstanding any other provision of law, the employer contribution rate shall be adjusted according to the following: (1) If the employer contribution rate is greater than the normal cost of benefits, then the actual employer contribution rate shall be a rate, not less than the normal cost of benefits, and sufficient, when combined with assets transferred from the Taxpayer Adverse Risk Prevention Account established pursuant to subdivision (c), to equal the employer contribution rate. (2) Except as provided in subdivision (d), if the employer contribution rate is less than the normal cost of benefits, the actual employer contribution rate shall be equal to the normal cost of benefits. (c) For the purposes of subdivision (b), a separate account shall be established for each employer in the retirement fund to be known as a Taxpayer Adverse Risk Prevention Account. (1) A Taxpayer Adverse Risk Prevention Account is an employer asset, but shall not be counted as part of employer assets for purposes of determining the employer contribution rate. (2) Deposits to a Taxpayer Adverse Risk Prevention Account shall be made with all or a portion of the actual employer contribution rate in excess of the employer contribution rate when the actuarial value of assets exceed the present value of benefits as determined by the chief actuary, according to the most recently completed annual valuation. (3) A Taxpayer Adverse Risk Prevention Account shall be drawn from to pay for that portion of the employer contribution rate that exceeds the actual employer contribution rate, pursuant to paragraph (1) of subdivision (b). (4) The funds in a Taxpayer Adverse Risk Prevention Account may be used to pay for employee contributions picked up by an employer pursuant to Section 414(h)(2) of the Internal Revenue Code (26 U.S.C. Sec. 414). (5) The funds in a Taxpayer Adverse Risk Prevention Account may be used to make asset transfers pursuant to Section 20816. (6) The funds in a Taxpayer Adverse Risk Prevention Account may be used to reduce any contributions authorized under Section 20820. (7) The funds in Taxpayer Adverse Risk Prevention Accounts shall be invested with other assets of the system. (d) Notwithstanding paragraph (2) of subdivision (b), an actual employer contribution rate may be reduced below a rate equal to 100 percent of the normal cost of benefits, as specified in paragraph (2) of subdivision (b), pursuant to a formula determined by the actuary when that employer's Taxpayer Adverse Risk Prevention Account exceeds an amount equal to 50 percent of the employer assets, other than the assets in the Taxpayer Adverse Risk Prevention Account. That reduction in the actual employer contribution rate shall be reevaluated annually by the actuary. The actual employer contribution rate may be increased when the excess of funds in the employer's Taxpayer Adverse Risk Prevention Account no longer exceeds an amount equal to 50 percent of the employer assets, other than the assets in the Taxpayer Adverse Risk Prevention Account.   SECTION 1.   Section 20814.5 is added to the   Government Code   , to read:   20814.5. (a) For the purposes of this section, the following definitions apply: (1) "Employer contribution rate" means a rate for payment of the total employer contribution, as determined by the actuary according to the most recently completed valuation of the total liability for the benefits on the account of the employees of the employer. (2) "Employer normal cost of benefits" means a rate for payment of normal cost of benefits, as determined by the actuary according to the most recently completed valuation less the employee contribution rate. (b) Notwithstanding any other provision of law, the employer contribution rate shall be adjusted according to the following: (1) If the employer contribution rate, as determined by the actuary, is greater than the employer normal cost of benefits, then the employer shall remit an amount, not less than the employer normal cost of benefits that is, and sufficient as determined by the actuary, when combined with assets transferred from the Taxpayer Adverse Risk Prevention Account established pursuant to subdivision (c), to equal the employer contribution rate. (2) Except as provided in subdivision (d), if the employer contribution rate is less than the employer normal cost of benefits, the employer shall remit the employer contribution rate amount and make an additional contribution equal to the difference between the employer contribution rate and the employer normal cost of benefits. That additional contribution amount shall be credited to the employer' s Taxpayer Adverse Risk Prevention Account. (c) For the purposes of subdivision (b), a separate account shall be established for each employer in the retirement fund to be known as a Taxpayer Adverse Risk Prevention Account. (1) A Taxpayer Adverse Risk Prevention Account is an employer asset, but shall not be counted as part of employer assets for purposes of determining the employer contribution rate. (2) Deposits to a Taxpayer Adverse Risk Prevention Account shall be made when the actuarial value of assets exceeds the accrued liability as determined by the chief actuary, according to the most recently completed annual valuation. (3) A Taxpayer Adverse Risk Prevention Account shall be drawn from to pay for that portion of the employer contribution rate that exceeds the employer normal cost of benefits, pursuant to paragraph (1) of subdivision (b). (4) The funds in a Taxpayer Adverse Risk Prevention Account may be used to make asset transfers pursuant to Section 20816. (5) The funds in Taxpayer Adverse Risk Prevention Accounts shall be invested according to investment strategies established by the board. (d) Notwithstanding paragraph (2) of subdivision (b), when an employer's Taxpayer Adverse Risk Prevention Account exceeds an amount equal to 50 percent of the employer assets, other than the assets in the Taxpayer Adverse Risk Prevention Account, that employer is not required to make an additional contribution as specified in paragraph (2) of subdivision (b). (e) Nothing in this section shall be construed to interfere with a public retirement board's authority and fiduciary responsibility as set forth in Section 17 of Article XVI of the California Constitution. If, and to the extent that, the board of a public retirement system determines that the receipt of any additional contributions required under this section would conflict with its fiduciary responsibility set forth in Section 17 of Article XVI of the California Constitution, the board may refuse to receive those contributions.   SEC. 3.   SEC. 2.  Section 20816 of the Government Code is amended to read: 20816. (a) Notwithstanding any other provision of this part, all assets of an employer, other than the assets in a Taxpayer Adverse Risk Prevention Account established pursuant to Section 20814.5, shall be used in the determination of the employer contribution rate for the membership comprising the basis of the computation. Assets held shall be recognized over the same funding period used to amortize unfunded accrued actuarial obligations, whether in excess of the accrued actuarial obligation or not, using the entry age normal funding method. (b) On and after January 1, 1999, contracting agencies for which the actuarial value of assets exceeds the present value of benefits as of the most recently completed valuation, as determined by the chief actuary, may request that the board transfer employer assets to member-accumulated contribution accounts to satisfy all or a portion of the member contributions required by this part. That transfer shall be over a 12-month period provided the actuarial value of assets exceeds the present value of benefits. In determining the present value of benefits and the actuarial value of assets for purposes of this part, liabilities and assets attributed to the 1959 survivor allowance may not be included. On and after January 1, 2003, a transfer of assets may not be made pursuant to this subdivision unless all or the same portion of the member contributions of each member in a membership classification are satisfied through the transfer. An employer electing a transfer of assets pursuant to this subdivision shall satisfy the members' contributions for a period of not less than one month and not more than one year. (c) On and after January 1, 2002, any contracting agency for which the actuarial value of assets exceeds the present value of benefits as of the most recently completed valuation, as determined by the chief actuary, may request that the board transfer from the contracting agency's employer account excess assets, as determined by the board subject to the requirements and limitations of Section 420 of the Internal Revenue Code (26 U.S.C. Sec. 420), to a retiree health account established by the board, in its discretion, in the contracting agency's employer account pursuant to Section 401(h) of the Internal Revenue Code (26 U.S.C. 401(h)) for the purpose of providing health benefits to the contracting agency's retirees and their covered dependents. The board may, in its discretion, transfer excess assets from the contracting agency's employer account to that contracting agency's retiree health account within that agency's employer account, if the transfer meets the conditions of a qualified transfer pursuant to Section 420 of the Internal Revenue Code (26 U.S.C. Sec. 420). The transferred assets shall be used solely for the payment of current retiree health liabilities. That qualified transfer shall be made only once each year. The board may adopt regulations necessary to implement this subdivision. Notwithstanding any other provision of law, the regulations may provide for the nonforfeiture of accrued pension benefits of participants and beneficiaries of a plan from which excess assets are transferred to the extent necessary for the transfer to meet the conditions of a qualified transfer pursuant to Section 420 of the Internal Revenue Code (26 U.S.C. Sec. 420), and may include any other provision necessary under Section 420 of the Internal Revenue Code (26 U.S.C. Sec. 420) or Section 401(h) of the Internal Revenue Code (26 U.S.C. Sec. 401(h)) to accomplish the purposes of this subdivision. (d) On and after January 1, 2006, a transfer of assets may be made pursuant to this section and  on and after January 1, 2013, a transfer of assets may be made pursuant to  Section 20814.5. (e) For the purpose of this section, "employer" means any contracting agency, the state, or a school employer. (f) The actuarial report in the annual financial report shall also express the effect upon employer contribution rates of this section and of the recognition of net unrealized gains and losses.  SEC. 4.   Section 31453.7 is added to the Government Code, to read: 31453.7. (a) For the purposes of this section, the following definitions apply: (1) "Actual employer contribution rate" means the actual rate to be paid by the employer as a result of adjustments made to the employer contribution rate by the actuary as provided in this section. (2) "Employer" means the applicable county or district. (3) "Employer contribution rate" means a rate for payment of the total employer contribution, as determined by the system's actuary according to the most recently completed valuation of the total liability for the benefits on the account of the employees of the employer. (4) "Normal cost of benefits" means a rate for payment of normal cost, as determined by the system's actuary according to the most recently completed valuation. (b) Notwithstanding any other provision of law, the employer contribution rate of the county or district shall be adjusted according to the following: (1) If the employer contribution rate is greater than the normal cost of benefits, then the actual employer contribution rate shall be a rate, not less than the normal cost of benefits, and sufficient, when combined with assets transferred from the Taxpayer Adverse Risk Prevention Account established pursuant to subdivision (c), to equal the employer contribution rate. (2) Except as provided in subdivision (d), if the employer contribution rate is less than the normal cost of benefits, the actual employer contribution rate shall be equal to the normal cost of benefits. (c) For the purposes of subdivision (b), a separate account shall be established for each employer in the retirement system to be known as an Taxpayer Adverse Risk Prevention Account. (1) A Taxpayer Adverse Risk Prevention Account is an employer asset, but shall not be counted as part of employer assets for purposes of determining the employer contribution rate. (2) Deposits to a Taxpayer Adverse Risk Prevention Account shall be made with all or a portion of the actual employer contribution rate in excess of the employer contribution rate when the actuarial value of assets exceed the present value of benefits as determined by the system's actuary, according to the most recently completed annual valuation. (3) A Taxpayer Adverse Risk Prevention Account shall be drawn from to pay for that portion of the employer contribution rate that exceeds the actual employer contribution rate, pursuant to paragraph (1) of subdivision (b). (4) The funds in a Taxpayer Adverse Risk Prevention Account may be used to pay for employee contributions picked up by an employer pursuant to Section 414(h)(2) of the Internal Revenue Code (26 U.S.C. Sec. 414). (5) The funds in Taxpayer Adverse Risk Prevention Accounts shall be invested with other assets of the system. (d) Notwithstanding paragraph (2) of subdivision (b), an actual employer contribution rate may be reduced below a rate equal to 100 percent of the normal cost of benefits, as specified in paragraph (2) of subdivision (b), pursuant to a formula determined by the system's actuary when that employer's Taxpayer Adverse Risk Prevention Account exceeds an amount equal to 50 percent of the employer assets, other than the assets in the Taxpayer Adverse Risk Prevention Account. That reduction in the actual employer contribution rate shall be reevaluated annually by the system's actuary. The actual employer contribution rate may be increased when the excess of funds in the employer's Taxpayer Adverse Risk Prevention Account no longer exceeds an amount equal to 50 percent of the employer assets, other than the assets in the Taxpayer Adverse Risk Prevention Account.   SEC. 3.   Section 31453.7 is added to the   Government Code   , to read:   31453.7. (a) For the purposes of this section, the following definitions apply: (1) "Employer" means the applicable county or district. (2) "Employer contribution rate" means a rate for payment of the total employer contribution, as determined by the system's actuary according to the most recently completed valuation of the total liability for the benefits on the account of the employees of the employer. (3) "Employer normal cost of benefits" means a rate for payment of normal cost of benefits, as determined by the system's actuary according to the most recently completed valuation, less the employee contribution. (b) Notwithstanding any other provision of law, the employer contribution rate of the county or district shall be adjusted according to the following: (1) If the employer contribution rate, as determined by the actuary, is greater than the employer normal cost of benefits, then the employer shall remit an amount, not less than the employer normal cost of benefits that is sufficient as determined by the actuary, when combined with assets transferred from the Taxpayer Adverse Risk Prevention Account established pursuant to subdivision (c), to equal the employer contribution rate. (2) Except as provided in subdivision (d), if the employer contribution rate is less than the normal cost of benefits, the employer shall remit the employer contribution rate amount and make an additional contribution equal to the difference between the employer contribution rate and the employer normal cost of benefits. That additional contribution amount shall be credited to the employer' s Taxpayer Adverse Risk Prevention Account. (c) For the purposes of subdivision (b), a separate account shall be established for each employer in the retirement system to be known as a Taxpayer Adverse Risk Prevention Account. (1) A Taxpayer Adverse Risk Prevention Account is an employer asset, but shall not be counted as part of employer assets for purposes of determining the employer contribution rate. (2) Deposits to a Taxpayer Adverse Risk Prevention Account shall be made when the actuarial value of assets exceeds the accrued liability as determined by the system's actuary, according to the most recently completed annual valuation. (3) A Taxpayer Adverse Risk Prevention Account shall be drawn from to pay for that portion of the employer contribution rate that exceeds the employer normal cost of benefits, pursuant to paragraph (1) of subdivision (b). (4) The funds in Taxpayer Adverse Risk Prevention Accounts shall be invested according to investment strategies established by the board. (d) Notwithstanding paragraph (2) of subdivision (b), when an employer's Taxpayer Adverse Risk Prevention Account exceeds an amount equal to 50 percent of the employer assets, other than the assets in the Taxpayer Adverse Risk Prevention Account that employer is not required to make an additional contribution as specified in paragraph (2) of subdivision (b). (e) Nothing in this section shall be construed to interfere with a public retirement board's authority and fiduciary responsibility as set forth in Section 17 of Article XVI of the California Constitution. If, and to the extent that, the board of a public retirement system determines that the receipt of any additional contributions required under this section would conflict with its fiduciary responsibility set forth in Section 17 of Article XVI of the California Constitution, the board may refuse to receive those contributions.   SEC. 5.   SEC. 4.  This act shall become operative January 1, 2013.