BILL NUMBER: SB 24INTRODUCED BILL TEXT INTRODUCED BY Senator Walters DECEMBER 3, 2012 An act to amend Sections 7522.02, 7522.15, 7522.20, and 7522.25 of, and to add Section 7522.03 to, the Government Code, relating to public employees' retirement. LEGISLATIVE COUNSEL'S DIGEST SB 24, as introduced, Walters. Public employees' retirement: benefit plans. Existing law regulates state and local public retirement systems and generally requires public employees who are new members, as defined, of those systems, on and after January 1, 2013, to participate in specified benefit plans. Existing law permits a public employer that, before January 1, 2013, offers a defined benefit pension plan that provides a defined benefit formula with a lower benefit factor at normal retirement age, and results in a lower normal cost, than the defined benefit formula required for new employees on and after January 1, 2012, to continue to offer that defined benefit formula and excepts the employer from specified requirements regarding pensionable compensation. Existing law requires, in the case of these plans, if a new defined benefit formula is adopted on or after January 1, 2013, that the formula meet certain requirements and, among other things, be approved by the Legislature. Existing law prescribes the same requirements for a retirement benefit plan that consists solely of a defined contribution plan if the employer, on or after January 1, 2013, adopts a new defined benefit pension plan or defined benefit formula, as specified. This bill would eliminate the requirement that the Legislature approve the changes in the instances described above. This bill would also authorize a local agency public employer or public retirement system that offers a defined benefit pension plan to offer a benefit formula with a lower benefit factor at normal retirement age and that results in a lower normal cost than the benefit formulas that are currently required, for purposes of addressing a fiscal necessity. 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 7522.02 of the Government Code is amended to read: 7522.02. (a) (1) Notwithstanding any other law, except as provided in this article, on and after January 1, 2013, this article shall apply to all state and local public retirement systems and to their participating employers, including the Public Employees' Retirement System, the State Teachers' Retirement System, the Legislators' Retirement System, the Judges' Retirement System I, the Judges' Retirement System II, county and district retirement systems created pursuant to the County Employees Retirement Law of 1937, independent public retirement systems, and to individual retirement plans offered by public employers. However, this article shall be subject to the Internal Revenue Code and Section 17 of Article XVI of the California Constitution. The administration of the requirements of this article shall comply with applicable provisions of the Internal Revenue Code and the Revenue and Taxation Code. (2) Notwithstanding paragraph (1), this article shall not apply to the entities described in Section 9 of Article IX of, and Sections 4 and 5 of Article XI of, the California Constitution, except to the extent that these entities continue to be participating employers in any retirement system governed by state statute. Accordingly, any retirement plan approved before January 1, 2013, by the voters of any entity excluded from coverage by this section shall not be affected by this article. (b) The benefit plan required by this article shall apply to public employees who are new members as defined in Section 7522.04. (c) Individuals who were employed by any public employer before January 1, 2013, and who became employed by a subsequent public employer for the first time on or after January 1, 2013, shall be subject to the retirement plan that would have been available to employees of the subsequent employer who were first employed by the subsequent employer on or before December 31, 2012, if the individual was subject to reciprocity established under any of the following provisions: (1) Article 5 (commencing with Section 20350) of Chapter 3 of Part 3 of Division 5 of Title 2. (2) Chapter 3 (commencing with Section 31450) of Part 3 of Division 4 of Title 3. (3) Any agreement between public retirement systems to provide reciprocity to members of the systems. (d) If a public employer, before January 1, 2013, offers a defined benefit pension plan that provides a defined benefit formula with a lower benefit factor at normal retirement age and results in a lower normal cost than the defined benefit formula required by this article, that employer may continue to offer that defined benefit formula instead of the defined benefit formula required by this article, and shall not be subject to the requirements of Section 7522.10 for pensionable compensation subject to that formula. However, if the employer adopts a new defined benefit formula on or after January 1, 2013, that formula must conform to the requirements of this article or must be determined and certified by the retirement system's chief actuary and the retirement board to have no greater risk and no greater cost to the employer than the defined benefit formula required by this articleand must be approved by the Legislature. New members of the defined benefit plan may only participate in the lower cost defined benefit formula that was in place before January 1, 2013, or a defined benefit formula that conforms to the requirements of this article or is approved by the Legislature as provided in this subdivision. (e) If a public employer, before January 1, 2013, offers a retirement benefit plan that consists solely of a defined contribution plan, that employer may continue to offer that plan instead of the defined benefit pension plan required by this article. However, if the employer adopts a new defined benefit pension plan or defined benefit formula on or after January 1, 2013, that plan or formula must conform to the requirements of this article or must be determined and certified by the retirement system's chief actuary and the system's board to have no greater risk and no greater cost to the employer than the defined benefit formula required by this articleand must be approved by the Legislature. New members of the employer's plan may only participate in the defined contribution plan that was in place before January 1, 2013, or a defined contribution plan or defined benefit formula that conforms to the requirements of this article. (f) The Judges' Retirement System I and the Judges' Retirement System II shall not be required to adopt the defined benefit formula required by Section7522.25 or 7522.307522.20 or 7522.25 or the compensation limitations defined in Section 7522.10. (g) This article shall not be construed to provide membership in any public retirement system for an individual who would not otherwise be eligible for membership under that system's applicable rules or laws. SEC. 2. Section 7522.03 is added to the Government Code, to read: 7522.03. (a) Notwithstanding Section 7522.15, a local agency public employer or public retirement system that offers a defined benefit pension plan may, for purposes of addressing a fiscal necessity, offer a benefit formula with a lower benefit factor at normal retirement age and that results in a lower normal cost than the benefit formula required by Section 7522.20 or 7522.25. (b) The authority provided by subdivision (a) shall be exercised upon the direction of the legislative body of the local agency, as manifest in a duly enacted ordinance or resolution that describes the fiscal necessity, or upon a vote of the people of the affected jurisdiction. (c) For purposes of this section, "local agency" means a city, county, or district. SEC. 3. Section 7522.15 of the Government Code is amended to read: 7522.15. Except as provided in subdivisions (d) and (e) of Section 7522.02 or in Section 7522.03 , each public employer and each public retirement system that offers a defined benefit plan shall offer only the defined benefit formulas established pursuant to Sections 7522.20 and 7522.25 to new members. SEC. 4. Section 7522.20 of the Government Code is amended to read: 7522.20. (a)EachExcept as provided in Section 7522.03, each retirement system that offers a defined benefit plan for nonsafety members of the system shall use the formula prescribed by this section. The defined benefit plan shall provide a pension at retirement for service equal to the percentage of the member's final compensation set forth opposite the member's age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a nonsafety member. A member may retire for service under this section after five years of service and upon reaching 52 years of age. Age of Retirement Fraction 52 ..................... 1.00 52 1/4.................. 1.025 52 1/2.................. 1.050 52 3/4 ................. 1.075 53 .................... 1.100 53 1/4.................. 1.125 53 1/2.................. 1.150 53 3/4.................. 1.175 54 ..................... 1.200 54 1/4.................. 1.225 54 1/2.................. 1.250 54 3/4.................. 1.275 55 ..................... 1.300 55 1/4.................. 1.325 55 1/2.................. 1.350 55 3/4.................. 1.375 56 ..................... 1.400 56 1/4.................. 1.425 56 1/2.................. 1.450 56 3/4.................. 1.475 57 ..................... 1.500 57 1/4.................. 1.525 57 1/2.................. 1.550 57 3/4.................. 1.575 58 ..................... 1.600 58 1/4.................. 1.625 58 1/2.................. 1.650 58 3/4.................. 1.675 59 ..................... 1.700 59 1/4.................. 1.725 59 1/2.................. 1.750 59 3/4.................. 1.775 60 ..................... 1.800 60 1/4.................. 1.825 60 1/2.................. 1.850 60 3/4.................. 1.875 61 ..................... 1.900 61 1/4.................. 1.925 61 1/2.................. 1.950 61 3/4.................. 1.975 62 ..................... 2.000 62 1/4.................. 2.025 62 1/2.................. 2.050 62 3/4.................. 2.075 63 ..................... 2.100 63 1/4.................. 2.125 63 1/2.................. 2.150 63 3/4.................. 2.175 64 ..................... 2.200 64 1/4.................. 2.225 64 1/2.................. 2.250 64 3/4.................. 2.275 65 ..................... 2.300 65 1/4.................. 2.325 65 1/2.................. 2.350 65 3/4.................. 2.375 66 ..................... 2.400 66 1/4.................. 2.425 66 1/2.................. 2.450 66 3/4.................. 2.475 67 ..................... 2.500 (b) Pensionable compensation used to calculate the defined benefit shall be limited as described in Section 7522.10. (c) A new member of the State Teachers' Retirement System shall be subject to the formula established pursuant to Section 24202.6 of the Education Code. SEC. 5. Section 7522.25 of the Government Code is amended to read: 7522.25. (a)EachExcept as provided in Section 7522.03 each retirement system that offers a defined benefit plan for safety members of the system shall use one or more of the defined benefit formulas prescribed by this section. A member may retire for service under any of the formulas in this section after five years of service and upon reaching 50 years of age. (b) The Basic Safety Plan shall provide a pension at retirement for service equal to the percentage of the member's final compensation set forth opposite the member's age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member. Age at Retirement Fraction 50 ............................. 1.426 50 1/4.......................... 1.447 50 1/2.......................... 1.467 50 3/4.......................... 1.488 51 ............................. 1.508 51 1/4.......................... 1.529 51 1/2.......................... 1.549 51 3/4.......................... 1.570 52 ............................. 1.590 52 1/4.......................... 1.611 52 1/2.......................... 1.631 52 3/4.......................... 1.652 53 ............................. 1.672 53 1/4.......................... 1.693 53 1/2.......................... 1.713 53 3/4.......................... 1.734 54 ............................. 1.754 54 1/4.......................... 1.775 54 1/2.......................... 1.795 54 3/4.......................... 1.816 55 ............................. 1.836 55 1/4.......................... 1.857 55 1/2.......................... 1.877 55 3/4.......................... 1.898 56 ............................. 1.918 56 1/4.......................... 1.939 56 1/2.......................... 1.959 56 3/4.......................... 1.980 57 and over .................... 2.000 (c) The Safety Option Plan One shall provide a pension at retirement for service equal to the percentage of the member's final compensation set forth opposite the member's age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member. Age at Retirement Fraction 50 ............................... 2.000 50 1/4............................ 2.018 50 1/2............................ 2.036 50 3/4............................ 2.054 51 ............................... 2.071 51 1/4............................ 2.089 51 1/2............................ 2.107 51 3/4............................ 2.125 52 ............................... 2.143 52 1/4............................ 2.161 52 1/2............................ 2.179 52 3/4............................ 2.196 53 ............................... 2.214 53 1/4............................ 2.232 53 1/2............................ 2.250 53 3/4............................ 2.268 54 ............................... 2.286 54 1/4............................ 2.304 54 1/2............................ 2.321 54 3/4............................ 2.339 55................................ 2.357 55 1/4............................ 2.375 55 1/2............................ 2.393 55 3/4............................ 2.411 56................................ 2.429 56 1/4............................ 2.446 56 1/2............................ 2.464 56 3/4............................ 2.482 57 and over....................... 2.500 (d) The Safety Option Plan Two shall provide a pension at retirement for service equal to the percentage of the member's final compensation set forth opposite the member's age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member. Age at Retirement Fraction 50 ............................. 2.000 50 1/4.......................... 2.025 50 1/2.......................... 2.050 50 3/4.......................... 2.075 51 ............................. 2.100 51 1/4.......................... 2.125 51 1/2.......................... 2.150 51 3/4.......................... 2.175 52 ............................. 2.200 52 1/4.......................... 2.225 52 1/2.......................... 2.250 52 3/4.......................... 2.275 53 ............................. 2.300 53 1/4.......................... 2.325 53 1/2.......................... 2.350 53 3/4.......................... 2.375 54 ............................. 2.400 54 1/4.......................... 2.425 54 1/2.......................... 2.450 54 3/4.......................... 2.475 55 ............................. 2.500 55 1/4.......................... 2.525 55 1/2.......................... 2.550 55 3/4.......................... 2.575 56 ............................. 2.600 56 1/4.......................... 2.625 56 1/2.......................... 2.650 56 3/4.......................... 2.675 57 and over .................... 2.700 (e) On and after January 1, 2013, an employer shall offer one or more of the safety formulas prescribed by this section to new employees who are safety employees eligible for membership in the system. The formula offered shall be the formula that is closest to, and provides a lower benefit at 55 years of age than, the formula provided to members in the same retirement classification offered by the employer on December 31, 2012. (f) On and after January 1, 2013, an employer and its employees subject to Safety Option Plan One or Safety Option Plan Two may agree in a memorandum of understanding to be subject to Safety Option Plan One or the Basic Safety Plan, subject to the following: (1) The lower plan shall apply to members first employed on or after the effective date of the lower plan, and shall be agreed to in a memorandum of understanding that has been collectively bargained in accordance with applicable laws. (2) A retirement plan contract amendment with a public retirement system to alter a retirement formula pursuant to this subdivision shall not be implemented by the employer in the absence of a memorandum of understanding that has been collectively bargained in accordance with applicable laws. (3) An employer shall not use impasse procedures to impose the lower plan. (4) An employer shall not provide a different defined benefit for nonrepresented, managerial, or supervisory employees than the employer provides for other public employees, including represented employees, of the same employer who are in the same membership classifications. (g) Pensionable compensation used to calculate the defined benefit shall be limited as described in Section 7522.10.