MEMORANDUM

TO:FROM:DATE:

SUBJECT:

REVIEWED:

HONORABLE MAYOR AND MEMBERS OF THE CITY COUNCIL

CAROLYNN PETRU, DEPUTY CITY MANAGER®

SEPTEMBER 18, 2012

ORDINANCE ADOPTING A SECOND TIER 2%@ 60RETIREMENT BENEFIT FORMULA (Supports 2012 City CouncilGoal of Government Efficiency, Fiscal Control andTransparency)

CAROLYN LEHR, CITY MANAGER

RECOMMENDATION

1) Adopt Ordinance No. _U; an Urgency Ordinance of the City of Rancho PalosVerdes Authorizing an Amendment to the Contract Between the City of Rancho PalosVerdes and the Board of Administration of the California Public Employees' RetirementSystem; and, 2) Authorize the City Clerk to execute the compliance certificatesassociated with the adoption of the Second Tier 2%@ 60 retirement benefit formula.

BACKGROUND

On September 20,2011, the City Council approved a Second Tier based on the 2%@60 retirement benefit formula with the determination of final compensation based on theaverage earnings of the three highest years. Staff was directed to request a contractamendment with CaIPERS. On August 21,2012, the City Council adopted ResolutionNo. 2012-61, a Resolution of Intention to amend the City's contract with CalPERS toestablish the Second Tier. The City Council is now being asked to adopt an UrgencyOrdinance authorizing the contract amendment. In compliance with state law, theadoption of the ordinance is at least 20 days after Council adoption of the Resolution ofIntention. If adopted, the Urgency Ordinance would go into effect immediately, so thatthe Amendment to Contract with CalPERS would commence on September 21,2012,which is the first day of the next payroll period. Pursuant to Government Code Section20475, the City could not amend its contract with CalPERS for three years.

DISCUSSION

On August 31,2012, subsequent to the Council's adoption of Resolution No. 2012-61,the state legislature adopted AB 340, the Public Employee Pension Reform Act of 2013(PEPRA). The legislation, which Governor Brown signed on September 1ih

, willbecome effective on January 1, 2013. AB 340 includes ten of the twelve points in

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Topic: 2%@ 60 Second Tier Retirement FormulaDate: September 18,2012Page 2

Governor Brown's pension reform proposal, including benefit changes to state, schooland local agency retirement benefit plans for both new members (future employees, asdiscussed below) as well as current members. The attached League of California CitiesConference Report compares League Policy with the Conference Committee Report onPublic Employee Pensions. The report also highlight's the League's preliminaryanalysis of AB 340 and the current understanding of how the legislation will affectpension plans throughout the state. .

One of the most significant aspects of the legislation is the creation of a new retirementbenefit formula of 2% at age 62 for all new miscellaneous employees hired afterJanuary 1, 2013, with an early retirement age of 52 and a maximum benefit factor of2.5% at age 67. The key lies with the definition of "new" employee. Currently, except inthe case of part-time employees (see discussion under Additional Information),contracts between individual cities and CalPERS are not dependent on whether thenew hire is already a member of CaIPERS. However, the new benefit plan required byAB 340 would only apply to full-time employees who are "new members" to CalPERSand not simply new employees of the City of Rancho Palos Verdes. Pursuant to thelegislation, a "new member" includes:

o An individual who has never been a member of any public retirement systemprior to January 1, 2013;

o An individual who moved between retirement systems with more than a 6-monthbreak in service; or

o An individual who moved between public employers within a retirement systemafter more than a 6-month break in service.

In its analysis of the legislation, the League of California Cities concurs with thisconclusion and states that individuals who are employed by any public employer beforeJanuary 1, 2013 and who become employed by another reciprocal employer after thereforms proposed in AB 340 take effect will be offered the retirement plan given toemployees by the subsequent employer before AB 340 took effect.

Therefore, with the execution of the contract amendment, any employees hired afterSeptember 21, 2012 who are already members of CalPERS or have less than a 6­month break in service moving between retirement systems or between publicemployers would be hired in at the Second Tier 2%@ 60 retirement benefit formula.Any "new members" hired after January 1, 2013 would be hired in at what will in effectbecome the City's Third Tier, the 2%@ 62 retirement benefit formula established by AB340.

However, if the City had not decided to establish the Second Tier, any employees hiredbetween September 21,2012 and December 31,2012, and any employees hired afterJanuary 1, 2013 who did not fall into one of the three categories listed above, would beenrolled in the City's First Tier 2.5%@ 55 retirement benefit formula.

V:\CAROLYNN\REPORTS\2012\20120918_CaIPERS Second Tier.doc

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Topic: 2%@ 60 Second Tier Retirement FormulaDate: September 18, 2012Page 3

ADDITIONAL INFORMATION

Under current federal requirements, when the City hires a new part-time employee whois not already a member of CaIPERS, the employee is enrolled in Social Security.However, once the part-time employee has worked more than 1,000 hours in a givenfiscal year, the City must then enroll and maintain the employee in CaIPERS, even ifthey work less than 1,000 hours during any subsequent years of employment with theCity. This is often referred to as the "once in, always in" rule. The City currently has ahandful of employees that participate in Social Security rather than CaIPERS. Most ofthe City's part-time employees are Recreation Leaders working at the City's variouspark sites and typically work between 20 and 32 hours per week, which equates tobetween 1,020 and 1,664 hours per fiscal year, thus surpassing the CalPERSthreshold. Even following the implementation of the City's Second Tier and the state'sThird Tier, new part-time employees who are not already members of CalPERS willcontinue to be enrolled in Social Security unless and until they exceed the 1,000 hourthreshold. New non-PERS part-time employees who exceed the threshold prior toJanuary 1, 2013 would be enrolled in the 2%@ 60 formula, while those who exceed itafter that date would be enrolled in the 2%@ 62 formula. In a related matter, staff iscurrently exploring the option of offering non-PERS part-time employees a substituteretirement plan, such as PARS, in place of Social Security. Staff will present its findingsto the City Council Compensation Subcommittee once the analysis has beencompleted.

FISCAL IMPACT

Following the contract amendment, CalPERS has calculated the future annual, costs,based on the June 30, 2010 actuarial, as follows:

First Tier (2.5%@ 55)Employer Contribution Rate: 13.941%Employee Contribution Rate: 8.0%

Second Tier (2%@ 60)Employer Contribution Rate: 7.846%Employee Contribution Rate: 7.0%

Attachments:Ordinance No. _U;Draft Amendment to ContractSummary of Major Provisions of the 2%@ 60 FormulaLeague of California Cities' Conference Report

V:\CAROLYNN\REPORTS\2012\20120918_CalPERS Second Tier.doc

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ORDINANCE NO. _U

AN ORDINANCE OF THE CITY OF RANCHO PALOS VERDESAUTHORIZING AN AMENDMENT TO THE CONTRACT BETWEEN THECITY OF RANCHO PALOS VERDES AND THE BOARD OFADMINISTRATION OF THE CALIFORNIA PUBLIC EMPLOYEES'RETIREMENT SYSTEM FOR THE 2% @ 60 RETIREMENT BENEFITFORMULA AND DECLARING THE URGENCY THEREOF

WHEREAS, on September 20, 2011, the City Council approved and directed staffto request a contract amendment with CalPERS to establish a Second Tier based on the2%@ 60 retirement benefit formula with the determination of final compensation basedon the average earnings of the three highest years; and,

WHEREAS, on August 21, 2012, the City Council adopted Resolution No. 2012­61, a Resolution of Intention to amend the City's contract with CalPERS to establish theSecond Tier;

NOW, THEREFORE, THE CITY COUNCIL OF THE CITY OF RANCHO PALOSVERDES HEREBY ORDAINS AS FOLLOWS:

Section 1: An amendment to the contract between the City Council of the City ofRancho Palos Verdes and the Board of Administration, California Public Employees'Retirement System is hereby authorized, a copy of said amendment being attachedhereto and marked as Exhibit "A", and by such reference made a part hereof as thoughherein set out in full.

Section 2: The Mayor of the City of Rancho Palos Verdes is hereby authorized,empowered, and directed to execute said amendment for and on behalf of said Agency.

Section 3: The City Clerk shall certify to the adoption of this ordinance and shallcause the same to be posted in the manner prescribed by law.

Section 4: Urgency Findings

The City Council finds and determines that the immediate preservation of thepublic peace, health, and welfare requires that this ordinance be enacted as an urgencyordinance pursuant to Government Code Section 36937(b) and take effect immediatelyupon adoption. It is in the City's interest that the Second Tier retirement benefit formulabecome effective immediately so that any new employees that are hired by the City shallbe within the Second Tier, which will save the City monies with respect to the futureretirement benefits that the City will be required to pay for those employees upon theirretirement, assuming the employees are qualified to receive such benefits. Thus, if thisOrdinance does not become effective immediately, but instead becomes effective thirtydays after its second reading, ambiguity and confusion regarding the applicability of theCity's Second Tier could result. Therefore, this Ordinance is necessary for theimmediate preservation of the public peace and welfare and its urgency is herebydeclared.

1491525vl 4-4

Section 5: This Ordinance is an urgency ordinance and shall take effectimmediately upon adoption.

PASSED, APPROVED and ADOPTED the 18th day of September 2012.

MayorATTEST:

City Clerk

STATE OF CALIFORNIA )COUNTY OF LOS ANGELES ) ssCITY OF RANCHO PALOS VERDES )

I, Carla Morreale, City Clerk of the City of Rancho Palos Verdes, do hereby certifythat the whole number of members of the City Council of said City is five; that theforegoing Ordinance No. _U was duly and regularly adopted by the City Council ofsaid City at a regular meeting thereof held on September 18, 2012 and that the samewas passed and adopted by the following roll call vote:

AYES:NOES:ABSENT:ABSTAIN:

City Clerk

1491525vl 4-5

ACalPERS

EXHIBITCalifornia

Public Employees' Retirement System

----+----AMENDMENT TO CONTRACT

Between theBoard of Administration

California Public Employees' Retirement Systemand the

City CouncilCity of Rancho Palos Verdes

----+----The Board of Administration, California Public Employees' Retirement System,hereinafter referred to as Board, and the governing body of the above public agency,hereinafter referred to as Public Agency, having entered into a contract effectiveDecember 1, 1974, and witnessed October 15, 1974, and as amended effective April 1,1978, September 16,1983, February 11,1993, September 2,2000, April 21, 2001 andSeptember 29, 2007 which provides for participation of Public Agency in said System,Board and Public Agency hereby agree as follows:

A. Paragraphs 1 through 12 are hereby stricken from said contract as executedeffective September 29, 2007, and hereby replaced by the following paragraphsnumbered 1 through 14 inclusive:

1. All words and terms used herein which are defined in the PublicEmployees' Retirement Law shall have the meaning as defined thereinunless otherwise specifically provided. "Normal retirement age" shallmean age 55 for local miscellaneous members entering membership inthe miscellaneous classification on or prior to the effective date of thisamendment to contract and age 60 for local miscellaneous membersentering membership for the first time in the miscellaneous classificationafter the effective date of this amendment to contract.

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2. Public Agency shall participate in the Public Employees' RetirementSystem from and after December 1, 1974 making its employees ashereinafter provided, members of said System subject to all provisions ofthe Public Employees' Retirement Law except such as apply only onelection of a contracting agency and are not provided for herein and to allamendments to said Law hereafter enacted except those, which byexpress provisions thereof, apply only on the election of a contractingagency.

3. Public Agency agrees to indemnify, defend and hold harmless theCalifornia Public Employees' Retirement System (CaIPERS) and itstrustees, agents and employees, the CalPERS Board of Administration,and the California Public Employees' Retirement Fund from any claims,demands, actions, losses, liabilities, damages, judgments, expenses andcosts, including but not limited to interest, penalties and attorneys feesthat may arise as a result of any of the following:

(a) Public Agency's election to provide retirement benefits,provisions or formulas under this Contract that are different thanthe retirement benefits, provisions or formulas provided underthe Public Agency's prior non-CaIPERS retirement program.

(b) Public Agency's election to amend this Contract to provideretirement benefits, provisions or formulas that are different thanexisting retirement benefits, provisions or formulas.

(c) Public Agency's agreement with a third party other thanCalPERS to provide retirement benefits, provisions, or formulasthat are different than the retirement benefits, provisions orformulas provided under this Contract and provided for underthe California Public Employees' Retirement Law.

(d) Public Agency's election to file for bankruptcy under Chapter 9(commencing with section 901) of Title 11 of the United StatesBankruptcy Code and/or Public Agency's election to reject thisContract with the CalPERS Board of Administration pursuant tosection 365, of Title 11, of the United States Bankruptcy Codeor any similar provision of law.

(e) Public Agency's election to assign this Contract without the priorwritten consent of the CalPERS' Board of Administration.

(f) The termination of this Contract either voluntarily by request ofPublic Agency or involuntarily pursuant to the Public Employees'Retirement Law.

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(g) Changes sponsored by Public Agency in existing retirementbenefits, provisions or formulas made as a result ofamendments, additions or deletions to California statute or tothe California Constitution.

4. Employees of Public Agency in the following classes shall becomemembers of said Retirement System except such in each such class asare excluded by law or this agreement:

a. Employees other than local safety members (herein referred to aslocal miscellaneous members).

5. In addition to the classes of employees excluded from membership bysaid Retirement Law, the following classes of employees shall not becomemembers of said Retirement System:

a. ELECTED OFFICIALS;b. CROSSING GUARDS;c. WORK TRAINEES;d. ADMINISTRATIVE INTERN; ANDe. SAFETY EMPLOYEES.

6. The percentage of final compel)sation to be provided for each year ofcredited prior and current service as a local miscellaneous member inemployment before and not on or after September 29, 2007 shall bedetermined in accordance with Section 21354 of said Retirement Law(2% at age 55 Full).

7. The percentage of final compensation to be provided for each year ofcredited prior and current service as a local miscellaneous member inemployment on or after September 29, 2007 and not entering membershipfor the first time in the miscellaneous classification after the effective dateof this amendment to contract shall be determined in accordance withSection 21354.4 of said Retirement Law (2.5% at age 55 Full).

8. The percentage of final compensation to be provided for each year ofcredited current service as a local miscellaneous member enteringmembership for the first time in the miscellaneous classification after theeffective date of this amendment to contract shall be determined inaccordance with Section 21353 of said Retirement Law (2% at age 60Full).

9. Public Agency elected and elects to be subject to the following optionalprovisions:

a. Section 21574 (Fourth Level of 1959 Survivor Benefits).

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b. Section 20903 (Two Years Additional Service Credit).

c. Section 20042 (One-Year Final Compensation) for localmiscellaneous members entering membership on or prior to theeffective date of this amendment to contract.

d. Section 20475 (Different Level of Benefits). Section 21353 (2% @60 Full formula) and Section 20037 (Three-Year FinalCompensation) are applicable to local miscellaneous membersentering membership for the first time in the miscellaneousclassification after the effective date of this amendment to contract.

10. Public Agency, in accordance with Government Code Section 20790,ceased to be an "employer" for purposes of Section 20834 effective onSeptember 16, 1983. Accumulated contributions of Public Agency shallbe fixed and determined as provided in Government Code Section 20834,and accumulated contributions thereafter shall be held by the Board asprovided in Government Code Section 20834.

11. Public Agency shall contribute to said Retirement System the contributionsdetermined by actuarial valuations of prior and future service liability withrespect to local miscellaneous members of said Retirement System.

12. Public Agency shall also contribute to said Retirement System as follows:

a. Contributions required per covered member on account of the 1959Survivor Benefits provided under Section 21574 of said RetirementLaw. (Subject to annual change.) In addition, all assets andliabilities of Public Agency and its employees shall be pooled in asingle account, based on term insurance rates, for survivors of alllocal miscellaneous members.

b. A reasonable amount, as fixed by the Board, payable in oneinstallment within 60 days of date of contract to cover the costs ofadministering said System as it affects the employees of PublicAgency, not including the costs of special valuations or of theperiodic investigation and valuations required by law.

c. A reasonable amount, as fixed by the Board, payable in oneinstallment as the occasions arise, to cover the costs of specialvaluations on account of employees of Public Agency, and costs ofthe periodic investigation and valuations required by law.

13. Contributions required of Public Agency and its employees shall besubject to adjustment by Board on account of amendments to the PublicEmployees' Retirement Law, and on account of the experience under theRetirement System as determined by the periodic investigation andvaluation required by said Retirement Law.

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B.

14. Contributions required of Public Agency and its employees shall be paidby Public Agency to the Retirement System within fifteen days after theend of the period to which said contributions refer or as may be prescribedby Board regulation. If more or less than the correct amount ofcontributions is paid for any period, proper adjustment shall be made inconnection with subsequent remittances. Adjustments on account oferrors in contributions required of any employee may be made by directpayments between the employee and the Board.

This amendment shall be effective on the __ day of _

BOARD OF ADMINISTRATION CITY COUNCILPUBLIC.EMPLOYEES' RETIREMENT SYSTEM CITY OF RANCHO PALOS VERDES

BY BY _KAREN DE FRANK, CHIEF PRESIDING OFFICERCUSTOMER ACCOUNT SERVICES DIVISIONPUBLIC EMPLOYEES' RETIREMENT SYSTEM

Witness Date

Attest:

Clerk

AMENDMENT CalPERS ID #3846845523PERS-CON-702A

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CALIFORNIA PUBLIC EMPLOYEES' RETIREMENT SYSTEMActuarial and Employer Services BranchPublic Agency Contract Services(888) CalPERS (225-7377)

SUMMARY OF MAJOR PROVISIONS2% @ 60 Formula (Section 21353)

Local Miscellaneous Members

SERVICE RETIREMENT

To be eligible for service retirement, a member must be at least age 50 and have five years ofCalPERS credited service. There is no compulsory retirement age.

The monthly retirement allowance is determined by age at retirement, years of service creditand final compensation. The basic benefit is 2% of final compensation for each year of creditedservice upon retirement at age 60. If retirement is earlier than age 60, the percentage of finalcompensation decreases for each quarter year of attained age to 1.092% at age 50. Ifretirement. is deferred beyond age 60, the percentage of final compensation increases for eachquarter year of attained age to 2.418% at age 63.

Final compensation is the average monthly pay rate during the last consecutive 36 months ofemployment, or 12 months if provided by the employer's contract, unless the memberdesignates a different period of 36 or 12 consecutive months when the average pay rate washigher.

DISABILITY RETIREMENT

Members substantially incapacitated from performing the usual duties for the position for his/hercurrent employer, and from performing the usual duties of the position for other CalPERScovered employers (including State agencies, schools, and local public agencies), and wheresimilar positions with these other employers with reasonably comparable in pay, benefits, andpromotional opportunities are not available, would be eligible for disability retirement providedthey have at least five years of service credit. The monthly retirement allowance is 1.8% of finalcompensation for each year of service. The maximum percentage for members who havebetween 10.000 and 18.518 years of service credit is one-third of their final compensation. Ifthe member is eligible for service retirement the member will receive the highest allowancepayable, service or disability. If provided by the employer's contract, the benefit would be aminimum of 30% of final compensation for the first five years of service credit, plus 1% for eachadditional year of service to a maximum benefit of 50% of final compensation.

INDUSTRIAL DISABILITY RETIREMENT

If provided by the employer's contract, members permanently incapacitated from performingtheir duties, as defined above under Disability Retirement, and the disability is a result of a job­related injury or illness may receive an Industrial Disability Retirement benefit equal to 50% oftheir final compensation. If provided in the employer's contract and the member is totallydisabled, the disability retirement allowance would equal 75% of final compensation in lieu ofthe disability retirement allowance otherwise provided. If the member is eligible for serviceretirement, the service retirement allowance is payable. The total allowance cannot exceed90% of final compensation.

PRE-RETIREMENT DEATH BENEFITS

Basic Death Benefit: This benefit is a refund of the member's contributions plus interest and upto six months' pay (one month's salary rate for each year of current service to a maximum of sixmonths).

PERS-CON-44 (Rev. 2/05) 4-11

1957 Survivor Benefit: An eligible beneficiary may elect to receive either the Basic DeathBenefit or the 1957 Survivor Benefit. The 1957 Survivor Benefit provides a monthly allowanceequal to one-half of the highest service retirement allowance the member would have receivedhad he/she retired on the date of death. The 1957 Survivor Benefit is payable to the survivingspouse or registered domestic partner until death or to eligible unmarried children until age 18.

1959 Survivor Benefit: (If provided by the employer's contract and the member is not coveredunder social security.) A surviving spouse or registered domestic partner and eligible childrenmay receive a monthly allowance as determine by the level of coverage. This benefit is payablein addition to the Basic Death Benefit or 1957 Survivor Benefit. Children are eligible if underage 22 and unmarried.

Pre-Retirement Optional Settlement 2 Death Benefit: (If provided by the employer's contract.)The spouse or registered domestic partner of a deceased member, who was eligible to retire forservice at the time of death, may to elect to receive the Pre-Retirement Optional Settlement 2Death Ben~fit in lieu of the lump sum Basic Death Benefit. The benefit is a monthly allowanceequal to the amount the member would have received if he/she had retired for service on thedate of death and elected Optional Settlement 2, the highest monthly allowance a member canleave a spouse or registered domestic partner.

COST-OF-LIVING ADJUSTMENTS

The cost of living allowance increases are limited to a maximum of 2% compounded annuallyunless the employer's contract provides a 3, 4, or 5% increase.

DEATH AFTER RETIREMENT

The lump sum death benefit is $500 (or $600, $2,000, $3,000, $4,000 or $5,000 if provided bythe employer's contract) regardless of the retirement plan chosen by the member at the time ofretirement.

TERMINATION OF EMPLOYMENT

Members who have separated from employment may elect to leave their contributions ondeposit or request a refund of contributions and interest. Those who leave their contributionson deposit may apply at a later date for a monthly retirement allowance if the minimum serviceand age requirements are met. Members who request a refund of their contributions terminatetheir membership and are not eligible for any future benefits unless they return to CalPERSmembership.

EMPLOYEE CONTRIBUTIONS

Miscellaneous members covered by the 2% @ 60 formula contribute 7% of reportable earnings.Those covered under a modified formula (coordinated with Social Security) do not contribute onthe first $133.33 earned.

The employer also contributes toward the cost of the benefits. The amount contributed by theemployer for current service retirement benefits generally exceeds the cost to the employee. Inaddition, the employer bears the entire cost of prior service benefits (the period of time beforethe employer provided retirement coverage under CaIPERS). All employer contribution ratesare subject to adjustment by the CalPERS Board of Administration.

PERS-CON-44 (Rev. 2/05) 4-12

LEAGUEOF CALIFORNIA

yCITIES

1400 KStreet, Suite 400. Sacramento, California 95814Phone: 916.658.8200 Fax: 916.658.8240

www.cacities.org

Comparing League Policy and the Conference Committee Report on PublicEmployee Pensions (Conference Report)

AS 340 (Furutani) was amended Aug. 28, 2012 and is intended to implementcomprehensive pension reform through the enactment of the California Employees'Pension Reform Act of 2013 (PEPRA) as well as other statutory changes.

This proposal applies to all public employers and pension plans on or after Jan. 1, 2013with the exception of the University of California, as well as charter cities and chartercounties that do not participate in the California Public Employees' Retirement System(CaIPER~) or the 37' Act System including the cities of Los Angeles, San Francisco,Fresno, San Diego, and San Jose. The proposal also excludes any retirement planapproved by the voters of any entity before Jan. 1, 2013.

Questions have been raised about whether the pension reform proposal applies tocurrent or new employees. The short answer is that most of the provisions in thepackage apply to new employees while some of the provisions apply to currentemployees. Please see the attached Addendum A for that information.

The following is a comparison of League policy that was adopted by the League boardof directors in July 2011. The Conference Report addresses the issues listed in thechart below.

Pension Proposal Does League Policy andConference Report Align?

*Draft 8/30/2012 2:15 p.m. 1

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1. PENSIONABLE COMPENSATION CAP & HYBRID

Establishes a cap on the amount of compensation thatcan be used to calculate a retirement benefit for all newmembers of a public retirement system equal to theSocial Security wage index limit ($110,100) foremployees who participate in Social Security or 120% ofthat limit ($132,120) if they do not participate in SocialSecurity. [GC. Sect. 7522.1 0 (c)]

Adjustments to the cap are required annually based onchanges to the Consumer Price Index (CPI) for all UrbanConsumers. [GC. Sect. 7522.10 (d)(1)]

Authorizes the Legislature to modify the CPIprospectively. [GC. Sect.7522.10 (d)(2)]

Prohibits employers from offering a defined benefit or anycombination of defined benefits, including a privatelyprovided defined benefit, on compensation in excess ofthe new cap. [GC. Sect.7522.10 (e)]

Authorizes employers to make contributions to a definedcontribution plan for employees so long as the plan andcontributions meet federal limits and requirements. [GC.Sect. 7522.10 (f)(1)]

Except that employer contributions made to a definedcontribution plan for an employee above the cap islimited. [GC. Sect. 7522.10 (g)] *See attached Addendum8 for further explanation.

Provides that a contribution made by an employer to anemployee's deferred contribution plan is not a vestedright. [GC. Sect. 7522.10 (f)(2)]

Prohibits employers from providing new members with asupplemental defined benefit plan. [GC. Sect. 7522.18(a)(b)]

Prohibits employers from making contributions for newmembers to any qualified retirement plan on pensionablecompensation above the amount specified in Section401(a)(17) of Title 26 of the United State Code($250,000). [GC. Sect. 7522.42 (a)]

x

*Draft 8/30/2012 2:15 p.m. 2

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Provide employers with a hybrid pension system optionthat caps the defined benefit PERS pension at an annualmaximum retiree benefit equal to 70 percent of theretiring employees' eligible base pay and supplement thedefined benefit plan with a risk managed PERS definedcontribution plan. A defined contribution plan shouldinte rate with a defined benefit Ian not substitute for it.

League policy and the Conference Report diverge considerably on thisparticular issue. League policy suggests that employees should beguaranteed a percentage of their income when they retire provided bya defined benefit plan and that any defined benefit plan should besubstituted with a professionally managed defined contribution plan.

The Conference Report does not guarantee a percentage of incomereplacement. Instead it caps pensionable compensation for thedefined benefit and does not provide a guaranteed hybrid option.However, it permits employers to provide defined contribution plansabove the new defined benefit structure. The plan also seems to limitemployer contributions that can be made to a defined contribution planfor hi hi com ensated em 10 ees.

INCREASE RETIREMENT AGE & NEW FORMULAS

Increases retirement ages for new members.

The formula option for miscellaneous members will be2% at 62. The formula will be adjusted to encouragelongevity. The formula will be adjusted to a maximumretirement factor of 2.5% at age 67. [GC. Sect. 7522.20(a)]

There will be three formula options offered to safetymembers including: 2% at 57; 2.5% at 57; and 2.7% at57. [GC. Sect. 7522.25 (a)(b)(c)(d)]

Give government agencies through the collectivebargaining process the option to extend retirement agesfor miscellaneous employee up to social securityretirement ages.

Seek minimum (floor) retirement age of 60 formiscellaneous employees and 55 for safety employeesbefore earing full retirement benefits.

Repeal SB 400/AB 616 formulas returning to moresustainable PERS benefit formulas.

*Draft 8/30/2012 2:15 p.m. 3

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Differences

Provide a broader range of formula choices with lowerbenefit local options for all types of member classes.

While League policy and the Conference Report do not align exactlyon this issue, League policy overall supports an increase in retirementage including repeal of the SB400/AB 616 formulas.

3. COST SHARING & EMPLOYER PICK-UP

Requires new members to pay at least 50% of normalcost and prohibits employers from paying this contributionon the employee's behalf. [GC. Sect. 7522.30 (c)]

Provides that new members can pay more than 50% ofthe normal cost if the increase has been agreed to incollective bargaining and under the following conditions:

(1) An employer is prohibited from contributing agreater rate to the plan for non-represented,managerial, or supervisorial employees than theemployer contributes to other public employees.

(2) An employer can only increase employeecontribution rates if agreed to in a memorandumof understanding (MOU) that has been collectivelybargained.

(3) An employer cannot use impasse procedures toimplement greater cost sharing above the 50% ofnormal cost.

[GC. Sect.7522.30 (e)(1 )(2)(3)]

Authorizes employers to require (subject to good faithbargaining) after Jan. 1, 2018 current employees to payat least 50% of the normal cost so long as the employeecontribution does not exceed 8% for miscellaneous, 12%for police and fire, and 11 % for all other local safetymembers. [GC. Sect. 20516.5 (b)(c)]

Authorizes employers and employees to agree to sharethe costs of the employer contribution and prohibits theuse of impasse procedures from being used to implementa cost sharing arrangement on any contribution amountabove what is required in law. [GC.Sect. 20516 (a)(b)]

Member cost sharing under GC. Sect. 20516 may bebargained on a unit-by-unit basis if agreed to in an MOU.[GC. Sect. 20516(c)]

*Draft 8/30/2012 2:15 p.m. 4

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Give employers greater flexibility at the collectivebargaining table to get at current costs of employeepensions including unfunded liabilities. Allow for greatercost sharing mechanisms in the PERL that do notcurrently exist.

Require that employees pay the employee share ofPERS (e.g. 7-8% for miscellaneous employees and 8-9%for safety employees.) Also eliminate the availability ofEm 10 er Paid Member Contributions EPMC

No major differences. League policy and the Conference Report alignclosely on this issue. The Conference Report gives local employersgreater flexibility to share costs with current and future employees.

First, after Jan.1, 2018 local employers can require current employeesto pay 50% of the normal cost subject to limits and collectivebargaining. The report also gives employers greater flexibility tobargain with current employees over paying a portion of the employercontribution. This strengthens the statutory framework for cost sharingarrangements between employers and employees on sharing a portionof the employer's costs.

Second, the plan requires that new employees pay one-half of thenormal cost.

Third, the measure prohibits employer piCk-Up of the new member'snormal cost contribution.

4. PROHIBIT PENSION SPIKING

Requires for new members that final compensation shallby calculated on the highest average annual pensionablecompensation earned by a member during a period of atleast 36-consecutive months. [GC. Sect. 7522.32 (a)]

This is otherwise known as the 3-year average.

Base final retirement salary on three highest paid yearsworked.

I Differences INo major differences.

*Draft 8/30/2012 2:15 p.m. 5

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5. RESTRICTIONS ON RETIREES

Requires newly retired persons to sit out for at least 180days before returning to work for an employer in thesame retirement system that which they receive aretirement allowance. [GC. Sect. 7522.56 (f)]

An exception can be made if the governing body certifiesthat the nature of the employment and that theappointment is necessary to fill a critically neededposition and the 180 days has not yet passed. This alsorequires governing body approval in a properly noticedpublic meeting and cannot be placed on a consentcalendar. [GC. Sect.7522.56 (f)(1)]

This 180-day sit out rule does not apply to a public safetyofficer or firefighter. [GC. Sect. 7522.56 (f)(4)]

Provides that a retiree that accepted a retirementincentive (e.g., handshake or cash incentive) uponretirement must sit out the 180 days and the exceptioncannot be used. [GC. Sect. 7522.56 (g)]

League policy in this area has always been very broad to allowemployers to use retired annuitants because in many cases it can be acost saving measure. However, when several pension bills were beingconsidered a year ago in the Legislature the proposal before us wasan outright 6-month restriction. The proposal in the Conference Reportrepresents a deal struck with CSAC and the League to allow localagencies to bring back retirees when a need was evident.

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6. BASE RETIREMENT ALLOWANCE ON REGULAR, RECURRING P=A=Y==~ign?··

Defines "pension compensation" for a new member ofany public retirement system as the normal monthly rateof payor base pay of the member paid in cash tosimilarly situated members of the same group or class ofemployment for services rendered on a full-time basisduring normal working hours, pursuant to a publicallyavailable pay schedule. [GC. Sect.7522.34 (a)]

Also provides that pension compensation does notinclude:

• compensation paid to enhance a retirementbenefit;

• compensation previously provided "in-kind" andconverted to cash in the final comp period;

• one-time or ad hoc payments;• terminal pay;• pay for unused sick leave or time off;• pay for work outside of normal hours; any

employer provided allowance including uniform,housing, vehicle allowances;

• pay for overtime, except planning overtime,extended duty workweek, or pay defined infederal labor code section 207(k) of Title 29 of theUnited States Code. [GC. Sect.7522.34 (c)(1-12)]

Supports calculating benefits only on base salaryeliminating all "spiking." No overtime, vacation or sickleave should be included in the pension calculation.Eliminate the CalPERS contract option to includeEmployer Paid Member Contributions (EPMC) in thecalculation of an employees' base pay for retirement

ur oses.

IDifferences INo major differences.

7. FORFEIT PENSION BENEFITS UPON FELONY CONVICTION

Requires public officials and employees to forfeit pensionbenefits if they are convicted of a felony related to theperformance of official duties, related to seeking anelected office or appointment, in connection withobtaining salary or pension benefits, or committedagainst a child who the official or employee has contactwith as art of his or her official duties. GC. Sect.

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7522.72 (b)(1) and (2), (c)(1); GC. Sect. 7522.74 (b)(1)and (2), (c)(1)]

Only pensions benefits earned or accrued after theearliest date of the commission of the felony are subjectto forfeiture. Benefits earned or accrued prior to this dateare not SUbject to forfeiture [GC sec. 7522.72(c); GC sec.7522.74(c)]

These provisions apply to employees hired both beforeand after January 1, 2013. [GC. Sect. 7522.72 (a); GC.Sect. 7522.74 (a)]

Both the Conference report and League policy address felonies thatarise in connection with fraudulently obtaining pension benefits. The

< / < /1 report goes beyond this by including felonies committed in obtaining.....•..•..... .1 disability retirement or "other benefits". The report further goes beyond

the League policy and addresses felonies that arise out of or in theperformance of one's official duties, felonies in the pursuit of office orappointment, or felonies committed against children by employeeswho come in contact with the child as art of their official duties.

8. ELIMINATE AIRTIME

Prohibits a public retirement system from allowing thepurchase of unqualified service credit. [GC. Sect.7522.46(a)]

11111111111111111111111111~fuc~~rt~o~I~~~=~ng the purchase of "air time" (purchase

IDifferences INo major differences.

9. PROHIBIT RETROACTIVE BENEFIT INCREASES

Requires that any retirement enhancements to formulasor benefits must occur prospectively and not retroactively.[GC. Sect. 7522.44]

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:::::&!II!I::.III!I~:!::: Prohibit retroactive benefit increases.

IDlfIerences INo major differences.

10. PROHIBIT PENSION HOLIDAYS

Prohibit all employers from suspending employer and/oremployee contributions necessary to fund annual pensionnormal costs. [GC. Sect. 7522.52(a)]

Allows a public retirement system to suspendcontributions under limited circumstances:

• The plan is funded more than 120%• The excess earnings could result in

disqualification of plans tax deferred status• The board finds that additional contributions

would conflict with its fiduciary responsibilityGC. Sect. 7522.52 b 1 2 3

Prohibit employers and employees from takingcontribution "holidays."

INo major differences.

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Addendum A

Which proposals apply to current and new employees?

The new benefit plan required by this proposal applies to public employees who are"new members." A New member includes:

1) An individual who has never been a member of any public retirement systemprior to Jan. 1, 2013.

2) An individual who moved between retirement systems with more than a 6-monthbreak in service.

3) An individual who moved between public employers within a retirement systemafter more than a 6-month break in service.

Provides that individuals who are employed by any public employer before Jan. 1, 2013and who become employed by another reciprocal public employer after the reformsproposed 'in SB 340 take effect will be offered the retirement plan given to employees bythe subsequent employer before SB 340 takes effect.

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Addendum B

Maximum Overall Cap on Combined Defined Benefit and Defined Contribution Paymentsto Employees Over $110,000

GC 7522.10 (g) in AB 340 (p. 12 - 13) reads as follows:(g) Any employer contributions to any employee defined contribution plan above the

pensionable compensation limits in subdivision (c) shall not, when combined with theemployer's contribution to the employee's retirement benefits below the compensation limit,exceed the employer's contribution level, as a percentage of pay, required to fund the retirementbenefits of employees with income below the compensation limits.

Examples of what this means:

Employer's Contribution as % of Salary10% 15% 20%

To Employees Below 110,000 DB PensionCapMaximum Contribution to $250,000employee

First $110,000 salary $11,000 $16,500 $22,000(D.B.)

Next $140,000 salary $14,000 $21,000 $28,000*(D.C.)

TOTAL $25,000 $37,500 $50,000

*Currentfederallimit on employer contributions to D.C. Plan: $50,000

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