Key Sections of The California Public Employees’ Pension Reform Act of 2013
September 16, 2012
Note: This is a very brief summary of applicable portions of the lengthy new pension law which goes into effect 1/1/13. It includes only provisions that apply to WCE members – namely to miscellaneous or general employees of cities (most of whom are covered by PERS) and employees of counties (most of which have their own retirement systems under the 1937 Act). Sonoma County and Contra Costa are two of the 1937 Act counties with pension systems separate from PERS (called SCERS and CCCERA), and both counties have affiliated special districts (such as the Sonoma County Water District) under their retirement systems. The summary does not include sections applying to employees covered by the Education Code, to Safety employees, or to elected officials. I have quoted the text of the applicable sections of the Act rather than interpret them. Please be advised that there are innumerable unanswered questions about how these provisions are to be applied, and it will take some time before definitive answers are developed. Nancy
California Public Employees’ Pension Reform Act of 2013
Govt. Code §7522, et seq.
(Amends Govt. Code §1243 and renumbers it as §7522 and the following sections)
7522.02 – Act applies as of 1/1/3 to all new public sector employees, unless specifically exempted. Employee who were employed before that time by one agency and then hired by another agency after 1/1/13, “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 12/31/12 if the individual was subject to reciprocity” under various sections of the law, including any agreement between public retirement systems to provide reciprocity.
7522.04 – New Employee and Reciprocity
- (2)(e) “New employee” means (1) one who is hired for the first time by any public employer on or after 1/1/13, or (2) one who was formerly employed by another agency but who is not subject to reciprocity, or (3) an individual who was an active member in a retirement system but who had a break in service of more than 6 months before being hired by the new public employer.
- (2)(g) “’Normal cost’ means the portion of the present value of projected benefits under the defined benefit that is attributable to the current year of service, as determined by the public retirement system’s actuary according to the most recently completed valuation.”
7522.10 – Pensionable Compensation
- (c) “The pensionable compensation used to calculate the defined benefit paid to a new member who retires shall not exceed the applicable percentage (100%) for a member whose service is not included in the federal system (i.e. Social Security) and 120% for an employee who is not covered by the federal system.
- (d)(2) “The Legislature reserves the right to modify the requirements of this subdivision with regard to all public employees subject to this section, except that the Legislature may not modify these provisions in a manner that would result in a decrease in benefits accrued prior to the effective date of the modification.”
7522.20 – Formulas for new hires (as of January 1, 2013);
Retirement eligibility begins at age 52 with 5 years of service
||Fraction (% of salary)
||1.20 (increases by 0.10 for each year)
7522.30 – Equal Sharing of Normal Costs
- (a) [A]pplies “to all public employers and to all new members. Equal sharing of normal costs . . .shall be the standard. The standard shall be that employees pay at least 50% of normal costs and that employer not pay any of the required employee contribution.”
- (b) “The ‘normal cost rate’ shall mean the annual actuarially determined normal cost for the defined benefit plan of an employer expressed as a percentage of payroll.”
- (e)-(f) Employee contributions may be more than ½ of the normal cost rate if agreed to in collective bargaining, no greater contribution by employer for high-level employee, no use of impasse procedures to increase the contribution rate, and no impairment of any existing MoU that is in effect on 1/1/13 until expiration (except that a renewal, amendment or extension is subject to this section).
7522.32 – Final Compensation for New Employees (36 months)
- High average annual pension compensation during a period of at least 36 consecutive months
7522.34 – Anti-Spiking for new employees (mostly applies to County employees) “Pensionable compensation” for new hires “means the normal monthly rate of pay or base pay” and does not include:
- (c)(3) “Any one-time or ad hoc payments made to a member.”
- (c)(5)“Payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off, however denominated, whether paid in a lump sum or otherwise, regardless of when reported or paid.”
- (c)(6) “Payments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise.”
- (c)(7) “Any employer-provided allowance, reimbursement, or payment, including, but not limited to, one made for housing, vehicle, or uniforms.”
- (c)(8) “Compensation for overtime work, other than defined in §207(k) of U.S. code.
- (c)(9) “Employer contributions to deferred compensation or defined contribution plans.”
- (c)(10) Any bonus paid in addition to the compensation described in (a).
7522.40 – Prohibition of highly paid employees (included elected officials, trustees) who are excluded from collective bargaining or any or exempt from civil service being given any great health benefit vesting schedule than that given to other employees, including represented employees.
7522.42 – (New hires)
- Maximum salary – shall not exceed the amount permitted to be taken into account under 401(a)(17) of the IRS Code. This is currently $110K for employees who receive Social Security and $132.2K for employees who do not, as annually adjusted by CPI.
7522.44 – (For all employees)
- Prohibits all enhancements to pensions which are retroactive to service rendered before an MOU is signed (or some other later date). Cost-of-living adjustments are not considered “enhancements”.
7522.52 – Employer Contribution
- (a) “In any fiscal year, a public employer’s contribution to a defined benefit plan, in combination with employee contributions to that defined benefit plan, shall not be less than the normal cost rate, as defined in Section 7522.30, for that defined benefit plan for that fiscal year.”
- (b) (1)-(3) Exception to (a) above for specific excess funding situations
7522.56 – Retired Annuitants (applies to “all persons receiving a pension”)
- Prohibited from working for public sector employer “without reinstatement from retirement or loss or interruption of benefits’” except in emergency situations or in a “critically needed position,” until after 180 days has passed after retirement and the appointment is approved by the governing body in a public meeting.
- Limits appointments to 960 hours/year, salary can’t be less than minimum or more than maximum for employees in similar job classification. Other limitations on retired annuitants working for or being appointed to state boards, unless they get only per diem payments, not pay.
Amendments to existing Govt. Code sections or new sections:
20516 – Share of employer costs (for PERS agencies and schools).
- Employees and agencies may agree, in writing, to “share the costs of the employer contribution.” Can be done by MoU or Resolution.
31631 – (Applies to Counties)
- Bd. of Sups., or governing body of district may, by resolution, ordinance, contract, or contract amendment, without a change in benefits, “require that members pay all or part of the contributions of a member or employer, or both, for any retirement benefits provided under this chapter. All of those payments are hereby designated as employee contributions.” For represented employees, must be done in an MoU, and contributions must be uniform within members of a bargaining unit.
31631.5 (addition to Govt. Code) (applies to Counties)
- (a)(1) Bd of Sups. or governing board may require “that members pay 50 percent of the normal cost of benefits. However, that contribution shall be no more than 14 percent above the applicable normal rate of contribution of members” for local general (miscellaneous) members.
- (a)(2) “Before any changes are implemented, the public employer “shall complete the good faith bargaining process as required by law, including any impasse procedures requiring mediation and factfinding. This subdivision shall become operative on January 1, 2018. This subdivision shall not apply to any bargaining unit when members of that unit are paying at least 50 percent of the normal cost of their pension benefit or are subject to an agreement reached pursuant to paragraph (1). Applicable normal rate of contribution of members means the statutorily authorized rate applicable to the member group as the statutes read on December 31, 2012. “
- (b) Nothing in this section shall modify a board of supervisors’ or the governing body of a district’s authority under law as it existed on December 31, 2012, including any restrictions on that authority to change the amount of member contributions.”