THIRD READING  

Bill No: SB 430

Author: Wieckowski (D)

Amended: 5/17/19

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 3-0, 4/10/19

AYES: Hill, Morrell, Mitchell

NO VOTE RECORDED: Jackson, Pan

SENATE APPROPRIATIONS COMMITTEE: 6-0, 5/16/19

AYES: Portantino, Bates, Bradford, Hill, Jones, Wieckowski

SUBJECT: Public employees’ retirement benefits: judges

SOURCE: Author

DIGEST:

This bill authorizes a small number of judges who were elected in 2012 but could not take office and begin employment until after the Public Employees’ Pension Reform Act’s January 1, 2013 effective date, to be reclassified prospectively as classic members of the Judges Retirement System II.

ANALYSIS:

Existing law:

1. Establishes the Judges Retirement System II (JRS II), which the board of the California Public Employees’ Retirement System (CalPERS) administers (Government Code Section 75500).
2. Requires a judge who is not subject to the) to pay 8% of compensation as member contributions (GC 75600 et seq.).
3. Establishes the Public Employees’ Pension Reform Act (PEPRA), which provides a statewide benefit plan for public employees who first become members of public retirement systems on or after January 1, 2013 (GC 7522 et seq.).
4. Allows a classic member (i.e., a public employee who first became a member of a public retirement system prior to 2013) to move between public employers or retirement systems, as specified, and be “grandfathered” under the plans that existed on December 31, 2012, prior to implementation of PEPRA (GC 7522.02).
5. Puts the following requirements on new PEPRA public employee retirement members:
   1. The requirement to pay one-half of the normal cost of their retirement benefits as member contributions (GC 7522.30).
   2. A final compensation period of three years instead of one year (GC 7522.32);
   3. For non-safety employees, a benefit based on 2% of final compensation at age 62, increasing to 2.5% at age 67 (GC 7522.20 and 7522.25); and
   4. A limit on the compensation that can count toward a pension, established as the Social Security wage base (approximately $124,180 in 2019) with annual increases to the limit based on increases to the Consumer Price Index, as specified (GC 7522.10).
6. Requires new JRS II members to adhere to PEPRA requirements described in a) and b) above regarding paying one-half of the normal cost of their retirement benefits as member contributions and calculating pension benefits using three-year final compensation (GC 7522.02 (b)).
7. Exempts new JRS II members from PEPRA requirements described in c) and d) above regarding pension formulas and the pensionable compensation cap (GC 7522.02 (h)).

This bill:

1. States the Legislature’s intent, for reasons of equity unique to the circumstances of judges that this measure affects, to provide a one-time opportunity for judges who were elected in 2012, but who were unable to assume office until 2013, to have access to the retirement benefits granted to other judges who were able to assume office prior to January 1, 2013.
2. Creates an exception in the PEPRA definition of “new member” which creates a special status for approximately eight judges that were elected in 2012 but could not take office or begin employment until after January 1, 2013, so that those judges have a one time, prospective opportunity to elect out of the PEPRA plan and into the classic JRS II retirement plan.
3. Authorizes a judge, as specified, to may make a one-time, irrevocable election to have a pre-January 1, 2013, membership status in JRS II (Chapter 11.5 (commencing with Section 75500) of Title 8) for service accruing on and after July 1, 2020. The election shall apply prospectively only, and membership rights and obligations that accrued based on service subject to this article prior to July 1, 2020, including, but not limited to, contribution amounts prescribed by this article, shall remain unchanged.
4. Provides that CalPERS is not obligated to inform or locate a person who may be eligible to make the election authorized by this bill.
5. Clarifies that this bill does not affect in any way the right reserved to the Legislature to increase contributions or reduce benefits, as provided by Government Code Sections 75603 and 75604.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: No

According to the Senate Appropriations Committee, CalPERS estimates that the bill will result in (1) retroactive employer contribution costs of $500,000, (2) $75,000 to $100,000 in ongoing annual employer contribution costs, and (3) one-time information technology costs of up to $150,000 (General Fund and special fund)

SUPPORT: (Verified 5/17/19)

California Judges Association

OPPOSITION: (Verified 5/17/19)

None received

ARGUMENTS IN SUPPORT: According to the California Judges Association, SB 430 is designed to ensure that judges elected to office during 2012 are subject to retirement provisions in effect at the time of their election. We believe that simple fairness suggests that these judges should be subject to the retirement law in effect when they were elected to office.

Prepared by: Glenn Miles / L., P.E. & R. / (916) 651-1556

5/20/19 12:54:14

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 430 (Wieckowski) - Public employees’ retirement benefits: judges

Bill Summary:

SB 430 would exempt specified judges from the Public Employees’ Pension Reform Act (PEPRA). These judges were elected prior to PEPRA’s January 1, 2013, effective date but could not take office and begin employment until after that date.

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on May 16, 2019

Fiscal Impact:

The California Public Employees Retirement System (CalPERS) estimates that the bill would result in (1) retroactive employer contribution costs of $500,000, (2) $75,000 to $100,000 in ongoing annual employer contribution costs, and (3) one-time information technology costs of up to $150,000 (General Fund and special funds).

Author Amendments:

Specify that specify that the PEPRA exemption would only be prospective, effective July 1, 2020.

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SENATE COMMITTEE ON APPROPRIATIONS

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

SB 430 (Wieckowski) - Public employees’ retirement benefits: judges

Bill Summary:

SB 430 would exempt specified judges from the Public Employees’ Pension Reform Act (PEPRA). These judges were elected prior to PEPRA’s January 1, 2013, effective date but could not take office and begin employment until after that date.

Fiscal Impact:

The California Public Employees Retirement System (CalPERS) estimates that the bill would result in (1) retroactive employer contribution costs of $500,000, (2) $75,000 to $100,000 in ongoing annual employer contribution costs, and (3) one-time information technology costs of up to $150,000 (General Fund and special funds).

Background:

The Judges Retirement System II (JRS II) is administered by the California Public Employees’ Retirement System (CalPERS). JRS II provides a retirement formula equal to 3.75 percent of the judge’s final compensation for each year of service. However, in order to receive these benefits the judge must be either age 70 or older with at least 5 years of service, or be age 65 or older with at least 20 years of service. Final compensation is based on the highest twelve months and the judges’ retirement benefit may not exceed 75 percent of final compensation. A judge who is not eligible for a retirement benefit may receive monetary credits in either a lump sum or as an annuity.

Judges who were hired or took office prior to January 1, 2013 pay 8 percent of compensation to CalPERS toward their retirement benefits.

PEPRA made major revisions to laws governing the public retirement system. It provides that all new members of CalPERS who are hired on or after January 1, 2013 will be subject to higher employee contributions and a lesser retirement benefit formula. PEPRA codified a standard of equal sharing of costs between public employers and employees by (1) requiring employees to pay at least 50 percent of normal costs for a defined benefit plan, and (2) prohibiting employers from paying any of the required employee contribution. Specifically, for members of JRS II, PEPRA provides that new members will be required to pay one half of the normal cost of their retirement benefits – currently 16 percent of the member’s salary.

Proposed Law:

This bill would amend the PEPRA definition of “new member” of a retirement system in order to exempt specified judges from PEPRA.

Related Legislation:

• SB 13 (Beall), Chapter 528, Statutes of 2013, made technical corrections to PEPRA in order to (1) clarify the Legislature’s intent in enacting PEPRA, and (2) assist affected employers and retirement systems in implementation of PEPRA.
• AB 837 (Wieckowski) of 2013 was identical to this bill. AB 837 was vetoed by the Governor.

Staff Comments:

There are seven judges who were elected in 2012 but did not take office until 2013. They were elected in either June or November, but were unable to assume office until January 2013 since the seats they were filling were not yet vacant. These individuals were not previously public employees and, as such, are considered new members for purposes of PEPRA. There have been judges who were elected in 2013 who were former public employees, such as district attorneys and county counsels who were grandfathered under the PEPRA rules that allow public employees to move between public employers and retirement systems without the loss of their status as legacy members under CalPERS.

As noted above, the provisions to exempt judges elected in 2012 from PEPRA appeared in 2012 in PEPRA technical clean-up legislation that was eventually chaptered without the judges’ exemption and also in 2014 in a stand- alone bill that was vetoed by the Governor (SB 13 and AB 837 respectively). Additionally, the judges pursued litigation to address their complaint of inequitable treatment (McGlynn v. California [No. A146855]). The appellate court held against the judges on all claims for relief. The case is currently before the California Supreme Court as part of a group of pension cases under consideration regarding PEPRA’s constitutionality.

SB 430 would reduce the contribution rate for the seven judges from 16 percent (as of July 1, 2018) of salary to 8 percent of salary, thus increasing the employer contribution rate for these judges by the same amount. In 2014, the increased employer contribution costs were actuarially estimated to be $75,000 annually; the increased cost included employer costs resulting from the reduced employee contribution rate and long-term costs resulting from the judges having their retirement benefits based on the pre-PEPRA single-year final compensation period. CalPERS estimates that this bill would have over $500,000 in retroactive employer contribution costs (January 2013 through December 2019), and approximately $75,000 to $100,000 annually in ongoing employer contribution costs. The bill would also require CalPERS to change its business rules to allow it to retroactively apply this benefit. CalPERS initial IT cost estimates to make these changes may be approximately $150,000.

Thus, CalPERS’ interpretation of the bill would have the impacted judges retroactively reimbursed by the employer. If signed into law, CalPERS would work with the employer to reverse previously reported employer and member contributions, creating a credit with CalPERS for all contributions. Then the employer would re-report the contributions with the credit applied and the employer would reimburse the judges accordingly with the overpaid member contributions. Unless the bill explicitly states that these provisions are not retroactive, CalPERS would apply them as if they were retroactive.

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SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Jerry Hill, Chair

2019 - 2020 Regular

Bill No: SB 430 Hearing Date: April 10, 2019

SUBJECT: Public employees’ retirement benefits: judges

KEY ISSUE

Should the Legislature exempt approximately eight judges from the Public Employees’ Pension Reform Act (PEPRA) given that the judges were elected prior to PEPRA’s January 1, 2013, effective date but could not take office and begin employment until after that date?

ANALYSIS

Existing law:

1. Establishes the Judges Retirement System II (JRS II), which the board of the California Public Employees’ Retirement System (CalPERS) administers (Government Code Section 75500).
2. Requires a judge who is not subject to PEPRA to pay 8% of compensation as member contributions (GC 75600 et seq.).
3. Establishes PEPRA, which provides a statewide benefit plan for public employees who first become members of public retirement systems on or after January 1, 2013 (GC 7522 et seq.).
4. Allows a classic member (i.e., a public employee who first became a member of a public retirement system prior to 2013) to move between public employers or retirement systems, as specified, and be “grandfathered” under the plans that existed on December 31, 2012, prior to implementation of PEPRA (GC 7522.02).
5. Puts the following requirements on new PEPRA public employee retirement members:
6. The requirement to pay one-half of the normal cost of their retirement benefits as member contributions (GC 7522.30).
7. A final compensation period of three years instead of one year (GC 7522.32);
8. For non-safety employees, a benefit based on 2% of final compensation at age 62, increasing to 2.5% at age 67 (GC 7522.20 and 7522.25); and
9. A limit on the compensation that can count toward a pension, established as the Social Security wage base (approximately $124,180 in 2019) with annual increases to the limit based on increases to the Consumer Price Index, as specified (GC 7522.10).
10. Requires new JRS II members to adhere to PEPRA requirements described in A and B in paragraph 5 above regarding paying one-half of the normal cost of their retirement benefits as member contributions and calculating pension benefits using 3-year final compensation (GC 7522.02 (b)).
11. Exempts new JRS II members from PEPRA requirements described in C and D in paragraph 5 above regarding pension formulas and the pensionable compensation cap (GC 7522.02 (h)).

This bill:

SB 430 amends the PEPRA definition of “new member” of a retirement system in order to exempt specified judges from PEPRA. This bill would effectively move approximately eight judges from the JRS II PEPRA plan to the JRS pre-PEPRA/classic plan. Because members of JRS II are already exempt from certain provisions of PEPRA, the bill’s principle effect is that the judges’ contribution rate would decrease from approximately 16% to 8% and their final compensation would be calculated on their highest 12 consecutive months of salary rather than their highest 36 consecutive months.

COMMENTS

1. Need for this bill?

According to the author,

Senate Bill 430 clarifies that the eight judges elected during 2012 but not taking office until 2013 are not “new members” of the Judges Retirement System. The bill thus standardizes the treatment of all judges elected or appointed during 2012 under PEPRA, without any refund of contributions made during the intervening years. We believe that simple fairness suggests that these judges should be subject to the retirement law in effect when they were elected to office. They filed for office, ran for office, and in most cases were actually elected to office, before the provisions of the California Public Employees’ Pension Reform Act (PEPRA) were crafted and enacted into law.

2. Staff Comments

Background

Approximately eight judges who were elected in 2012 are currently subject to PEPRA since they could not take office and begin their employment until after PEPRA’s effective date of January 1, 2013. These judges, unlike some of their 2012 cohorts who were also elected in 2012, did not have prior membership in a public retirement system that would have grandfathered them into the pre-PEPRA JRS II plan. Nor were the affected judges able to take office prior to January 1, 2013, as their 2012 cohorts did who were appointed to vacant judicial positions. Thus, for reasons of equity the author and sponsor have pursued a legislative remedy to address this issue. The provisions to exempt judges elected in 2012 from PEPRA appeared in 2012 in PEPRA technical clean-up legislation that was eventually chaptered without the judges’ exemption and also in 2014 in a stand- alone bill that was vetoed by the Governor (SB 13 and AB 837 respectively). Additionally, the judges pursued litigation to address their complaint of inequitable treatment (McGlynn v. California [No. A146855]). The appellate court held against the judges on all claims for relief. The case is currently before the California Supreme Court as part of a group of pension cases under consideration regarding PEPRA’s constitutionality.

Equitable Argument for Accommodating the Eight Judges:

• The affected eight judges’ condition arises from discrete circumstances that make this case particular to an equitable remedy. Here is a group of similarly situated employees who were treated differently than their cohorts not because of any choice or decision they made but rather by the vagaries of our judicial selection process. Their 2012 cohort judges were elected or appointed and have pre-PEPRA JRS II because they had, respectively, prior membership in a public retirement system or could begin employment prior to January 1, 2013.
• The changes PEPRA made to JRS II were significantly less than changes made to other plans, which reflect some of the cost containment protections already in JRS II such as the cliff vesting requirements, the 75% salary cap on pension allowances, and the Legislature’s explicit statutory reservation of the right to increase contributions and reduce benefits in the plan. Providing this equitable remedy will result in relatively minor costs to the state and not significantly increase the judges’ pension benefits.

Concerns:

• Legislative Intent of PEPRA: Despite the description of the author and sponsor to the contrary, the Legislature never intended to shield judges elected in 2012 who could not take office until after January 1, 2013, from PEPRA’s provisions. This is evident by the failure to use language that would have included them in the original legislation and the two failed attempts to provide the accommodation sought by the judges in this bill. Instead, the Legislature’s intent was to implement meaningful reform of all public pension plans to ensure the plans’ long-term stability and guarantee future pension payments to plan beneficiaries.
• Weakens PEPRA: This bill makes changes to the state’s signature pension reform law. Although PEPRA did not change JRS II as dramatically as other public pension plans, staff is concerned that changing PEPRA to accommodate the judges at issue will create pressure to accommodate other requests for modifications to PEPRA.
• Retroactive Benefits: PEPRA specifically prohibits the provision of retroactive pension benefits. The affected judges have been in the PEPRA plan for approximately five years. This bill, as currently written, would place them into the pre-PEPRA plan effective from their 2012 membership date. This would result in a return of contributions and an eventual higher pension allowance based on one year of final compensation instead of three-year final compensation. Together, these effects would be a retroactive enhancement since the judges would pay less for their pension benefits while receiving an increased pension allowance.
• Ongoing Litigation: This bill potentially interferes with ongoing litigation in the California Supreme Court case McGlynn v. California [No. S248513] and could overturn the appellate court’s decision in McGlynn [No. A146855]. These judges sued and lost at state appellate level where the court denied all claims presented. The Supreme Court has taken the case as part of the group of pension cases it is hearing regarding PEPRA’s constitutionality and the California Rule.
• Increased General Fund Costs: SB 430 would result in relatively minor increased General Fund costs since the state’s portion of contributions would increase by the proportion that the eight affected judges’ contributions would decrease.
• Total Population Affected: The total population of potential judges eligible for the pre-PEPRA plan under this bill is unclear. The sponsor is aware of only its eligible member judges.

Recommended Amendments: Staff recommends the author commit to the following amendments should the committee pass the bill in order to address the above concerns.

• Amend the bill so that judge’s would not be retroactively placed in the pre-PEPRA plan, i.e., keep judges in PEPRA until this bill’s effective date of 1/1/20 and then shift them to the pre-PEPRA plan going forward.
• Provide a requirement that the judges have a one-time, 30-day window to make an irrevocable election to transfer to the pre-PEPRA plan. After that window, there should be no right to be in pre-PEPRA plan. Clarify that CalPERS has no obligation to inform or track down persons who might be eligible.
• Clarify that this bill in no way changes Legislature’s reservation of right to increase contributions or reduce benefits pursuant to Government Code Sections 75603 and 75604.
• Clarify that it was not the Legislature’s express intent to exempt these judges from PEPRA originally but for equitable reasons arising out of the unique circumstances of these judges the state should treat them like their cohorts going forward. This avoids overturning McGlynn findings.

2. Proponent Arguments

According to the sponsor,

SB 430 is designed to ensure that judges elected to office during 2012 are subject to retirement provisions in effect at the time of their election. We believe that simple fairness suggests that these judges should be subject to the retirement law in effect when they were elected to office.

3. Opponent Arguments:

None received.

4. Prior Legislation:

SB 13 (Beall), Chapter 528, Statutes of 2013, made technical corrections to the Public Employee’s Pension Reform Act of 2013 (PEPRA) in order to clarify the Legislature’s intent in enacting PEPRA and to assist affected employers and retirement systems in implementation of PEPRA.

AB 837 (Wieckowski) of 2013 was identical to this bill. AB 837 was vetoed by the Governor who said in his veto message wrote,

This measure creates an exemption to the California Public Employees' Pension Reform Act of 2013. I am unwilling to begin chipping away at these reforms.

SUPPORT

California Judges Association (Sponsor)

OPPOSITION

None received.

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