CalPERS Board to Review Proposed PEPRA Regulations Next Week

Next week the Pension & Health Benefits Committee of the California Public Employees’ Retirement System (CalPERS) and the full CalPERS Board will review proposed regulations for the continued implementation of the Public Employees’ Pension Reform Act of 2013 (PEPRA). The proposed regulations address the following areas: 

Retirement Plan. PEPRA requires that “classic” members hired 1/1/13 or later are offered the “retirement plan” that was offered on 12/31/12. The regulation will define “retirement plan” to mean the entire retirement benefit offered to the employees on 12/31/12, including COLA, survivor’s benefits, etc. However, if the agency changes the benefits for that cohort any time after 12/31/12, the classic member hired after the date of the change will receive the changed benefit as well. For example, if the COLA is 2 percent on 12/31/12, but increased to 3 percent on January 15, a classic member hired on January 30 will receive the 3 percent COLA. This means the 12/31/12 “retirement plan” can change over time.

Subject to reciprocity. The regulation will make clear that “subject to reciprocity” will include all reciprocity agreements, not just those included in statute. This will ensure members of the State Teachers Retirement System and University of California are included.

Final compensation. The regulation will define final compensation period so that 36 months equals three one-year segments.

Pension cap. This regulation will specify how final compensation is calculated under the pension cap in PEPRA. CalPERS looked to the current Internal Revenue Code (IRC) 401 (a) (17) cap for guidance. (Recall that both the IRC and PEPRA cap may be adjusted each year depending on specified economic factors). The IRC requires that final comp be calculated using the amount of the cap that applies on the first day of the final compensation period, even though depending on the date of the retirement, an employee could have worked for a significant time under a higher cap. CalPERS is proposing a different methodology for the PEPRA cap where instead of a fixed date, the cap amount will be pro-rated for each segment of the final comp period. This results in the retiree benefiting from the incremental annual increase in the cap.

Public safety exception to 180 days. This regulation will define public safety member to be those positions listed in Govt. Code 3301 which reads “For purposes of this chapter, the term public safety officer means all peace officers specified in Sections 830.1, 830.2, 830.3, 830.31, 830.32, 830.33, except subdivision (e), 830.34, 830.35, except subdivision (c), 830.36, 830.37, 830.38, 830.4, and 830.5 of the Penal Code.”

The full report and text of the regulations can be viewed here. If approved, CalPERS will submit the regulations to the Office of Administrative Law for full vetting and adoption.