CalPERS Offers Preliminary Analysis of Governor’s Pension Plan

The California Public Employees’ Retirement System (CalPERS) last month released a preliminary analysis of Governor Brown’s 12-point pension reform proposal. CalPERS makes it clear that the analysis does not address all issues that may arise from the Governor’s plan and will most likely evolve as any legislative or initiative proposals come forward.

The analysis lists legal and fiscal concerns as well as potential pros and cons of the Governor’s proposal, including:

• Equal sharing of normal pension costs by employers and employees may impair vested rights in some cases, but could reduce fiscal pressure on public agencies currently paying the members’ share of contributions.
• Requiring public agencies to place new employees into a hybrid retirement plan (combination of defined benefit and defined contribution) could result in increased cost for funding the benefits of current members, threaten the actuarial soundness of the existing defined benefit plan, and require significant time and resources to implement.
• Determining the fiscal effects of the Governor’s proposal to increase the retirement age for most new miscellaneous employees is difficult as the Governor did not specify an age for public safety employees; additionally, CalPERS points out that if no corresponding changes are made to disability retirement law, the higher ages could result in more industrial or non-industrial disability retirement applications.

The full analysis may be viewed here.

CalPERS Board to Sponsor TAP Legislation

The CalPERS Board of Administration (Board) has agreed to sponsor legislation to clarify statutory authority to terminate a contract when a contracting agency no longer meets the definition of a “public agency.”

Existing law authorizes public agencies to contract with CalPERS to provide retirement benefits for their eligible employees. It defines “public agency” as “any city, county, district, other local authority or public body of or within this state.” Under existing law, the Board can terminate the contract of a contracting agency for any one of three reasons: 

1. The contracting agency fails for 30 days after demand by the Board to pay any installment of contributions required by its contract
2. The contracting agency fails for three months after demand by the Board to file any information required in the administration of this system with respect to that agency’s employees
3. If the Board determines that the agency is no longer in existence.

In addition, since CalPERS is only able to contract with entities that qualify as public agencies, the Board has the implied authority to terminate a contract when a contracting agency no longer qualifies as a public agency under certain statute. Contracting agencies that no longer meet the definition of “public agency” and that, therefore, no longer have the right to contract with CalPERS for retirement and survivor benefits create a potential risk to the system.

The Board plans to sponsor legislation that will express statutory authority to terminate the contract of a contracting agency that has ceased to meet the definition of a “public agency” under existing state law. Affected contracting agencies would generally be allowed to petition the Board to reconsider its decision through existing administrative appeals procedures, and to present evidence supporting their public agency status. Upon termination of their contract with CalPERS, terminated agencies would be required to make contributions to the system necessary to cover any amount the system is obligated to pay after the effective date of the contract termination to or on account of persons who are or have been employed by, and on account of service rendered by them to, the agency.