California Public Employees’ Pension Reform Act (PEPRA) – AB 340

1. California Public Employees’ Pension Reform Act (PEPRA) – AB 340 Tulare County Office of Ed – December 12, 2012

2. Discussion Topics • PEPRA Summary of Reform Provisions • Cap on Pensionable Compensation • Types of Pensionable Compensation • Member Contributions • Employer Contributions • Postretirement Employment • Equal Health Benefits/Vesting • Felon’s Forfeiture of Benefits • Tier Membership Determinations • Follow-up and Actions Needed • Other/Resources/Questions

3. Summary of Reform Provisions • New Members After January 1, 2013 • Reduced Retirement Benefits • Normal Retirement Age Increase • Age Factors Reduced • Minimum Retirement Age Increased • STRS Career Factor Eliminated • Final Compensation Period Increased to 36 Months • Pensionable Compensation is Capped • $136,440 in 2013 for Those Without Social Security • $113,700 for Those With Social Security • Subject to Annual CPI (Consumer Price Index) Adjustment • Changes in Types of Pensionable Compensation • Limits on Compensation Not Included in Base Salary • Member & Employer Contributions Requirements • Minimums Established for New Members * • Employer Paid Member Contributions (EPMC) Prohibited/Phased Out *

4. Summary of Reform Provisions – Continued • All Members after January 1, 2013 • Membership Status Can Change * • Employer Paid Member Contributions Phase Out * • Retroactive Benefits Are Prohibited • Postretirement Employment • New 180 Day Sit Out Period • New Rules for Eligibility • Equal Health Benefits/Vesting • Forfeit of Benefits for Felony Conviction * • From Time of Committing Felony • New Employer Notice Requirement

5. Cap on Pensionable Compensation • The New Cap Only Applies to New Members • Cap of 120% of Social Security Wage Base • $136,440 without Social Security for 2013 • $113,700 with Social Security for 2013 • Rate Adjusted by CPI Annually • No Defined Benefit on Compensation above Cap (Including DBS) • Employers Can Offer Defined Contribution (e.g., Employer TSA) for Compensation over Cap (rate cannot exceed DB rate) – more info to come • STRS will apply Cap to member and employer contributions • PERS will apply Cap only to member contributions

6. Types of Pensionable Compensation • New Type Restrictions Apply Only to New Members • Only Base Salary Paid on Salary Schedule Counts toward DB • Excludes Most Special Compensation (No CC6) • Salary Schedule Must be Publicly Available • Retirement Boards Have Authority to Make Other Exclusions

7. Types of Pensionable Compensation

8. Member Contributions • New Members • Normal Cost – The cost to provide the current year’s benefit for services performed by today’s members. A lesser benefit (formula) will have a lower normal cost. This does not include unfunded liability/surplus for previous years. • ** Applies to TCOE, Tulare Jt. Union, Farmersville, COS

9. Member Contributions - Continued • Current Members

10. Employer Contributions • New Members

11. Employer Contributions - Continued • Current Members

12. STRS Employer/Member Contributions

13. PERS Employer/Member Contributions

14. Benefit and Notification Requirements • Felons Forfeit Pension Benefits • Member forfeiture of pension benefits for job-related felony • Retains benefits prior to committing felony • Forfeiture processed upon conviction, retroactive to date of committing felony • Member & Prosecuting Agency – 60-day notice to public employer requirement • Public employer & Member – 90-day notice to applicable retirement system requirement • Notification procedures are pending the retirement systems’ implementation of procedures and forms. • Equal Health Benefits/Vesting • Public employers prohibited from providing better health benefits and health vesting to management • Seeking Counsel clarification that membership classification refers to classified and certificated, interpretation of extended retirement health benefits compliance, and of offering varying health vesting requirements • Varying health packages should be reviewed for compliance

15. Postretirement EmploymentCalSTRS • Retired Prior to 1/1/13 • Restrictions apply to employment with employers within CalSTRS • Earnings limit for 2012-13 is $40,011. • Narrow exemption in AB 178 extended through 2013-14. • Must take 6 month break or reach full retirement age. • Retired on or after 1/1/13 (in addition to above) • Must take 180-day break unless limited exemption is applicable. • Limited to critical vacancies • Must be at or above normal retirement age • Governing body approval through resolution at public meeting • No retirement incentive or financial inducement to retire from any public employer • Termination of services cannot be a factor in hiring • Required form and documentation must be received prior to the member beginning work

16. Postretirement Employment CalPERS • Retired prior to 1/1/13 • Restrictions apply to employment with employers within CalPERS • Limited circumstances for appointment • 960-hour limit for all employers within the same system • Hourly pay rate • Rate of pay tied to employees performing similar duties • Must meet full retirement age or wait 60 days • Retired on or after 1/1/13 (in addition to above) • Must take 180-day break unless limited exemption is applicable • Employer certification and/or governing body approval of exemption • If retiree received a retirement incentive, the waiting period is compulsory, no exceptions • Must meet full retirement age of applicable formula

17. CalSTRSDetermination of Tier • Individuals who are first hired to perform CalSTRS creditable activities before January 1, 2013. This includes: • Individuals that are placed on a district substitute list. • Were CalSTRS members before 2013, terminated membership, & return to active membership on or after 1/1/13. • Performed CalSTRS creditable activities even if they were subject to coverage under a different retirement system (elected CalPERS). • Individuals who are first hired to perform CalSTRS creditable activities on or after January 1, 2013. • The STRS system (SEW) will default the individual to the new formula if the initial set up is completed on or after 1/1/13, regardless of the effective date. The individual will be required to petition for the 2% @ 60 formula if they qualify. 2% @ 60 Formula - Current 2% @ 62 Formula - New

18. CalSTRS Permissive Member Election Form ES 350 Directions: Employee must complete all of “Employee Certification” section. Employer (school district) completes Employer section. Should be completed by the school district representative that provides the information and forms to the employees. Leave employee number and membership date blank. https://forms.calstrs.com/CalSTRSOnlineFormRequestWebUI/Root/Pages/OpenAttachment.aspx?FormId=0b9bcd0d-72bf-4d75-b3c4-1f072e1da663

19. CalPERSDetermination of Tier • An individual who became a member of CalPERS prior to 1/1/13. • An individual who became a member of a reciprocal system prior to 1/1/13, and moved to CalPERS within the reciprocity guidelines. • CalPERS membership must also meet reciprocity guidelines if the CalPERS membership was not under the School 2% @ 55 Formula. • An individual who has never been a member of any public retirement system prior to 1/1/13. • An individual who moved between public retirement and was not subject to reciprocity. • An individual who moved between public employers within a public retirement system after more than a six month break in service. 2% @ 55 - Current 2% @ 62 - New

22. Potential Follow-Up Legislation • Expand what agencies CalSTRS considers in determining a current member to recognize individuals who were first employed by a public employer to perform service subject to coverage in a concurrent retirement system on or before December 31, 2012. Intend to make it consistent with reciprocity which requires employee to have been employed to perform creditable service in the concurrent retirement system within the last six months. • Seek guidance to determine if the CalSTRS board can set rates. • Seek to change Cap on Creditable Compensation from calendar year to fiscal year.

23. System Modifications • New Tier 2 Retirement Plans for STRS and PERS • New plans can have member and employer rates different than from existing Tier 1 plans • New edits added to prevent reporting of non-pensionable special compensation for new members • Compensation caps may be added to ensure contributions do not exceed new limits • System bargaining units will allow for member payment of employer contribution

24. Draft SACS Input Screen

28. Follow-Up and Actions Needed • Human Resources • Determine if EPMC Bargaining Agreements are Impaired • Certify to PERS if EPMC Impaired – Form Pending • Review Special Compensation Payments for Modification of Salary Schedule to include in Base Salary • Verify all pensionable compensation is included in a publicly available salary schedule • Determine if needed and then amend Health Benefit Vesting Schedules if required • Ensure employer gathers enough information from new hires to determine correct tier • Submit any outstanding STRS Permissive Membership Election Forms (ES 350) to Tulare COE by 12/21/2012 • Monitor clean-up legislation • Determine sit out period when employees retire

29. Follow-Up and Actions Needed - Continued • Business • Notify TCOE when EPMC Agreement is Amended, Extended or Renewed to Coordinate Payroll System Changes • Review Independent Contractor & Third Party Agreements for New Postretirement Limitations • Contact TCOE before starting Employer Paid Contributions to a TSA for any New Member. • Watch for announcement for System Modifications Training Session January 8th – Doe Ave starting at 8:30 – (pending need) • CalPERS FAQs http://www.calpers.ca.gov/index.jsp?bc=/member/retirement/faq-pra-2013.xml • CalSTRS FAQs http://www.calstrsbenefits.us/post/frequently-asked-questions-ab-340-public-employees-pension- reform-act-2013

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