PEPRA – SOME SPECIFIC ISSUES

Bob Blum Hanson Bridgett LLP November 28, 2012

For Discussion

• • • • • 37 Act issues Elected officials Actions by 12/31/2012 Reciprocity and hiring process Vested rights issues HANSON BRIDGETT LLP 2

37 Act Issues

HANSON BRIDGETT LLP 3

Current Key Issues – 37 Act

• • • • • • • New member contributions Pensionable compensation Ventura settlements Safety Disability benefits Return to work Cost sharing Hiring process HANSON BRIDGETT LLP 4

New Member Contributions

• • • New members pay 50% of “normal cost” Questions – Interest rate used to determine normal cost – Normal cost for the system or for the benefit level – Age-based contributions or flat rate – COLA contributions Who decides – Board of retirement HANSON BRIDGETT LLP 5

Pensionable Compensation Current Members • • • AB 197 - 31461 amended BOR may determine if “paid to enhance” benefit – E.g., previously paid in kind and converted; one time or ad hoc; solely due to termination (except if earned and payable in 12 month FAS period) Excludes payment for unused leave time if exceeds what is earned and payable in 12 month FAS period HANSON BRIDGETT LLP 6

Pensionable Compensation Current Members (2) • • Excludes payment for services outside of normal working hours 31461(c) questions – Says exclusions are “intended to be consistent with” two court decisions – Needed? Or “belt and suspenders’?

HANSON BRIDGETT LLP 7

Pensionable Compensation New Members • • Govt Code 7522.34

– – Goal: uniform for all public systems “Normal monthly rate of pay” or “base pay” Questions – “Base pay” only?

– Other pay for service performed such as: shift differentials? Bilingual? Certifications?

– Paid to all employees in a group or class who do the same job?

– What about uniform or car allowances? HANSON BRIDGETT LLP 8

• Pensionable Compensation New Members (2) Exclusions – Determined by BOR as paid to increase benefits – Previously paid in kind and converted to cash – One time or ad hoc payments – Severance – Payoff of unused leave time – Services outside normal working hours – Allowances or reimbursement (e.g., uniforma) – Compensation for overtime if not in 29USC207(k) – Contributions to deferred comp or DC plans – Bonuses – Anything the BOR decides should be excluded HANSON BRIDGETT LLP 9

Pensionable Compensation County Reporting • • 31542.5 reporting and audit cost – County must report comp in accord with 31461 – BOR may charge the county the cost of audit, etc if the county “knew or should have known” the reporting was wrong 31543 audit – BOR may audit the county for comp reported, service reported, etc.

HANSON BRIDGETT LLP 10

Pensionable Compensation Challenges • • 31542 requires the BOR to establish a procedure to determine if comp was paid to enhance a member’s retirement benefit The member or the county may challenge the BOR decision – Evidence is required – Petition for writ of mandate may be filed after BOR decison HANSON BRIDGETT LLP 11

Pensionable Compensation Ventura Settlements • • • • • Ventura settlements commonly apply to current and future members They may conflict with PEPRA, for both current and new members Current may have vested rights New probably do not Question: should there be an application to a court to modify the settlement?

HANSON BRIDGETT LLP 12

Safety Disability Benefits

• • 7522.66 increases safety disability benefits to the greater of – 50% of final comp + an annuity purchased with the member’s contributions – The service retirement allowance – If younger than 50, an actuarially reduced factor times years of safety service under the plans’ formula if he/she is not eligible for service retirement Question – was this intended to apply to 37 Act systems? HANSON BRIDGETT LLP 13

Return to Work Rules

• • Does the 180 gap apply to already employed retirees?

– What about already retired and not employed?

How do the new rules fit with the tax rules – Tax: retire before or after normal retirement age – PEPRA: age is irrelevant – Tax: must “separate from service” – PEPRA: “critically needed”; safety officer or firefighter HANSON BRIDGETT LLP 14

Cost Sharing

• The county, “without a change in benefits”, may require that members pay all of part of the member or employer contributions or both – Must be bargained up to 2018 – Uniform for all members of a bargaining unit or uniform for all “local miscellaneous”, county peace officers, local safety members not covered by new member PEPRA formula – May be imposed 1/1/2018, with caps HANSON BRIDGETT LLP 15

Hiring Employees

• • Reciprocity and new members – – Not “new” if “subject to reciprocity” How does county find out?

– – What happens if the county is wrong?

What can you do to limit error?

Return to work – Limits on return to employer in the system – – How do you find out?

What happens if the county is wrong?

– What can you do to limit error?

HANSON BRIDGETT LLP 16

Elected Officials - PERS

HANSON BRIDGETT LLP 17

PERS –Basic Rules

• • • Elected officer excluded from PERS unless affirmative election to be a member(20322) – At any time before retirement may elect to receive service credit for prior excluded service if makes required contributions No change in these rules if current member – Should be able to purchase service because it should be OK under Int Rev Code 415(n)(3) Also, airtime can be purchased up to 12/31/2012 on usual conditions HANSON BRIDGETT LLP 18

PERS – Current or New Member?

• • Not “new” if not in this group – First become a member after 2012 – First become a member after 2012 without reciprocity – Return to PERS with new employer after a break of 6 months Does your county have one year reciprocity for elected officials?

– PERS – 20356 (In PERS contract before 2002) – 37 Act – 31840.6

HANSON BRIDGETT LLP 19

PERS – Current or New Member(2)

• Examples – First choose to be covered by PERS after 2012 – Was PERS member with agency X, left in 2012, elected to office in agency Y in 2014 – Was PERS member with agency X, left in August 2014, elected to office in agency Y in November 2014 and takes office in January 2015 – Same as above but agency X was in 37 Act system – Was PERS member with agency X, left in 2012, elected to office in agency X in 2014 HANSON BRIDGETT LLP 20

PERS – New Member

• • Is 2% @ 62 mandated?

7522.01(g) says that PEPRA “shall not be construed to provide membership “in PERS if the person is not otherwise eligible – Members of BOS are eligible – But to be covered they must elect in – Note that per 20899 elected officials are deemed to be full time HANSON BRIDGETT LLP 21

PERS - Benefit

• • • • • New BOS members have the same rules as other new members 2% @ 62 Pay at least 50% of normal cost Base comp Comp limited to $113k or $136k depending on social security coverage (2013 limits) – Final comp for period of elective service = HAC earnable during elective office (20039) – Question – has this changed? (7522.32(a)) HANSON BRIDGETT LLP 22

PERS - EMPC

• • EPMC allowed for current members. See 20322(f) – No EPMC for new members Should the county pay EPMCs for members of the BOS?

– The PEPRA “standard” is that all members pay at least 50% of normal cost HANSON BRIDGETT LLP 23

Elected Officials – 37 Act

HANSON BRIDGETT LLP 24

37 Act – Basic Rules

• • Elected officer excluded from system unless affirmative election to be a member (31553) – May elect to receive service credit for prior county service if makes required contributions No change if current member – Should be able to purchase prior service – Airtime can be purchased up to 12/31/12 (31640.7) on usual conditions HANSON BRIDGETT LLP 25

37 Act – Current or New Member

• Are you a current or new member? – Same rules as for PERS HANSON BRIDGETT LLP 26

37 Act – New Member Benefits

• • Is 2% @62 mandated?

37 Act different from PERS – Says that member of BOS is “ineligible” for membership is does not elect to be a member – If “ineligible” then 7511.01(g) seems clear – if not “eligible” then PEPRA does not require coverage HANSON BRIDGETT LLP 27

37 Act Benefits – New Members

• Same as for PERS HANSON BRIDGETT LLP 28

37 Act – “Pick Ups”

• No pick ups for new members HANSON BRIDGETT LLP 29

PERS and 37 Act – Other Issues

HANSON BRIDGETT LLP 30

Social Security

• IRS – members of the BOS are “employees” and social security and medicare taxes are due on their compensation – No “out” if county is social security agency – If not SS agency, then exclusion if BOS members are covered by a sufficient retirement plan – Question – does your county comply?

– IRS follows same rule for compensated members of advisory boards, commissions HANSON BRIDGETT LLP 31

Retiree Health Vesting

• • Elected officials may not have a vesting schedule for retiree health benefits that is “more advantageous” than the schedule for other county employees “who are in related retirement membership classifications” – This affects only “vesting”, not benefits – – What is “more advantageous”?

What are “related retirement membership classifications?

Question – does this affect only new employees?

HANSON BRIDGETT LLP 32

Actions by 12/31/2012

HANSON BRIDGETT LLP 33

For Consideration

• • • • New, lower PERS tier for new hires who are not new members – PERS administrative rule New, lower tier 37 Act tier for new hires – 31485.9 and ability to bargain for lower benefits – 7507 actuarial report and hearing 37 Act Replacement Benefit Plan amendment Placeholder - supplemental DB plan HANSON BRIDGETT LLP 34

Reciprocity

HANSON BRIDGETT LLP 35

Determining Reciprocity

• • • Key for determining pension benefits for new hires – Affects cost & cost sharing – Affects recruiting Fact based determination Hiring process should be changed ASAP – Fact based questionnaire – To determine if reciprocal – To determine if new return to work rules apply HANSON BRIDGETT LLP 36

Possible Vested Rights Issues

HANSON BRIDGETT LLP 37

Some Possible Vested Rights Issues – Current Employees • • • Additional member contributions Pensionable compensation and Ventura settlements (37 Act) Ability to purchase airtime HANSON BRIDGETT LLP 38

Questions

HANSON BRIDGETT LLP 39