BILL NUMBER: SCA 18 INTRODUCED
BILL TEXT
INTRODUCED BY Senator Huff
(Coauthors: Senators Anderson, Berryhill, Blakeslee, Cannella,
Dutton, Emmerson, Fuller, Gaines, Harman, La Malfa, Runner,
Strickland, Walters, and Wyland)
FEBRUARY 22, 2012
A resolution to propose to the people of the State of California
an amendment to the Constitution of the State, by adding Section 12
to Article VII thereof, and by amending subdivision (f) of Section 17
of Article XVI thereof, relating to public employees' retirement.
LEGISLATIVE COUNSEL'S DIGEST
SCA 18, as introduced, Huff. Public employees' retirement.
(1) Existing law establishes various public agency retirement
systems, including the Public Employees' Retirement System (PERS),
the State Teachers' Retirement System (STRS), the Judges' Retirement
System II, and various county retirement systems pursuant to the
County Employees Retirement Law of 1937, among others, and these
systems provide defined pension benefits to public employees based on
age, service credit, and amount of final compensation. The
California Constitution permits a city or county to adopt a charter
for purposes of its governance that supersedes general laws of the
state in regard to specified subjects, including compensation of city
or county employees. The California Constitution also establishes
the University of California as a public trust with full powers of
organization and government, subject only to specified limitations.
Charter cities and the University of California may establish pension
plans under their respective independent constitutional authority.
These pension systems are funded by employee and employer
contributions and investment returns. Existing law provides that
public employee pension benefits are a form of deferred compensation,
the right to which vests in the employee on contractual principles
and is protected from impairment by the California Constitution and
the United States Constitution.
This measure would require each public retirement system, as
defined in statute, to provide one or more hybrid pension plans
meeting the requirements of this measure to each public employer that
provides its employees a defined benefit pension plan administered
by the public retirement system. The measure would require that a
hybrid pension plan consist of a defined benefit component and a
defined contribution or alternative plan design component, as
specified. The measure would require, among other things, that a
hybrid pension plan be designed with a goal of providing annually
during retirement, based on a full career in public service, as
defined, replacement income of 75% of a public employee's final
compensation. The measure would require the Director of Finance, on
or before January 1, 2013, to establish initial criteria and
requirements for one or more hybrid pension plans, as specified. The
measure would require, on and after July 1, 2013, each public
retirement system to administer, and make available to each public
employer that provides a defined benefit pension plan, one or more
hybrid pension plans, except as specified, for public employees hired
in each member classification in the public retirement system.
The measure would require, for public employees hired on and after
January 1, 2013, that retirement benefits be limited as provided,
with regard to a defined benefit that is calculated with reference to
final compensation, as specified, that final compensation be
calculated using at least a consecutive 36-month period of service.
The measure would establish various other limitations on the
retirement benefits offered by public employers to public employees,
regardless of the date the employees are hired, to the fullest extent
permissible under the United States Constitution. In this regard,
the measure would require that any change to a formula or benefit
resulting in an increase in a member's pension benefits shall apply
only to service performed on and after the operative date of the
change and would require that employers and employees make required
payments to fund the normal cost of benefits, as specified. The
measure would require public employees to contribute at least 1/2 of
the normal costs of any defined benefit plan and would prohibit an
employer from paying an employee's required contributions, except as
specified. The measure would also prohibit retirement systems from
granting any nonqualified service credit, as specified.
The measure additionally would require that a public employee, who
is convicted of any felony arising from his or her official duties,
forfeit retirement benefits based on certain statutes. The measure
would limit the amount of service that a retired public employee may
perform for public employers. The measure would provide that neither
its provisions nor any related statutory provisions apply to, or
otherwise restrict, death, survivor, and disability benefits, except
as specified. The measure would provide that labor contracts that are
in effect on November 7, 2012, and that are in conflict with the
measure's provisions remain in effect until the expiration of the
contract, at which time the requirements of the measure would apply.
The measure would specify that terms used in those provisions are to
be defined in a specified statute and would permit the Legislature to
amend specified statutes referenced in the measure's provisions by a
2/3 vote of the membership of each house by a statute that is
consistent with and furthers its purposes.
The measure would provide that the activities, programs, and
levels of service associated with its provisions are not
state-mandated local programs requiring a subvention of funds.
(2) The California Constitution prohibits the Legislature from
changing the composition of the retirement board of a public pension
or retirement system that included elected employee members as of a
specified date, including the number, terms, and method of selection
and removal of members, unless the change is ratified by a majority
vote of the electors of the jurisdiction in which the participants of
the system are, or were, prior to retirement, employed.
This measure would require the composition of the retirement board
of a public pension or retirement system to be modified, in the
manner provided for in a specified statute, and would exempt that
modification from ratification by the electors.
(3) The measure would require the state to defend the
constitutionality of its provisions.
Vote: 2/3. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
Resolved by the Senate, the Assembly concurring, That the
Legislature of the State of California at its 2011-12 Regular Session
commencing on the sixth day of December 2010, two-thirds of the
membership of each house concurring, hereby proposes to the people of
the State of California that the Constitution of the State be
amended as follows:
First-- That Section 12 is added to Article VII thereof, to read:
SEC. 12. (a) Each public retirement system shall provide one
or more hybrid pension plans that meet the requirements of this
section to each public employer that provides its employees a defined
benefit pension plan administered by the public retirement system.
(1) To reduce employer risk and cost, a hybrid pension plan shall
consist of a defined benefit component, a defined contribution
component or alternative plan component, and, if applicable, benefits
under the federal Social Security Act (42 U.S.C. Sec. 301 et seq.).
The hybrid pension plan shall be designed with the goal of providing,
annually during retirement, replacement income of 75 percent of a
public employee's final compensation, based on a full career in
public service. The hybrid pension plan shall also be designed to
limit the combination of the defined benefit and the defined
contribution benefit at the amount of either (A) the contribution and
benefit base specified in Section 430(b) of Title 42 of the United
States Code, or its successor, for those eligible for social security
benefits or (B) 120 percent of the contribution and benefit base
specified in Section 430(b) of Title 42 of the United States Code, or
its successor, for those not eligible for social security benefits.
As used in this paragraph, "full career in public service" means 30
years of credited service and a normal retirement age of 57 for
public employees in safety member classifications and 35 years of
credited service and a normal retirement age of 67 for all other
public employees.
(2) On or before January 1, 2013, the Director of Finance shall
establish initial criteria and requirements for one or more hybrid
pension plans to be provided by a public retirement system for each
of the system's member classifications as specified in this section
and Section 7514.70 of the Government Code. Chapter 3.5 (commencing
with Sec. 11340) of Part 1 of Division 3 of Title 2 of the Government
Code does not apply to the activities undertaken by the Director of
Finance pursuant to this section.
(3) On and after July 1, 2013, each public retirement system shall
administer, and make available to each public employer that provides
a defined benefit pension plan, one or more hybrid pension plans for
public employees hired in each member classification in the public
retirement system. Each hybrid pension plan shall be consistent with
the goals, criteria, and requirements of this section and the
criteria and requirements established by the Director of Finance. A
public employer shall offer to its public employees first hired on
and after July 1, 2013, only a hybrid pension plan made available by
the public retirement system pursuant to this section, unless the
public employer has an alternative pension plan that is determined
and certified by the system's chief actuary and by the system's board
to have less risk and lower costs to the employer than any available
hybrid plans provided by this section.
(4) An action to obtain a judgment or writ restraining and
preventing the implementation or continued implementation of the
alternative plan pursuant to paragraph (3) may be maintained against
the retirement system actuary, the board of the retirement system,
the retirement system, and the employer challenging any of the
following: (A) the determination that the alternative plan is less
risky and less costly to the employer; (B) the authorization to offer
the alternative plan; or (C) the actual offer of the alternative
plan to employees. An action may be brought by any resident or
corporation that is assessed and is liable to pay, or within one year
before the commencement of the action, has paid, a tax within the
jurisdiction or geographical boundaries of the public employer. The
right to maintain an action described in this paragraph is in
addition to, and does not limit, any other right of action otherwise
provided in law.
(5) On and after July 1, 2013, to the extent possible while
preserving the beneficial federal tax treatment of contributions, the
hybrid pension plan or plans described in paragraph (3) shall be
made available to public employees who are members of, or eligible
for membership in, the employer's defined benefit pension plan, as
applicable to each member classification in the system prior to July
1, 2013.
(b) This subdivision applies to all public employees first hired
by a public employer on or after January 1, 2013, who are, or are
eligible to be, members of a public retirement system.
(1) For a defined benefit for retirement that is calculated by
multiplying the member's years of service by a percentage of the
member's final compensation based on age at retirement, final
compensation shall be calculated by using the member's highest
average payrate during at least a consecutive 36-month period of
service. Final compensation shall not include bonuses, unplanned
overtime, or payments for unused sick leave or vacation.
(2) To be eligible to apply for service retirement, a member shall
first be credited with five years of service and attain either 52
years of age for safety member classifications or 57 years of age for
all other public employees. If the minimum age requirements are
increased under the federal Social Security Act (42 U.S.C. Sec. 301
et seq.), the age requirements of this section shall increase by an
equal number of years for any new employee hired after the operative
date of the change in federal law.
(c) This subdivision applies to all public employers and to all
public employees who are members of a public retirement system,
regardless of the date the public employee is first hired by a public
employer, to the fullest extent permissible under the United States
Constitution. This subdivision shall not be construed to enlarge the
application of any paragraph of this subdivision, or a statute
referenced in a paragraph of this subdivision, that is limited to
particular types or classes of employees or members.
(1) Any change to a formula or benefit that results in an increase
in a member's pension benefits shall apply only to service performed
on and after the operative date of the change, and shall not be
applied to any service performed prior to the operative date of the
change, except as otherwise provided in Section 7503.71 of the
Government Code.
(2) Each public employer and each public employee who is a member
of a public retirement system shall make required payments to fund
the normal cost of the employee's defined benefit plan or component,
if any, of the employee's pension plan.
(3) Public employees shall contribute at least one-half of the
annual actuarially determined normal costs of any defined benefit
plan or component. The public employer shall not pay on behalf of a
member of a public retirement system any of the member's required
employee contributions.
(4) A public retirement system shall not grant to a member
nonqualified service credit, regardless of the manner in which that
service credit may be denominated, except as provided in Section
22826 of the Education Code and Sections 7503.74, 20899.5, 20909,
31486.35, and 31658 of the Government Code.
(5) If a public employee is convicted of any felony under state or
federal law for conduct arising out of, or in the performance of,
his or her official duties, his or her pursuit of an office or
employment, or in connection with obtaining salary, disability
retirement, retirement, or other benefits, he or she shall forfeit
retirement benefits in accordance with Section 1243, 1244, or 1245 of
the Government Code, as may be applicable.
(6) Any service performed by a public employee who has retired
from a public retirement system may be performed only to the extent
authorized in Section 7503.76 of the Government Code. Service that is
authorized shall not exceed a total of 960 hours or 120 full-time
days in a consecutive 12-month period for all public employers in
that public retirement system. A retired employee who serves on a
public board or commission shall not earn any retirement benefits for
that service unless he or she reinstates from retirement.
(d) The definition of terms contained in Section 7514.60 of the
Government Code govern the construction of those terms used in this
section.
(e) Except as expressly provided in this section or any of the
statutory provisions referenced in this section, neither this section
nor any of those statutory provisions apply to, or otherwise
restrict, any disability, death, or survivor benefits provided by a
public employer.
(f) If the terms of a contract, including a memorandum of
understanding, between a public employer and its public employees,
that is in effect on November 7, 2012, would be impaired by any
provision of this section or by any statutory provision referenced in
this section, that provision shall not apply to the public employer
and public employees subject to that contract until the expiration of
that contract. A renewal, amendment, or any other extension of that
contract shall be subject to the requirements of this section and the
statutory provisions referenced in this section.
(g) (1) The Legislature may amend a code section referenced in
this section, by statute passed by a two-thirds vote of the
membership of each house of the Legislature, only if the statute is
consistent with, and furthers the purpose of, this section.
(2) Any reference in this section to any code section refers to
that code section as it read on January 1, 2013, or as amended
pursuant to paragraph (1).
(h) Notwithstanding any other provision of this Constitution,
neither the activities, programs, or levels of service required by
the criteria or requirements established by the Director of Finance
pursuant to subdivision (a), nor the goals, criteria, requirements,
or definitions provided in the statutes referenced in this section or
statutes enacted pursuant to subdivision (g), shall constitute a
mandate requiring the State to provide a subvention of funds.
Second-- That subdivision (f) of Section 17 of Article XVI thereof
is amended to read:
(f) With (1)
Except as provided in paragraph (2), with regard to the
retirement board of a public pension or retirement system which
includes in its composition elected employee members, the number,
terms, and method of selection or removal of members of the
retirement board which were required by law or otherwise in effect on
July 1, 1991, shall not be changed, amended, or modified by the
Legislature unless the change, amendment, or modification enacted by
the Legislature is ratified by a majority vote of the electors of the
jurisdiction in which the participants of the system are or were,
prior to retirement, employed.
(2) The composition of the retirement board of a public pension or
retirement system shall be modified in the manner provided for in
Section 20090 of the Government Code, as that section read on January
1, 2013, and that modification is not subject to ratification by the
electors as described in paragraph (1).
Third-- That, notwithstanding any other provision of law,
including this Constitution, the state shall defend the
constitutionality of this act.