Docstoc

CONTROLLING PENSION CONTRIBUTION COSTS - California

Document Sample
CONTROLLING PENSION CONTRIBUTION COSTS - California Powered By Docstoc
					Defending Public Employment in
    Tough Economic Times

  California Transit Association’s 46th
        Annual Fall Conference
   Meeting Budget Constraints While Complying with Legal
                     Requirements

                      Judy Boyette
                   Hanson Bridgett LLP
                      San Jose, CA
                    November 3, 2011
               Talk About
• What is “reform”?
• Cost Control - Legal landscape
  – Vested rights
  – PERL, CERL, Stand-alone Transit Pension
    Systems and vested rights
• Saving money
  – Short and longer term focus
  – Governor’s Proposal

                                              2
Pension Reform—Risky Business




                                3
       Reform Is Focused On
• “High” benefits
• Out of sync with private sector
• Cost
• Unfunded liabilities
• Improper influence
• Hidden liabilities
Issues with both pension and retiree medical

                                               4
  Reform Is Not Focused On--
• 21st Century workforce needs
• Competition for talent
• Overall compensation package




                                 5
LEGAL LANDSCAPE –
  VESTED RIGHTS




                    6
      What Are Vested Rights
• Retirement benefit promised during
  employment with public agency
• Accrues on acceptance of employment
  – Even if still forfeitable for years
  – For entire length of employment with agency
• Limited ability to change for future service
  under current case law
• No vested rights for new employees

                                                  7
     Basis For Vested Rights
• California & U.S. Constitution
• No impairment or interference of contract
• Terms of contract determine what rights
  are vested and extent of vesting
• California Supreme Court review of retiree
  medical case—Orange County retirees—
  can there be an “implied contract” for
  retiree medical benefits?

                                               8
   General Limits On Change-
    Vested Rights in Pension
• Made to keep a pension system “flexible”
  to meet “changing conditions” and
  “maintain the integrity” of the system
• Reasonable change
• Material relation to the “theory of a
  pension system” and successful operation
• “Should” have “comparable new
  advantages”

                                             9
         Contract Governs
• No interference with contract terms
• What are the terms?
• Do terms allow adverse change?
• San Diego Firefighters [34 Cal. 3d 292
  (1983)]
• Any contract can be changed by mutual
  consent


                                           10
New Theories Re Vested Rights
• ERISA rule
  – Pension earned to date of change is vested
  – Future accruals can be reduced for current
    employees
  – Based on different reading of court decisions
• Collective Bargaining Rule
  – MOU established current benefits
  – New MOU can establish lower benefits
  – Based on collective bargaining to establish contract


                                                           11
  LEGAL LANDSCAPE –
SPECIFIC PROVISIONS OF
       SYSTEMS




                         12
       Examples-PERS Law
• Gov. Code 20475 – Reduce benefits for
  new members
• Gov. Code 20479 – Same benefits for all
  members in a classification
• Gov. Code 20516 – Cost sharing –
  optional benefits
• Gov. Code 20532 - Employer
  contributions

                                            13
          Examples—’37 Act
            (County)Law
• Gov. Code 31483 - a provision made applicable
  by ordinance or resolution can be terminated for
  new hires
• Gov. Code 31484 et seq - particular county
  focused sections that allow current employees to
  elect lower benefits
• Gov. Code 31485.9 - for general members,
  “same for all” rule except for new hires pursuant
  to MOU
• Gov. Code 31485.9 - “no impasse” rule for “any
  retirement contract amendment”
                                                  14
     More Examples- ‘37 Act
           Sections
• Gov. Code 31678.2(a) – can the BOS
  reduce the pension formula for current
  employees for future service?
• Gov. Code 31678.2(b) – the cost of a
  retroactive formula can be charged to the
  employees
• Gov. Code 31874 - COLAs are not
  applicable unless adopted by county
  ordinance
                                              15
  Stand-Alone Transit Pension
           Systems
• What does your plan say?
• What is your “plan document”?
• What is process for change?




                                  16
LEGAL LANDSCAPE –
     TAX LAW




                    17
              Tax Pick Ups
• IRC 414(h)(2)
• “Tax dance” turns employee into employer
  contributions
  – Agency resolution
  – Earnings from future service
• Controversy about pick up of re-deposits
  and service purchase through payroll
  deduction

                                             18
       Specific Tax Pick Ups
• EPMCs
• Cost sharing – Optional benefits
  – PERS-Gov. Code 20516(a)
  – PERS-Gov. Code 20516(f)
• Optional benefits include
  – One year final comp vs 3 year average
  – Benefit formulas higher than 2% @ 60
    (miscellaneous) and 2% @ 55 (safety)
  – COLA over 2%
                                            19
    Choice Between Formulas
• Strategy of choice—employees and unions like
• Limited choice in PERS Law; number of specific
  CERL sections allowing choice
• Check stand-alone plan terms
• New employees – no tax issue if done right
• Current employees with tax pick ups in place
   – IRS – if choice available, then contributions
     not pre-tax—but can have after tax member
     contributions


                                                     20
SAVING MONEY –
     NOW




                 21
          “Now” Strategies
• Eliminate EPMCs and Pickups
• Employees pay for optional benefits under
  PERS
• Ways to shift costs to employees now
• Immediate cost reduction to agency




                                              22
 Paying for Optional Benefit Under
        PERS- Agreement
• Requires an “agreement”
  – Gov. Code 20516(a) – before optional benefit
    in contract—part of normal contributions
  – Gov. Code 20516(f) – after optional benefit in
    contract—not clear if part of normal
    contributions
• Unrepresented?
  – How do you have an “agreement”?


                                                     23
   Some Other “Now” Actions?
• Employees pay % of employer contribs?
   – Check terms of plan
     document/statute/ordinance
• Can county/employer bargain for employees to
  pay part of employer contributions?
   – Compensation issue?
   – Because one county has amendment to
     cover, does everyone need one? (Gov Code
     31639.9 and 31639.95)

                                                 24
   Some Other “Now” Actions?
• Exclude all new employees from PERS and
  leave current employees in PERS?
   – Gov. Code 20502 – mandatory inclusion of all
     in a classification
   – Gov. Code 20303 – mandatory exclusion of
     all in a classification (agency has its own plan
     covering new employees)
• Cost savings?
• Can current employees opt in? (Tax issues)

                                                    25
LONGER TERM




              26
              Review Goals

•   Total cost
•   Cost stability
•   Reasonable level of benefits
•   HR – recruit and retain
•   Resolve political issue



                                   27
            Leave PERS?
• Gov. Code 20570 et seq-Termination
  – Divorce is not easy and can be expensive
  – Vested rights to be in PERS?
  – PERS’ responsibility for benefits
• Gov. Code 20585-Spinoff from PERS to
  ‘37 Act System
  – Spinoff vs termination
  – PERS’ not responsible for benefits

                                               28
   Benefit And Contribution Level
    Choice – Current Employees
• Choice between high benefit/high member
  contribution and low benefit/low
  contribution?
  – Gov. Code 20550 – Riverside County only
  – Gov. Code 31484 et seq – A number of CERL
    counties
• Note the tax issues for current employees
  – Different tax rules for new employees


                                              29
Potential New Types of Benefits
For example -
• “Hybrid” = DB + DC(401(k) type)
• “Hybrid” = cash balance
• Variable benefit with fixed contributions
• Stable benefit with variable contributions
  (both employee and employer)



                                               30
                 Two Tier
• PERS § 20475
• Delayed savings
• History – revert back to one tier




                                      31
 Governor’s 12-Point Proposal
• Released 10/27/11
• Applies to state, local, school and other
  public employers
• New and Current Employees-as “legally
  permissible”—Note: Most dramatic change
  is for new employees (essentially “two
  tier”)
• Some union reps saying that it attempts to
  evade the bargaining process
                                           32
    Gov’s Proposal-continued
• Equal sharing of pension costs: All
  employees and employers (phase-in to “at
  least” 50/50 sharing)
• “Hybrid” Risk-Sharing Pension Plan: New
  employees
  – DB + DC + Social Security= 75% replacement
  – 75% at 30 yrs. Safety and 35 yrs. Misc.
  – Cap on DB for high earners (no
    “unreasonable” burden on employers)
                                             33
    Gov’s Proposal-continued
• Increase Retirement Ages: New
  employees. Age 67 (same as Social
  Security)
  – Also reduces retiree health benefit costs if
    coordinate with Medicare
• Require 3-yr Final Compensation
  (Spiking): New employees
• Benefits Based on Regular Pay (Spiking):
  New employees
                                                   34
    Gov’s Proposal-continued
• Limit Post-Retirement Employment: All
  employees
• Felons Forfeit Pensions: All employees
• Prohibit Retroactive Increases: All
  employees
• Prohibit Pension Holidays: All employees
  and employers


                                             35
    Gov’s Proposal-continued
• Prohibit Purchases of “Air Time” Service
  Credit: All employees
• Increase Pension Board Independence
  and Expertise—starts with PERS
• Reduce Retiree Health Care Costs: State
  employees
  – All new employees: must have 15 yrs to get
    any employer contrib.; 25 yrs. to get max.
    state contribution; must enroll in Medicare
                                                  36
             Thank You
Judy Boyette
jboyette@hansonbridgett.com
415-995-5115




                              37

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:0
posted:5/22/2013
language:Unknown
pages:37