On August 31st, 2012

Legislature passes Pension Reform Act

All employees will contribute more - new hires will see reduced benefits

It is as though the pension changes that were achieved in 2010 and 2011 never happened.  In 2010 the former Administration legislated changes to the pension formulas for employees hired subsequent to January 15, 2011. The changes altered the 3%@50 formula to 2.5%@55 for Unit 7 Peace Officer Fire Fighters (POFF) and reduced the 2.5% @55 benefit to 2%@55 for Unit 7 Safety members. 

In 2011, CSLEA did reach agreement with the current Administration to increase employee contributions by requiring all Unit 7 POFF (both existing and new hires) to pay an additional 2% towards their retirement; Unit 7 Safety members were required to pay an additional 3%. 

What these changes demonstrate is that significant pension reform has already occurred, both at and away from the bargaining table.  So why the need for greater reform today?  The Administration is concerned that absent demonstration that the "perceived" pension problem is being addressed, voters are not likely to pass the Governor's tax initiative come November.  Also, despite the criticism from some legislators that the cuts in the Pension Reform Act are not drastic enough, representatives do not want to be on record as voting against reform.  As a result, on August 31, 2012, the very last day of session, the Legislature passed AB 340 ("the Pension Reform Act").

As the bill in its present form was just introduced Wednesday, everyone (including CalPERS) is attempting to analyze and understand the 60 page content. In fact, clarifying amendments were introduced just prior to passage. The following are what CSLEA has determined to be the principle changes to pension benefits. Please note, the majority of changes are applicable to employees hired on or after January 1, 2013 ("New Hires").

 

                                Formula Changes  - New hires

 

                                Unit 7 PO/FF -  The 2.5%@55 benefit will be modified to 2.5%@57                        

 

                                Unit 7 Safety Members - The 2%@55 benefit will be modified to 2%@57 

 

                                           Increased Pension Contributions - All Employees

The Pension Reform Act requires all employees to share equally with the State in paying

for the normal cost of the employee's pension.

                                               

                                                POFF -   1.5% increase effective July 1, 2013

                                                                1.5% increase effective July 1, 2014

 

                                    Safety - 1% increase effective July 1, 2013

                                                 1% increase effective July 1, 2014

 

                NOTE:  There is some question whether the Act authorizes increases to contributions  for

                existing State employees prior to exhaustion of the collective bargaining process. It appears

                that the grace period which requires collective bargaining applies to local agencies only.

 

                                Air Time/Retroactive Pension Enhancements - All Employees

 

  • Effective January 1, 2013, employees will be prohibited from purchasing nonqualified service

           credit, otherwise known as Air Time.

  • Any enhancements to retirement benefits shall only apply prospectively. Enhancements shall not apply to prior service.

 

                                                Felony Conviction - New Hires

 

                An employee who is convicted of a felony "arising out of or in the performance of his

                or her official duties" shall forfeit his/her pension entitlement. The employee shall be

                entitled to a refund of his/her contributions without interest.   

 

                                               

                36 Month Average and Changes to Pensionable Compensation - New Hires

 

  • Calculation of compensation upon which pension is based shall be average annual compensation  over highest consecutive 36-month period.  (This is already the case

          for Unit 7 non-sworn hired after January 1, 2007).

  • Eliminates the following from pensionable compensation:

          pay intended to spike pension; severance pay; payments for unused vacation, annual leave, personal leave, CTO; allowances such as uniform, vehicle, housing; overtime  (other than that   built in to the employee's normal work schedule.) The amount of pensionable  compensation for employees covered by Social Security is $110,000 and $132,000 for employees exempt from Social Security (to be adjusted annually).

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