This blog post was authored by Alison Neufeld.
Since the enactment of the California Public Employees’ Pension Reform Act of 2013 (PEPRA), public agencies have awaited clean-up legislation addressing numerous drafting errors and ambiguities. On October 4, 2013, Governor Brown signed SB 13. Among other things, SB 13 establishes the following:
Initial contribution rate for new members
With limited exceptions, new members who participate in a defined benefit plan must have an initial contribution rate of at least 50 percent of the normal cost rate for that defined benefit plan, rounded to the nearest quarter of 1 percent, or the current contribution rate of similarly situated employees, whichever is greater. SB 13 makes clear that where the initial contribution rate for new members is greater than 50 percent of the normal cost rate, the greater contribution rate must have been agreed to through the collective bargaining process. (Gov. Code section 7522.30(c).)
New defined contribution plans
Effective January 1, 2013, new defined benefit plans or formulas must either conform to PEPRA or be certified as having no greater risk or cost than the defined benefit formula required by PEPRA, and must be approved by the Legislature. (Gov. Code section 7522.02(d).) Employers are prohibited from providing new members with a supplemental defined benefit plan. (Gov. Code section 7522.18(a).) However, if an employer’s retirement plan consisted only of a defined contribution plan prior to January 1, 2013, the employer may continue to offer that plan instead of the defined benefit plan required by the PEPRA. (Gov. Code section 7522.02(d).) SB 13 clarifies that an employer may offer a new defined contribution plan after January 1, 2013, even if the employer did not offer one prior to January 1, 2013. (Gov. Code section 7522.02(e).)
Postretirement health benefit vesting schedules
The PEPRA prohibits a public employer from providing a public employee who is elected or appointed, a trustee, excluded from collective bargaining, exempt from civil service, or a manager with a health benefits vesting schedule that is more “advantageous” than that provided to other public employees, including represented employees, of the same public employer who are in related retirement membership classifications. (Gov. Code section 7522.40.) SB 13 provides that employers are not required to change the vesting schedule for postretirement health benefits of an employee who was subject to the vesting schedule prior to January 1, 2013, even if it is more advantageous than that provided generally to other public employees in related retirement classifications. (Gov. Code section 7522.40(a)-(b).)
Generally, a retired annuitant may not be employed by a public employer in the same retirement system without reinstatement unless he or she meets various requirements, including a 180-day break in service. (Gov. Code section 7522.56(f).) The PEPRA establishes an exception from the 180-day break in service requirement for public safety officers and firefighters. SB 13 adds the condition that the exception only applies where the employee returns to perform a function regularly performed by a safety officer or firefighter. (Gov. Code section 7522.56(f)(4).)
Previously, it was unclear whether public employers and employees participating in multiemployer pension plans collectively bargained under the Taft Hartley Act were subject to the PEPRA. SB 13 provides that such plans are not subject to the PEPRA where the public employer became a participant prior to January 1, 2013, and the plan is subject to ERISA. Thus, collectively-bargained multiemployer pension plans that include both public and private employers are not subject to PEPRA. (Gov. Code section 7522.02(a)(4).)
In addition, SB 13 exempts public transit employees pending the federal district court’s ruling on a lawsuit filed by the State of California challenging the U.S. Department of Labor’s determination that PEPRA interferes with the negotiated pension rights of transit workers, or until January 1, 2015, whichever comes sooner. (Gov. Code section 7522.02(a)(3)(A)-(B).) This matter is addressed more extensively in AB 1222, which was also signed by Governor Brown on October 4, 2013, as discussed below.
AB 1222 temporarily exempts transit workers from the provisions of the PEPRA and authorizes loans from the State Transportation Fund to local mass transit providers. This legislation stems from the U.S. Department of Labor’s decision to deny federal transit grants to the Sacramento Regional Transit District and Caltrans because of PEPRA.
According to the U.S. Department of Labor, PEPRA interferes with the negotiated pension rights of transit workers hired after January 1, 2013, and diminishes unions’ rights to bargain over pension rights in violation of section 13(c) of the federal Urban Mass Transportation Act of 1964. Section 13(c) protects the collective bargaining rights and pension rights of transit agency workers as a condition to the agency’s receipt of federal transit funds.
As a result of the U.S Department of Labor’s decision not to certify the federal transit funds, more than eighty California transit agencies stand to lose more than $1 billion in federal transit funds. AB 1222 is designed to fill that gap pending the outcome of a lawsuit in federal court filed by the State of California, through Caltrans, and the Sacramento Regional Transit District, against the U.S Department of Labor. The lawsuit was filed on October 4, 2013, the same day AB 1222 was signed into law.
In the lawsuit, the State alleges that the U.S. Department of Labor’s decision is improperly based on the collective bargaining rights of prospective employees who have not yet been hired, as well as current employees. Under California law, individuals have no vested right to any benefits prior to accepting employment. The U.S. Department of Labor’s determination is based on case law interpreting the federal National Labor Relations Act (NLRA), which does not apply to state or federal public employees.
AB 1222 exempts transit workers from the provisions of the PEPRA until the federal district court issues its decision or January 1, 2015, whichever is sooner. We will keep you apprised of developments in the litigation.