Copyright© 1999 by School Services of California, Inc.
New Retirement Age Legislation Gaining Support
Legislation that would create a new formula for reducing the minimum retirement age to 50 for state and school members of the Public Employees' Retirement System (CalPERS) is moving through the legislative process without any opposition. The bill, SB 400 by Senator Ortiz (D-Sacramento) is omnibus legislation that makes various improvements in the benefits provided to state and school member of CalPERS.
In addition to changing the minimum retirement age to 50, the bill would provide a retirement benefit factor of 2% at age 55 increasing to 2.7% at age 65 and above. This formula will supercede the present 1/50th at age 60 formula and the modified 1/50th at age 60 formula for state and school members for both past and future service.
Other Provisions
The bill would provide a 2% to 5% ad hoc retirement allowance increase, effective January 1, 2000, for state and school retirees who retired prior to December 31, 1999. This increase would be in addition to the annual cost of living allowance and supplemental payments from the Purchasing Power Protection Act. Retirees who retired from 1996 to present would receive a 2% increase, 1995 retirees would receive a 3% increase, 1994 retirees would receive a 4% increase, 1993 retirees would receive a 4.5% increase and retirees who retired in 1992 or before would receive a 5% increase.
SB 400 contains provisions that would change the method of calculating the average monthly compensation used in computing retirement allowances for school members who retire on or after January 1, 2000 from an average of 36 consecutive months to the highest 12 consecutive months. This provision is identical to language contained in AB 821, which is also proceeding through the legislative process. At some point, this provision will be deleted from SB 400 or AB 821 in order to allow one bill with this provision to proceed to the Governor's desk.
Fiscal Impact
According to CalPERS, the use of excess assets to finance these benefits for the state would be $5.4 billion and for the schools $2.7 billion. With the approval of the benefit equity package, the excess assets will total approximately $10.4 billion for the state and $7.2 billion for schools. Thus, the remaining excess assets will be approximately $4.9 billion for the state and $4.4 billion for schools.
The state's contribution to CalPERS is about $766 million for the 1998-99 fiscal year. This has been reduced to $463 million for the 1999-00 fiscal year and would be further reduced to $160 million for the 1999-00 fiscal with the successful enactment of SB 400. The increased contributions of about $600 million for the cost of these benefits will not begin until the 2001-02 fiscal year.
Support for the Bill
SB 400 is sponsored by CalPERS to resolve inequities between various classes of membership within CalPERS. According to CalPERS, employer retirement costs have been declining over the last ten years as the result of significant investment returns and changes in actuarial assumptions. The members and retirees of CalPERS have not benefited from these returns.
SB 400 passed the Senate on a 35-0 vote and is expected to pass the Assembly by the end of August. However, there is a great deal of uncertainty regarding the Governor's position on the legislation. Supporters of the bill believe that the Administration may be using SB 400 as a bargaining "chip" in the negotiations over state employee pay raises. It is speculated that the Governor wants to reduce the costs of the bill in order to more comfortably afford the increase in pay for state workers. The provision of the bill that applies to school members doesn't seem to be a major "sticking" point but school members may lose out if state workers and the Administration are not able to reach a compromise on SB 400 and their pay increases.
-- Arnold Bray