HomeMy WebLinkAbout3823_CCv0001.pdf RESOLUTION NO. 3823
A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDLANDS
OPPOSING THE USE OF P.E.R.S. PENSION FUNDS TO BALANCE THE
STATE BUDGET
WHEREAS , the Public Employees Retirement System was established
to guarantee the payment of retirement benefits to public employees
in the State of California; and
WHEREAS, the City of Redlands is a contracting agency with the
System; and
WHEREAS, the employees of and the City of Redlands, as members
of the System, have contributed funds; and
WHEREAS, said funds have been guaranteed for the purpose of
drawing benefits; and
WHEREAS, said contributions earn interest; and
WHEREAS, the Governor of the State of California has used PERS
pension fund money to balance the State budget by withholding
$180 million in state payments for two months; and
WHEREAS, the withholding of said payments could result in a
$1 .4 billion loss to the system; and
WHEREAS, legislation is needed to prevent such use of public
employee's pension funds; and
NOW, THEREFORE BE IT RESOLVED that the City Council of the
City of Redlands supports the revision of the Public Employees
Retirement Law to preclude the adverse impact of the system' s
earnings by making it illegal to tamper with PERS funds.
ADOPTED, SIGNED AND APPROVED this 6th day of April, 1982 .
4
r-df- h i ' q�f/"Red];4,hds
Cit
ATTEST:
4111 Jue-g,.,,,
Ci t� 'rk
CITY OF RANCHOU A ON A
3 f� � ,•r���rr
Charles J.Buquet 11 James C.Frost
Richard M.Dahl Phillip D.Schlosser'
1972
April 29, 1982
Governor Jerry Brown
State Capitol
Sacramento, California 96814'
Dear Governor Brown:
Enclosed is a certified copy of our Resolution No. 82-68, in opposition of
using PERS pension funds to balance the State budget. It further re-
quests revision to the Public Employees Retirement Lawto prohibit such
use in the future.
On behalf of the City Council;, I large you to express opposition to such
use of public employee'spension funds.
Sincerely,
� /WAX&,"
JonD. Mi kdl s
Mayor
JCMba
enclosure: Resolution No. 2-68
cc League of California Cities
Assemblyman William Leonard
Senator Robert Presley
Senator H. L. Richardson
San Bernardino County Cities
9320 BASELINE ROAD,SUITE C * POST OFFICE TIOX 807 - RANCHO t.L',t`A4tt?NG ,CALIFORNIA 91730 (71 ) $9-1851
RESOLUTION NO. 82-68
A RESOLMON OF THE CITY COUNCIL OF THE CITY OF
RANCHO CUCAMONGA, OPPOSING THE USE OF PERS PENSION
FUNDS TO BALANCE THE STATE BUDGET
WHEREAS, the Public Employees Retirement System was established
to guarantee the payment of retirement benefits to public employees in
the State of California; and
WHEREAS, the City of Rancho Cucamonga is a contracting agency
with the System; and
WHEREAS, the employees of the City of Rancho Cucamonga, as
members of the System, have contributed funds; and
WHEREAS, said funds have been guaranteed for the purpose of
drawing benefits; and
WHEREAS, said contributions earn interest; and
WHEREAS, the Governor of the State of California has used PERS
pension fund money to balance the State budget by withholding $180
million in state payments for two months; and
WHEREAS, the withholding of said payments could result in a
$1.4 billion loss to the system; and
WHEREAS, legislation is needed to prevent such use of public
employee's pension funds.
NOW, THEREFORE, BE IT RESOLVED that the City Council of the
City of Rancho Cucamonga supports the revision of the Public Employees
Retirement Law to preclude the adverse impact of the system's earnings
by making it illegal to tamper with PERS funds.
PASSED, APPROVED, and ADOPTED this 21st day of April, 1982.
AYES: Frost, Schlosser, Buquet, Dahl, Mikels
NOES: None
ABSEN'T.- None
D. "Mikels, Mayor
A MST:
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.SACRAMEKY0-ACOIRIISS COMMITTEES
STATE CAPITOLNATURAL 11111111 All
95814 _n aTE"LEPHONE. I1i15114Em57JJt: � .. � � AGRICULTURE AND WATERRESOURCESdCES
FINANCE
DISTRICT OFFICE JUDICIARY'
3600 LIME ST...
.SCUTE II I -
RIVERII'P aE,CA 32501 JOINT COMMITTEES
TELEPxHONE'. J7141781-41 It LEGISLATIVE ETHICS(CHAIRMAN)
LEGISLATIVE AUDIT
2 EAST CITRUS AVENUE ,�m--•�--•.mm:
SUITE 208 a SELECT COMMITTEES
REDLANDS,CA 52373 SATE SENATOR CWLDREN AND Yt31.PTH(CHAIRMAN)
TCLEPHONES'
044)793-355
(714)383.4088 ROBERT" PRESLEY ADMINISTRATIVE ASSISTANTS
EY
7 HtRT"Y-FOURTH SENATORIAL DISTRICT RUTH ILKINS
JAY WILKINSON
hl
CHAIRMAN
A
SENATE COMMITTEE o NATURAL RESOURCES AND 4tILCSI ISE
STAFF CCFR93UiJt'dtNT.
BOB I-IOLMES
April.: 21, 1982
The Honorable Charles G. DeMior jyn
Mayor, City of Redlands
0 Box 280
Redlands, CA 92373
Dear Mayor DeMir jyn c
Thank you for your letter expressing your concern about the proposed three-
month elimination of the state employer contributions to the Public Employees
Retirement System.
This actions approved by the Legislature on March ll, does not take money away
from the existing retirement fund, but ratherallows the state to forego making
its contribution for the next three months. This was included in a package of
cost-cutting and revenue-raising measures desperately needed to bring the State
budget into balance, for the remainder of the fiscal: year. The confusion over
what is being done steins from the fact that the money which ordinarily would
have been contributed by the State will be put into the system from the PER
Reserve for Deficiencies Fund. This contingency fund is very substantial, cur-
rently standing at over $ 00 million, and, this action will have no effect on the
income which retirees of the state receive.
As you know, California has recently been experiencing significant revenue short-
falls, and: this and other one-time remedies were essential to avoid an unconsti-
tutional budget deficit. A bill was very recently introduced, SB 2010, which will:
absolutely preclude the Legislature from ever tampering with this fund again. As
one who is a member of the retirement system, you may be sure that:; 1 share your
concern and will watch very closely legislative actions which affect this fund.
incer y
ROBERT PRESLEY
P.lk
Xc: Mayor and Councilmember s, City Man acrer
STATE CAMTOL
SACRAMENTO 95S14
44r�'7552 WAYS AND MEANS
DISTRICT OFFIrff JUD104ARY
405 E. C�TRU$ AVENUE UTILMES AND ENERGY
REDLANDS, CALIFORMA EDUCATION
92373
(714) 862-5251 SU OIbIM
EDUCATtON—WAYS AND MPANS
TOLL FREE eour-Arw4AL RapoRm-15oucAnoN
SELECT COMMITTEE 014 R91NULATORY
OVERSIGHT
JOINT LEGIsLA.nlve Suotef Commrme
BILL LE0NAR0
ASSEMBLYMAN. SIXTY-SEVENTH DISTRICT
June 9, 1982
Kenneth Roth
Mayor City of Redlands
P.O. Box 280
Redlands, California 92373
Dear Ken:
Thank you for your expression of opposition to the use of surplus
Public Employees Retirement System (PERS) funds to help balance the
1981-82 state budget. As you may know, when AB 1253 was passed and
signed into law earlier this year, the California State Employees
Association went to court seeking to negate the provision allowing the
state to withhold its contribution to the system for three months.
Currently the Controller is under a court order to show cause why he
should not be restrained from withholding the state's contribution. A
final resolution of this issue is not expected for sometime.
Unfortunately, I believe that the legislative action regarding the
surplus funds has been widely misunderstood. First, the passage of AB
1253, the budget balancing bill , did not take one cent out of the Public
Employees Retirement System. What the Legislature did in an effort to
reduce an excessive surplus was to allow the state to forego April , May
and June contributions to the system, and directed the PERS Board of
Administration to transfer a like amount from the surplus to the main
fund to make up from $121 million in 1976-77 to what is estimated to be
a $950 million surplus by June 30 of this year.
Please be assured that I would not support legislation or budget
items which would remove present safeguards from pension funds thereby
jeopardizing well-earned pensions. If there had been any evidence that
the provisions of AB 1253 would endanger the fiscal stability of PERS, I
could not have supported it.
Some organizations representing retired PERS members feel the built
up reserves should be used for retirees. It is possible that a portion
of that fund may yet be used to pay for the continuation of 10'/w quarterly
additional payments for one more year; there are enough funds left to
SACRAMENTO 958,14 §
(916)445-7552 OM EES,
KAYS AND MEANS
DTMW amwa aid rMe sARY
E CAMS AVENUE UTIUT�ES AND ENERGY
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JOT i EG,ESL ai"tVR:.E3S DGE,`;',"Ttc4*TG?"T k:FT
ALL LEONARD
i
MORAN M
TO: Cities and Counties - 67th Assembly District
FROM: Assemblyman Bill Leonard
JT * June 15, 1982
Senate Bill 46 which will amend the Public Employees
Retirement Law passed the Assembly Public Employees and
Retirement Committee recently and. will now be heard by the
Ways and. Means Committee. I would appreciate it if you
would take the time to review his bill as last: amended<
together with the analysis and provide me with any input:
you may have.,
It is obviously important that public retirement funds
be protected and at the sage time offer the best return
for investments.
BL:md
Enclosure
an -C
Ito i �
Assembil; thiblir Emplot 'Refiriemrnt T onituittrit
Irrs nub 4
CURTIS R. TUCKER
CHAIRMAN
SB 46
SENATE BILL 46 - RUSSELL - AS AMENDED June 7
1982
SUBJECT:
Senate Bill 46 would amend Public Employees Retirement Law
to:
1 . Extend the 1/2- 1/4 post-retirement survivor con-
tinuance benefit school members of PERS; establish
a special employee classification (pool ) for school,
members (with certain exceptions) .
2 . Limit the amount within the PERS "contingency
reserve account" that can be used for "other
contingencies" to 29 of the total assets of the
system, and define "other contingencies".
3. Require the PERS Board to annually contract with
an independent actuary to comment on the actuarial
assum-otions utilized by the PERS Board.
4. Extend the "Boatwright" 10% cost-of-living increase
provided all members of PFRS, retired prior to
12/31/79 , until 9/30/84, at a cost of $130 million
from the PERS contingency -reserve account .
S . Establish an Investment Dividend Disbursement
Account (IDDA) , within the PERS Fund for making
cost-of-living payments to retired members of PER
under certain conditions .
6 . Provide the PERS Board with the authority to utilize
specified excess funds to reduce emplover contribu-
tions for a time to be determined by the Board.
DIGEST:
1 . Covernment Code Section 202103 provides for a "con-
tingency reserve account" (CRA) , within the Public
Employees Retirement Fund. Credited to the CPA are
amounts by which the actual annual earnings of the
system' s investment program exceed the interest
credited to the employer and employee accounts . The
interest rate credited to such accounts is established
by the PERS Board.
- - more
2 SB 46
2 . The purpose of the CRA is to provide protection
against various losses , including possible NO ,
ciencies in interest earned in other years , losses
from investments , and certain the contingencies ,
3. Assembly Bill 2674/'Boatwright (Chapter 1244/Statutes
of 1980) provided for a two-year cost -of-living
increase of 10% to be paid PERS retired members , and
their beneficiaries who were eligible to receive an
allowance on December 31 , 1979 and who were still,
receiving that allowance on October 1 , 1980 . The
lastay
pment under the provsions of AB 2674 will be
made in July of 1982 , The cost of AB 2674 is esti-
mated at $130 million and is funded out of the PERS
contingency reserve account .
In 1981 , after the amount necessary to fund the
benefit provided by AB 2674 was removed, the size
of the CRA approximated $600 million.
4 . In March of 1982 the PERS Board moved to credit all
interest-bearing accounts of thesystem, as o4'
July 1 , 1982 with an additional 11 , funded from the
PERS contingency reserve account ($172 million) ,
5. Assembly Bill 1253 (Chanter IIS/1982 Legislativ
oe
Session) prvided , in part , that emploVon
er ctribu-
tions would not be made to the Public Employees
Retirement fund for the months of April through June ,
1982 on behalf of state employee members of PERS and
non- teaching school employee members of the system.
The amount of payments in quenion would equal 1191
million , In addition, AB 1253 instructed the PFWS
Board of Administration to transfer the equivalent
of the above payments into the Public Employees
Retirement Fund from the PERS contingency reserve
account .
6 . Subsequent to the enactment of AB 1253, the PERS
Board of Administration passed , in formal motion ,
that:
(1) a formal opinion from the Attorney General
be requested relative to the legality of
AB 1253, as the measure related to PERS;
and,
(2) that PERS not transfer from the Reserve for
Fund , an amount
equal to the employer contributions as
directed in AB 1253 until there is a final
judgment from the Appellate Court ordering
the Board to do so.
more
j
SF 46
7. Subsequent to this action the California `t .#""e
initiatedEmployees Association ' action
against PERS to prevent the transfer of funds
from the yaccountas proposed b i w W
A court hearing n this action has been scheduled
for June 9 , 1982
8 . On April 1 1982 , the PERS Board tr°anslerre`; 62
million from the MFRS contingency reserve account
to appropriate employer reserti'e accounts to help
defray the cost of the Board action eliminating
separate rate olat B.ona factors affecting the allowances
of male and female members .
. The CRA has been projected at $354 . 1 million as cf
June 301 1982 . This projection does not reflect
any impact that mai, result from the final disposi -
tion f AB 1253 (5 , 6, and 7 above) r does it
reflect: the 172 million to be credited to interest-
nearing accounts (4 abovej . Nor does it reflect
the possibility of the Beard returning to the CRA
the $627 million transferred out to help defray
the cert of unisex tables (8 aboveO .
15 , 17, 1
28 ,1 , 2
Would extend the 1 /7-1/4 post -retirement survivor continuance..
enet iTTS ���er�er oaf F , e a lr r s e 1a- �� .
L._ .
c ac c l aaac nerr. , endr`ef mance ht cl aE e"i er epi r t .
School members of PERS (classified employees of school dis -
tricts
igtricta except employees of the Los Angeles Unified School.
and Los Angeles Community College Districts and the Sorra
Francisco City and County School District ,- and the offices
of the Superintendents of Los Angeles County and San Diego
County Schools) have for carious purposes been groupec
with state "miscellaneous" members of PERS, and have tradi -
tionally received benefit improvements provided ided state
"miscellaneous" members . However, particularly larroly as a result
of SS 90t and the `1F measures enacted in 1974 , 197S, 197
and 1977 , the benefits tr i"ided school members have fallen
behind those provided state "miscellaneous" members .
Serrate . i l i6 would lace all school employees , s}i ti's the
exception eY those em" toyed by Los Angeles and San Fiend
County Superintendents of Schools , "safety" members employed<
by the bars Angeles Unified Schaal District and Los Angeles
Community College District , employees of certain data pro-
cessing
a3'.w Te
4 - SB 46
County School District , within a single separate PERS
"school member" employee classification with combined
assets and Aabilities as is the case with state
"miscellaneous- members ,
The measure would also provide employees withIn the
school member" classification with the 1/2- 1/4 post-
retirement survivor continuance benefit that is
presently provided state "miscellaneous- members ,
While notspecifically provided in the measure, it is
undernood that if the hill is enacted , PERS would fund
the benefit through the adoption of a R-year funding
period for the new school pool , Presently a H-vear
funddng period is in effect for school empioyee benefits ,
This extension would permit the funding of the benefit
with an actual reduction in the contribution rates for
the affected school empiovers .
SECTION 14 .
Would limit the amount within the PERS "contingencv reserve
�-6 C o i I nY _t h_�_f 100-0 n—&e s t o
Lin--genties" .
Senate Bill 46 would amend Section 20203, the section estab-
lishing the contingency reserve account (CRA) (see ( 1)
background) to :
(a.) eliminate the provision that the CRA may be useii
for "other contingencies" , and provide instead ,
that the CRA shall be used to fund "actuarial
liabilities and actuarial contingencies eyon
the control of the board" .
provide that no funds in the CRA, or funds that
have been transferred from the CRA shall be
available for the payment of any retirement
benefits (such as a cost -of- living benefit)
(see (3) background) .
(c) provide that at the end of each fiscal year,
the amount in the CRA which exceeds 2's or the
total assets of the systemshall be credited
to employer and employee accounts ,
NOTE :
Total assets of the Fund as oF June 30, 1983 , were 15. 3 hillion,
dollars . Two percent of this amount would approximate $306
million,
more
SB 4
SECTION 1 .
Would I �3ujrc the PERSBoard to enr"Q11Y ;Rr3t' sit with an
Senate Bili 46 would add Section 20234
contract
2023 to E ,. Law: to require
thePERS Board annually co traw .n independent ac
ta :rgi
to analyzeand comment on the actuarial
DraGtk . " and assuip-
tiOnboard ,
F.
utilized b t �e �.���<rd , and the ffe t off: the benefits
provided by the newly established Hvestment Dividend Disbur-
sement
sbur—
Account fseeSection contribution
N
rates .
The actuary sha l rev.°tr t yearly to the Legislature a"d the
SECTION 3 .
ou d rovide the PERS Beard € nth the authority to utilize
Senate Bill 46 would add Section 20132 to PERSLaw to provide
the L Board with the authority to utilize any temporary
excess funds in as y account, as determined y the Board, to
reduce employer contributions for a period of time determined
by the Board .
a
NOTE:
This amen meat stems frOm a suggestion of the Department of
Personnel Admini trati n (see attachment )
ECT ?; 29.
Senate Ball 46 would add_ Section 21232 to PERS Law to extend
t as r pt" a -s r a.. nif rc unc`?
The Section would require the Beard tO transfer $130 Million
fres "funds not otherwise allocated" (it is assumed the CR:
account) for the sole purpose of continuing the quarterly
"Boatwright-
Boatwright- Payments from October 1 1982
.. through
0, 1984 "Boatwright" recipients shall be informed that the
increases ars not cumulative , shall not be included in the
base allowance , arca mav be available for only a limited
period of time . if there are insufficient funds , the Board
shall proportionately reduce all payments ,
SECTIONS 11 and 30 .
Establish an n estment Dividend Disbursement Account
la l �33it^ ' Lz 1 ('Tr TT rl i t 11 app. c '3"?'.E t"£,
,w_ _ ....� _.� . ..,.. .. _. . ;� _ _.._..
more
6 SB 46
Senate Bill 46 would establish, within the PERS Fund , a,,,
Investment DKidend Disbursement Account WDA) , operative
on January 1 , 1984 , and in effect until Anuary 1 , 1989 ,
The measure provides that the IDDA account would be funded as
follows :
(a) Earnings on investments (Wed upon the contributions
of members'J' as determined by an annual interest rate ,
established by the PERS Board1.
employee accounts , The annual interest rate rav not
than the actuarial interest rate ,
Q) The { ifferenoe between the actual earnings on invest
-
ments (based upon the contributions V members) and
the amount earned on the investments as established
by the Board ' s annual interest rate,; would he credited
to IDDA .
NOTE:
It is understood that the intent of the measure is to credit
to TDDA the difference between the net ear inns (rather than,
actual earnings) and the amount-THOWSh ,Re investments
as es-tabTi's"E' 'cf___'5V_ tic Board, to 1DDK A clarification amend-
ment may be in order.
The IDDA may be used toad'iust , quarterly, the monthly retire-
ment allowances paid members and their beneficiaries to an
amount equal to the maximum of , %r of the purchasing power of
the initial monthly allowance received. The method of adjust
-
ment would be determined by the Board.
The IA funds in excess of the amount needed to increase
allowances to the:'' 75% maximum level shall revert to the em-
ployee accounts within the PERS Fund after 5 Years in IDDA.
Recipients must he informed that increases provided from ADDA
are not cumulative and ma v be discontinued.
FISCAL COMMITTEE:
Yes . As stated in the analysis , depending upon the actions
of the PER$ Board , the measure could result in reduced em-
ployer contributions . The effect on the PERS Fund resulting
from IDDA, and the limiting of the use of the CRA, is unknown
at this time : The immediate cost of the measure would be the
two year,extension of the "Boatwright- benefit ($130 , 000 , 000) .
STA1�F COMMENTS -
1 . One of the more important provisions in SB 46 is the IDDA
pro1osa . This raises the basic policy question of whether
_ _ more - -
7 - SB 46
an additional cost -of- living benefit should be placed A
PERS Law? Although the proposal would "sunset" in 1989,
experience indicates that it is extremely difficult to
eliminate a benefit , once provided.,
V Senate Bill 46 provides that the funding of IDDA he depen-
dent upon an interest rate set by the PERS Board. Wouid
this place undue pressure on the Board?
3. IDDA would be funded by earnings of the system. Should
such earnings more appropriately go towards reducing the
system' s unfunded liality? e 1DDro
A pvision states
that whenever the biBoard Thdetermines that there are
"sufficient" funds in the account , the Board shall make
benefit payments . What would constitute "suMITAt"
fuRds ? The provision also states that for reasons of
"insufficient funds-, the PERS Board need not makepay -
ments from IDDA , What would
funds?''
V While A 46 has established the "framework" for IDDA, it
is unclear as to the number of administrative and tech-
nical problems that would occur in attempting to implement
the proposal ,
S. Should the IDDA proposal be a subject for collective bar-
gaining?
6 . The provisions of the measure relating to "pooling" and
providing the 112- 114 survivor benefit to school emnlovees
has been heard and passed out by this Committee .
7The amendment to Section 20203 would limit the CRA to 2%
of PERS assets . Why 2% , why not 1% or 3%?
S. Section 20201 would be amended to nrovide the following :
"Notwithstanding any other provisions of this part , no
funds in the reserve against deficiencies or which have
been transferred from the reserve against deficiencies
shall be available for the payment of any benefits pur-
suant to this part". Would this language preclude the
payment of the "Boatwright" cost-of- living extension ,
or any benefit that is presently the obligation of the
system?
POSITIONS:
COMMA State Firemen ' s Association, Inc. , "pp its the
measure. it is understood that most other employee organiza-
tions also support the bill or are neutral . Opposition has
been received, however, from the PERS Betterment Committee ,
Inc. This opposition , however, was specifical1v directed to
more
SB 46
the April 27th version of the bill . The PER Board has taten
no position on the hill . it should be noted , however , that
the position of the Board is extremely impoyt8nt to the
success of SB 4K This is because the measure, to a large
extent , deals in concepts that would require impicmentation
by the Board . The Board meets on the 16th of June and will
consider the measure at that time.
The bill is opposed by California Taxpayers Association and
the League cif,
f California 1ties (see attachments ) . The
California Supervisors Association of California has requested
that the measure be subject to local collective bargainin�,,,,
(see attachment) .
DAVE COX 322 - 4320 june 9 , 1982 SB Q-'
STATE Of CAUFORNIA E s 3*d : PP*WN A, �rC �rrfr
DEPARTMENTOF EADMINISTRATION
01"FiCE OF THE DIRECTOR
1115 111H STREET
SACRAMENTO, Awa=c �4!A 95814
916/322-5193
May 1 , 1982
Mr. Robert Carlson, President
Board of Administration
Public Employees' Retirement Systern
P. 0. Box 1953
Sacramento, CA 95809
Dear Mr. Carlson::
The Department of Personnel Administration leas identified several<
areas within the Public Employees' RetirementSystem fund where we
right be able to apply an excess in reserves to offset the State's
obligation for the coming fiscal. year.. We feel that this action is
necessitated by the devastating financial condition in which the State
currently finds itself.
The areas include the fol_lo in .
1. Overfunding in the 1959 Survivor Benefit Reserve
. Group Term Life Insurance Reserve overfunding
3¢ Death Benefits Reserve overfunding
4. Savings due to decrease it employer rates as adopted
by the PERS Board in February 1952
Discussion:
1. Pyerfuneing in the 1955 Survivor Benefit Reserve
This reserve is overfunded by approximately $15 million is
State employer c-ontributions. We recommend end offsettin the
total =State employer ontribg t ion by this amount in 198 2/83.
, n
va r Lifeinsurance serve Over
fudirT
ro .. ._.a_ _ _ �mm,
At the present time, this reserve is overfunded by approximately
-Q.5 zillion and this amount increases by about SIO million
each year. We so gest that $4. 5 million be applied to reduce
the State contribution for 1932/83,
V. Robert Carlson, President
Page 2
May 14, 1982
3. DeathBenefits Resere Overfundin
Even recognizing the need to maintain a prudent funding level
in the event of unanticipated emergencies, this reserve currently
Is overfunded by approximately $20 million. We recommend that
these furls be used to offset the State's contribution for the
coming fiscal year.
4. j vings due to de-Itqje in emp�-j to.
the PERE
Based on undated actuarial valuations, the State's contribution
rate for the various membership categories will decrease. This
reduction has a potential of saving the State approximately
$54. 75 million in the 1982/83 fiscal year. We recommend that
the PERS Board and staff continue to support the decreased rates
which are contained in SE 1649 (Russell).
Unfunied Liability - se RL�
In addition to the above, we are also recomr,,ending a change in the
repayment schedule for the State's portion of the unfunded liability.
Under the present schedule, the unfunded liability will be paid in the
year 200L We request that the Board consider a 40-year repayment
schedule extending from 1982 through 2022. This change would generate
a first-year savings of approximately $84.5 million. The main reason
for requesting your consideration of a different repayment schedule is
to provide relief to the State at a time when we are facing very
serious financial problems. If this new repayment schedule is approved
by the Board, we would be more than willing to consider a modification
of the 40-year period if the State's financial condition improves
significantly in the next few years.
We sincerely request the Board to give immediate consideration to the
above proposals. Than you for your cooperation,
Sincerely
Allen Paul Goldstein
Director
APG:AM:mh
cc: Carl Blechinger, Executive Officer
CAUFORMA
_Tax $OC T
ASSoPA7+rt;iN
rt�.wa's t, * SA.c'RAMEN' '_.` CA 95b"S`,4'`'..
May 10, 1962
The Honorable Newton Russell:
Member, California State Senate
'tate Capitol, Hoop; 506
Sacramento, California 95814
SUBJECT: SP g
Dear Senator Mussell.
it is with genuine regret that we mist oppose your SS 46 ,
which, as amended April 27, 1982, would establish a procedure
whereby the Board of Administration of the public Employees Retire-
ment System would be required to set tip ars Investment Divid nd
Disbursement account (1 D ) to provide increases in benefits for
PERS retirees equal to 75 of initial purchasing power.
My regret in having to pappose SB 46 steads from mai.y sources.
:o state legislator over the past seven years has done more to attempt
to get California. public pension systems or a sound financial footing'.
No other legislator has recognized more clearly the need to revise
the pension benefit structure and to y ro uce, systems of benefits
that are more affordable for the taxpayer and equitable for retirees.
Very few legislators --� ,in my judgment. -- possess a more sincere
concern for maintaining the purchasing power of public retirement
benefits,,
Perhaps my ultimate regret -- and the :irony of the present:
situation --- is that SH 4 (as amended) is an effort on your ,part:
to fulfill the dual responsibility you have assumed in recent years.
The dual responsibility as reflected in SB 46 is 1) to improve
the soundness ness of the PERS by attempting to develop a sound mechanism
.for determining and providing ars ongoing retiree benefit adjustment,
ent,
and ) to guarantee that PERS retirees retain ; of the pension
purchasing power with which they retired. These are both ;creditable
objectives. The mechanisms for meeting these objectives in SH 4
reflect much careful.: thought and it is obvious that the effort has
been made to overcome some current problems in the provision of cc t--
of-living adjustments from within 'ERS funds .
How evems', there are some truly major conceptual problems related
to provision of retirement benefits which make SB 4£ an approach
which we must oppose, These problems are; discussed be w..
The Honorable Newton Russell
May 10 , 1982
Page Two
SB 46 gives pension benefit authority to the PERS Board of
aTt -r t thy.
Q0j?T__i lecognize
Admin i`s`J�P_ai]_,&E__tha t fe , ' Acvvunt, you have
ivid _
attempted to place limits on the funds that could be generated for
the account by the PERS Board. First, the fund flow into the IDDA
would be 25% of the difference between the actuarial interest rate
and net interest incomn e (rather thainterest crediting rate, as at
present) , and you require a report to the Legislature when the
actuarial rate is changed; the 1DDA could grow to no more than 112 of
1% of the total PERF fund : you eliminate "other contingencies" as
a permitted expenditure from the deficiency reserve; the deficienc-
reserve would be tapped for IDD A funds oniy when it zaaches 2% of
total system assets, and IDDA funds could be used only to increase
monthly allowances to 75% of "initial purchasing power. ''
However, SB 46 establishes a major precedent in giving to the
PERS Board an authority which should remain with the Legislature
the granting of pension benefits. Further , no matter how restricted
that new authority may be , the Board, used on recent past history,
would make every effort to utilize it to the fullest. What might be
stated as a goal - 75% of purchasing power - would very quickly become
a guarantee, and perhaps a "contract" commitment .
No matter he narrowly drafted the new grant of authority may
be , it is a grant that is going to a Board that has overcharged
employers and employees over the past five years by over $1 billion,
in its inflation of the present deficiency reserve. It is a grant of
authority that would go to a Board that would expend $627 million
of that account for a unisex formula based on an out-of-state court
decision and without extended amortization of its cost, as in other
actuarial liabilities. it is a grant of authority that is going to
a Board that is not now legally constituted, in the opinion of the
Legislative Counsel and the Attorney General .
Additionally, we would note that two proposed limits on the
Board' s new authority are fairly loose. The 1/2 of 1% of total assets
limit on the IDDA would still represent about $75million . The require-
ment that the Board of Administration report to the Legislature when-
ever it changes the actuarial interest rate focuses on change , rather
than the more essential issue of what should the actuarial rate be .
Ironically, the interest crediting rate i actually thl rate that is
currently closer to net interest earnings. Thus , more funds could
flow into the IDD A under the current actuarial rate , and the flow
could continue , assuming high net interest and a to actuarial rate,
which would 'h6t have to even be reported to the Legislature, because
it would not be changed. In other words , the Board =13 simply sit
on a lower than necessary actuarial rata just as they have done with
the crediting rate .
The Honorable Newton Russell
May 10, 1982
Page Three
r
SB 46 would "fund" benefits from within t&_1 i�eP..FS-Ion fund rather
than staff lagalk-GAR-- os
--
I Any a,r6�i7 mi-Ti"i" rest earnings not allocated to
the reduction of liabilities will inevitably force an increase in
contributions or an extension of the date for realization of fuji
funding. We agree with Howard Winklevoss, when he sayz :
"A practice of spending all gains while 7_ +-:..
all losses will inevitably increase pension
benefits and costs over time , regardless of the
need for the benefits. This will occur becausta
over time< there will inevitably be in and
losses. When there are losses, the employer
contribution rate will increase , never to be
reduced because gains result in benefit increases.
Thus, the employer contribution will ratchet
upward, For this reason we believe that the
use of actuarial gains to "fund" benefit increases
should be discouraged. ''
Expenditures for this benefit would come from the investment
Dividend Disbursement Account . it grows as the result of the inter-
action of two rates, just as the deficiency reserve grew. Just as
Sid Fauffman has said, use of the deficiency reserve "as a basis
for increasing benefits is intellectually and actuarialiy improper, ''
I can see a difference in dearee , but no difference in kind betweet,
the old deficiency reserve Ond -the IDDA.
"Investment dividends" is not a valid retirerient -tem concc-pt.
There are
that are simply not valid. one notion is that it will give retirees
a chance to "share in windfall interest earnings of the system. ",
There are no "windfalls. " There is, hopefully, improved investment
return. W—Watter what it is called -- dividend, surplus, excess
earnings, windfall -- it is system earnings, and any money taken out
of the system for benefits of cQrrent retirees (no matter how
laundered as an investment dividend disbursement) will not be there
for future retirees,
There is also a notion that an annual declaration of an interest
dividend will serve to focus attention of retirees on system invest-
ment policies and bring pressure to bear on the board to earn better
interest. We doubt that this will be the result of IDDA , What is
more likely to happen is that pressure will be brought against the
Board not to change the actuarial interest rate , if that rate is low
compared to net interest earnings. In short, the easiest way to
build alarge IDDA is the same way a large contingency reserve is
builtj through account manipulation , We simply can ' t buy the idea
The Honorable Newton Russell
May 10 , 1982
Page Four
that an 1 A can be viewed as new money, money that is produced
because the investment team is working harder thanks to pressure
from retirees. What an investment team does as a result of retiree
pressure it should be doin'g anyway, and if it isn ' t, changes should be
made by the Board.
About all that can be said about an "investment dividend" is
that it sounds good . In lio
fact, it sounds ke some ther than
an unfunded retiree benefit , which is what it really is.
SB 46 is amandate on local j2yyrnmgnt and schools. Even thou;h
a source 6Y_fund`Tn'g'_'_f_o_'_r'_ _'_ret'1r_e_ c-,fit-�i-s-'i7d-e"ntiYied -- the 1DDA --
it would seem, arguably, that SB 46 mandates the manner in which
funds that would otherwise be committed to system funding would be
used. It does, therefore, increase employer contributions and
increase local costs . The 1 mandate would also contradict the
history of PERS-local government relations, under which local govern-
ments pick and choose the retirement benefits they provide fron a
vast array of benefits offered by the system. Now, under SB 46
local governments are told: "Thou shalt provide a dividend" whenever
the PERS Board and the IDDA mechanism declare one . There is in this,
it seems to me, the seeds of an ultimate local government detachment
from PERS. Why should they continue to participate in a system where
they receive de facto mandates such as this, where their contribution
rates double "Y f106-years, and where they have only one representa-
tive on a Board, even---though they represent one-third of systemn
assets'?
Those are the conceptual problems I see in SB 46 . There are
technical ones also, as I re-read the bill. For example, "purchasing
power" needs defining. Does it refer to the total pension benefit,
including social security, or does it exclude it Even though a
benefit need not be provided annually, the PERS Board would see,
required to make transfers to IDDA. Must it do this regardless of
fund condition?
Very truly yours,
Richard Simpson
Vice President
RPS: Ims
It IN U.l
League of California Cities
i
r fro" Sacramento, California
W, 1, 1, 0"111, i dune 7, 198
OfFsCEAS
a'1tr Thomas,9 Caark
N.{r• Z.F 4oh„li"" . Senator Newton Russell
}.st .c #HAf State Capitol
ayi:c c r Sacramento, CA 95814
DOOM a Wright
F>av Pre!,<R'r Ike: PERS, Cost of Livin Ad �strner�ts. SB 46 (Russell). Notice of 9pp2sition.
Gacnr .6$+alar
ta..,,rte}>r+tr. tr,a=rF
Dear t-n,ator Ru,%selh
H*.,,P:Alarcon The following outlines our concerns with the newly amended version of SB 46.
Mayo',C1 CPMn
Jerry Ammerman. Before getting into specifics on the bili, I want to express my appreciation for 't e+
`"'``}`< 'h'}"} n ywa"ie patience you have had and the time that both you and your staff have given to city
CurFllchard officials interested :in SB 46. It is a complex bill and requires considerable
rtnazsn ty(9d*eta}drrncreF.$}.r++'ciraa
un'o� C,:y discussion and debate.
Sane Oak.(...
char"u`"" The concept of a cost-of-living adjustment for PERS retirees has been an issue of
1wL..tr=c, rJ!ta•rit,=r Ch2 R.)�00,Css+�
Tyr alraar., extensive debate within the League structure. Since the passage of AB 7674, we
.ip'r is 1_v,vAsaYrr�'4
Yat C011ah1ka4 have been keenly interested in the contingency reserve account and--Neuse of
MAYO, cU t,rt.-l" #
William S'.Carroll these monies to provide: costa-oaf--living adjustments.. Whale the League has
MO.Yer.Vara,r"re consistently apposed the use of the contingency reserve account for asst-of-living
Ke.rwlh! iChapp.0
Mayof Fr',To'h stco„ 't adjustments, most city officials recognize the political situation facing us and
Bob,Manager saracw+ have been willing t€� consider some type of cur'npr-omise package.
�.� Manager �a„fisc
Sohl.F.Daylrr
€+atm sporagt
01a0a Fafns[adn The: provisions .of SB. 46, however, go beyond our..parameters, especially. in these
'a "a 'S" difficult economic times. :Specifically, the enactment of the Invesurient Dividend
A,;-, ni%bursement Account (IDDA) is a concept which is of grave concern to the long-
...•l�•,,,:e term financial picture of the employers who contribute to PCRS. Specifically, the
dartai Gray 1•tayat
Kiyor s.,re Juse coasts of a permanent, or at leant long-term, COLA is sornething we have always
!1kucti*Lo T.N0s° lay opposed. The experience of local jurisdictions which have tried too fund such, a
G'ew€2rveF6 Aien'h(ana.4.�y kirm}p.Hrkg
sr+attay€ .tont. COLA has been a financial nightmare. One:need look no further than the City of
P+r1)12t Woms Mvcfo^ _Venlu,a
"fit”KMWaQo4 Lori Angeles system which tried to fund a full cast-of-living, adjustment for its
`ay ck"" Ca'—, public safety retirees and has now found it ihapossible. That city is now voting on
t Matten
1,�.Y"' a';Fr+ a controversial proposition measures to limit the COLA to 3% annually. In
Micrtr�r>ra.:5 r.,:., ,haaFA r�a9' r+ra addition, the City of. Long Beach has: adopted, under the PIERS systema., the 5%
Chartaa A srar3un COLA option and is now paying a contribution rate of 31% for miscellaneous
i:l�Atrrrrat y,$are M:arrwdo
ram€r.rl.ryr, employes and 58% for public safety employees. These comparatively high
c ontriboatiota rates are almost a direct result of the t COLA Long Reach has
.adoptcd. We believe that the only prudent way to approach lite coast-of-living
b,an}}Y is 4ai9fr,
adjustment is to do it on an ad-hoc osis and would recommend that the IDDA
shl�;,ay sraa
provisions, if enacted, be a local option for contracting agencies.
M+4rct+aa3Timrr+l�s �
F•.p.Cr, r Sanra Rosa :. 1
Allonao Csaml.utiat We recognize that a sunset has:. been. placed in the bill to force. some type of �
tuna:Wa9nratf reconsideration if the IDDA concept does meat work.. However,: we believe:that the
Maggi Hltyward
Mayr €>avdAr r
Pala Witten. .
NEA00LIAFaTEAS C0t4FCRLNrE Af6lStAAMN OFFICE SOUTHERN CALIFORNIA OFF#GE
14(X)K STRE£7..SACAAM£;N rO 9581,4 HOTEL CLAREMONT,StRI(Ci EY 94705 WO WILSHIRE 13LVC1.SUITE 606.LOS ANGELES WKII7
(9'151 444.6790 (41W 643-3063 (713)624.4934
Senator N4wton Fussell
Page
Jane 7, 1952
IDDA concept will build in expectations, intended or not, that retirees w Il continue
to receive this adjustment.
Our primary concern is that the PERS syst rn not face t1he same types of financial
problems ether local governments face new with local s sterns 'We stipulate to the
fact that the PERS system is a "welt-funded system" by objective standards. It is
not the finaocial integrity of the ITERS system that we are concerned about, but
rather the ability of employers to continue to pay what are; in essence, open-ended
retire,-neat costs. Just as inflation was an "unknown" 15 years ago, there will:
undoubtedly be more unknowns in the future. Who can predict the obligations to
the system which inflation on salaries will produce? Who can predict what new
mortality experience we may have In the future? Who r, predict the rate of
disability retirements in the future? Who can predict what new cost-of-living
adjustments will be asked for on top of the IDDA provisions? Given all these very
real concerns, we would be unable to support a concept such as I DA which places
in law a concept which is arguably permanent.<
I hope this (Ae rly out'lines the basis of Baur opposition to your bill.
Sine li
u
with Stenbakken
Le islativ Representative
DRSJt
i
Coun�#
,lSu
June 8, 1982
The Honorable Newton R. Russell
Senator, State of California
State Capitol
Room 5061
Sacramento, California 95814
Dear Senator Russell :
Subject: Request to make the provisions of SB 46 subject to bargaining in
local- agencies.
We have always been concerned with the Legislature's granting of special
benefits that should be subject to the collective bargaining process . Since
.your SB 46 would provide new retirement benefits to counties that contract
with PERS for retirement benefits , we believe those provisions should b
bargained locally.
There would be a major cost savings advantage to the State} in 'ii-,ak ing the
provisions optional . As written, the bill contains a state mandated local
program. If it becomes optional , the State would no longer, be responsible
for the casts of those increased benefits.
We have asked the PERS staff to assess the problems , if any, that they might
have in administering the bill on an optional basis. They should be prepared
to discuss our proposal with you prior to the hearing.
inc ely,
Allan P. Burdick
Legislative Representative
AFB:shy,
cc: Assemblyman Curtis Tucker
Dave ox,, .Cgnsul taut, Assembly Public Employment
and Retirement Committee
ttee
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