CalPERS BPAC Retirement Contract Activity Report
Content
Califo ornia Public Employees’ Re E etirement Syst tem Customer Services and Support s t P.O. Box 942701 amento, CA 94 4229-2701 Sacra TTY: (877) 249-744 42 ) one • (916) 795-7878 fax (916) 795-3332 pho www w.calpers.ca.go ov
Agen nda Ite 6b em
TO: I. II.
Au ugust 16, 2 2011
MEMBERS OF THE BENEFITS AND PROG M A GRAM ADM MINISTRAT TION COMMITTEE C SUBJECT: S PROGRAM: P Retirem ment Contr ract Activity Report y Retirem ment Information Only
III. RECOMMEN R NDATION: A IV. ANALYSIS:
Th purpose of this item is to provide the Ben he m nefit and Pro ministration ogram Adm Co ommittee with statistic regarding historical retirement contract ac w cs g ctivity over t the las five years and to illustrate curr st s, rent pensio reform ef on fforts under rtaken by p public ag gency employers as a result of the economic downturn. c As of June 30 2011, Ca s 0, alPERS had 1,486 retiirement con d ntracts whic provided ch d retirement, de eath, and survivor ben s nefits for pa articipants o 4 school district offic of ces, 44 cities and towns, 36 counties, and 997 sp 49 d 6 pecial districts and oth public her ag gencies. In addition, th here are 57 County Off fices of Edu ucation con ntracts whic ch provide bene efits for 1,49 school districts and charter sc 90 d chools, bring ging the tot tal nu umber of co ontracts to 1,543 and the total num 1 t mber of em mployers to 3,033. etirement contracts va depending upon th e member categories covered, th ary he Re formula the agency elec to provid and the optional be a cts de, enefit provisions selec cted fro the grou of 55 benefits. Thes optional benefits m be provided at the time om up se may the original contract is established or they ma be added later throu the e e ay d ugh co ontract ame endment pro ocess. Th Custome Account Services Division (CA he er D ASD) provid on-going retiremen des nt co ontract assis stance to public agenc p cies and sc chool emplo oyers includ ding, new ag gency contr racts, contra amendm act ments, cont tract merge and con ers ntract terminations. One of CA ASD’s strate egic goals i s to enable and educa employe e ate ers to make infor rmed decisi ions leading to a prediictable and secure retirement future. g If an agency is consider a ring an ame endment to an existing retirement contract in g n wh hich there is an impact on the em s mployer con ntribution ra or emplo ate oyee co ontribution rate, an actuarial valua r ation is requ uired. For a amendments that requ uire a valuation, the chart on the following page sh v n hows the re elationship between th he nu umber of am mendment valuations requested, and the nu v r umber of co ontract am mendments actually im s mplemented Although many agen d. ncies reque cost est
Member of the Be rs enefits and Program Administratio Committ A on tee August 16, 2011 1 Page 2 of 5 o
inf formation and receive an actuaria valuation a majority of them, a a al n, y after receivi ing the actuarial valuation, decide to no longer pu e d o ursue the am mendment. The numb . ber of amendmen valuation requeste and the n nt ns ed number of c contracts amended we ere on a downwa trend fro 2006-07 thru 2009 n ard om 7 9-10. Howev in fisca year 2010 ver, al 0-11, the number of amendme valuatio request increased by 78% over the e o ent ons ted previous fisca year. This was due in large part to an incr al reased inte erest in es stablishing Second Tie for new hires. The number of amended c S ers contracts inc creased as well in 201 10-11, but is still below the 2005- thru 200 s w -06 07-08 levels s.
Th “type” of contract am he f mendment activity (i.e formula improvement, one-yea e., ar fin compensation, Sec nal cond Tier, etc.) has changed over the last fiv years. A e ve As ind dicated in the following chart, form g mula impro ovements re eached their peak in fiscal ye 2007-08 but since that time, have declin significa ear 8, h ned antly due to the econo o omic do ownturn. Am mendments to provide for one-ye final com s ear mpensation periods rather tha a three-year final compensatio period h an c on have also de ecreased d during the la ast tw years. Many of the amendmen involving benefit im wo a nts g mprovement currently ts y taking place are a result of previously negotia a t ated collecti bargaining ive greements. ag
Members of the Benefits and Program Administration Committee August 16, 2011 Page 3 of 5
Many agencies are currently seeking advice on potential cost saving measures to help them find financial relief from the market downturn and budgetary concerns. Three ways in which agencies may accomplish cost savings are by amending their retirement contracts to: 1) share the cost of an optional benefit with their employees; 2) provide Second Tiers for new hires; and, 3) provide two years of additional service credit (Golden Handshake). As the chart below illustrates, few employers include cost sharing in their retirement contracts. Through our discussions with employers, we have found that many agencies employ cost sharing via independent agreements outside the retirement contract, which is an acceptable practice. The chart also shows that there has been an increase in Second Tiers for new hires and Golden Handshake provisions over the past three years. Amendments for Second Tiers have increased dramatically, with more amendments occurring during fiscal year 2010-2011 than in the past five fiscal years combined.
Contract Amendment Types
140 120 100 80 60 40 20 0
Formula Improvements 1 Yr Final Comp Cost Sharing Second Tier Golden Handshake Other
2005-2006 99 18 8 8 10 67
2006-2007 107 15 5 9 6 80
2007-2008 115 20 3 8 7 83
2008-2009 52 17 3 10 35 52
2009-2010 17 7 0 22 43 34
2010-2011 17 4 6 107 22 31
*Other = optional benefits such as death benefits, service credit purchases, and contract exclusions.
Fiscal Year
Government Code section 20475 allows a contracting agency to amend its contract or previous amendments to its contract, without election among its employees, in order to reduce benefits, terminate provisions that are available only by election of the agency to become subject to those provisions, to provide different benefits or to provide a combination of those changes with respect to
Member of the Be rs enefits and Program Administratio Committ A on tee August 16, 2011 1 Page 4 of 5 o
se ervice perfo ormed after the effectiv date of th contract amendme Agencie ve he t ent. es am mending the contracts to provide for Secon Tiers for new hires (the most eir e nd prevalent typ of amend pe dment) tend to be citie towns or special dis d es, r stricts, pa articularly water, sanita w ation, irrigat tion and fire districts, w e which have experienc a e ced de ecrease in their tax bas due to th econom ic downturn Since 20 t se he n. 008-09, 105 5 ag gencies hav impleme ve ented a total of 139 con ntract amen ndments involving Sec cond Tie for new hires. er h Go overnment Code section 20903 (Golden Ha ( andshake) a allows an agency to am mend its contract to pr rovide two years of add y ditional ser rvice credit to eligible me embers who retire dur ring a desig gnated wind dow period when certa ain requirements are met. Window per s W riods which span 90 – 180 days c be can stablished at the time the contract is amende or at a la date. T chart be a t ed ater The elow es ind dicates the number of window pe eriods that h have been established over the p d past fiv years by public agencies and schools. In recent years, public a ve s agencies ha ave tended to utilize the Golden Hands shake as a cost saving measure much more g e equently tha in prior years, while Schools a using th Golden H an y e are he Handshake less fre fre equently.
.
Members of the Benefits and Program Administration Committee August 16, 2011 Page 5 of 5
In summary, agency utilization of cost saving measures has increased since the economic downturn began in 2007-2008. The number of agencies amending their contracts for benefit improvements has decreased, while the utilization of cost saving measures such as implementation of Second Tiers for new hires has increased, as agencies seek financial relief from the market downturn and budgetary concerns. V. STRATEGIC PLAN: This item is not a specific product of the Strategic or Annual Plans, but is part of the regular and ongoing workload of the Customer Account Services Division and other affected divisions. VI. RESULTS/COSTS: None
_____________________________ DARRYL WATSON, Chief Customer Account Services Division
__________________________ DONNA RAMEL LUM Deputy Executive Officer Customer Services and Support
Agen nda Ite 6b em
TO: I. II.
Au ugust 16, 2 2011
MEMBERS OF THE BENEFITS AND PROG M A GRAM ADM MINISTRAT TION COMMITTEE C SUBJECT: S PROGRAM: P Retirem ment Contr ract Activity Report y Retirem ment Information Only
III. RECOMMEN R NDATION: A IV. ANALYSIS:
Th purpose of this item is to provide the Ben he m nefit and Pro ministration ogram Adm Co ommittee with statistic regarding historical retirement contract ac w cs g ctivity over t the las five years and to illustrate curr st s, rent pensio reform ef on fforts under rtaken by p public ag gency employers as a result of the economic downturn. c As of June 30 2011, Ca s 0, alPERS had 1,486 retiirement con d ntracts whic provided ch d retirement, de eath, and survivor ben s nefits for pa articipants o 4 school district offic of ces, 44 cities and towns, 36 counties, and 997 sp 49 d 6 pecial districts and oth public her ag gencies. In addition, th here are 57 County Off fices of Edu ucation con ntracts whic ch provide bene efits for 1,49 school districts and charter sc 90 d chools, bring ging the tot tal nu umber of co ontracts to 1,543 and the total num 1 t mber of em mployers to 3,033. etirement contracts va depending upon th e member categories covered, th ary he Re formula the agency elec to provid and the optional be a cts de, enefit provisions selec cted fro the grou of 55 benefits. Thes optional benefits m be provided at the time om up se may the original contract is established or they ma be added later throu the e e ay d ugh co ontract ame endment pro ocess. Th Custome Account Services Division (CA he er D ASD) provid on-going retiremen des nt co ontract assis stance to public agenc p cies and sc chool emplo oyers includ ding, new ag gency contr racts, contra amendm act ments, cont tract merge and con ers ntract terminations. One of CA ASD’s strate egic goals i s to enable and educa employe e ate ers to make infor rmed decisi ions leading to a prediictable and secure retirement future. g If an agency is consider a ring an ame endment to an existing retirement contract in g n wh hich there is an impact on the em s mployer con ntribution ra or emplo ate oyee co ontribution rate, an actuarial valua r ation is requ uired. For a amendments that requ uire a valuation, the chart on the following page sh v n hows the re elationship between th he nu umber of am mendment valuations requested, and the nu v r umber of co ontract am mendments actually im s mplemented Although many agen d. ncies reque cost est
Member of the Be rs enefits and Program Administratio Committ A on tee August 16, 2011 1 Page 2 of 5 o
inf formation and receive an actuaria valuation a majority of them, a a al n, y after receivi ing the actuarial valuation, decide to no longer pu e d o ursue the am mendment. The numb . ber of amendmen valuation requeste and the n nt ns ed number of c contracts amended we ere on a downwa trend fro 2006-07 thru 2009 n ard om 7 9-10. Howev in fisca year 2010 ver, al 0-11, the number of amendme valuatio request increased by 78% over the e o ent ons ted previous fisca year. This was due in large part to an incr al reased inte erest in es stablishing Second Tie for new hires. The number of amended c S ers contracts inc creased as well in 201 10-11, but is still below the 2005- thru 200 s w -06 07-08 levels s.
Th “type” of contract am he f mendment activity (i.e formula improvement, one-yea e., ar fin compensation, Sec nal cond Tier, etc.) has changed over the last fiv years. A e ve As ind dicated in the following chart, form g mula impro ovements re eached their peak in fiscal ye 2007-08 but since that time, have declin significa ear 8, h ned antly due to the econo o omic do ownturn. Am mendments to provide for one-ye final com s ear mpensation periods rather tha a three-year final compensatio period h an c on have also de ecreased d during the la ast tw years. Many of the amendmen involving benefit im wo a nts g mprovement currently ts y taking place are a result of previously negotia a t ated collecti bargaining ive greements. ag
Members of the Benefits and Program Administration Committee August 16, 2011 Page 3 of 5
Many agencies are currently seeking advice on potential cost saving measures to help them find financial relief from the market downturn and budgetary concerns. Three ways in which agencies may accomplish cost savings are by amending their retirement contracts to: 1) share the cost of an optional benefit with their employees; 2) provide Second Tiers for new hires; and, 3) provide two years of additional service credit (Golden Handshake). As the chart below illustrates, few employers include cost sharing in their retirement contracts. Through our discussions with employers, we have found that many agencies employ cost sharing via independent agreements outside the retirement contract, which is an acceptable practice. The chart also shows that there has been an increase in Second Tiers for new hires and Golden Handshake provisions over the past three years. Amendments for Second Tiers have increased dramatically, with more amendments occurring during fiscal year 2010-2011 than in the past five fiscal years combined.
Contract Amendment Types
140 120 100 80 60 40 20 0
Formula Improvements 1 Yr Final Comp Cost Sharing Second Tier Golden Handshake Other
2005-2006 99 18 8 8 10 67
2006-2007 107 15 5 9 6 80
2007-2008 115 20 3 8 7 83
2008-2009 52 17 3 10 35 52
2009-2010 17 7 0 22 43 34
2010-2011 17 4 6 107 22 31
*Other = optional benefits such as death benefits, service credit purchases, and contract exclusions.
Fiscal Year
Government Code section 20475 allows a contracting agency to amend its contract or previous amendments to its contract, without election among its employees, in order to reduce benefits, terminate provisions that are available only by election of the agency to become subject to those provisions, to provide different benefits or to provide a combination of those changes with respect to
Member of the Be rs enefits and Program Administratio Committ A on tee August 16, 2011 1 Page 4 of 5 o
se ervice perfo ormed after the effectiv date of th contract amendme Agencie ve he t ent. es am mending the contracts to provide for Secon Tiers for new hires (the most eir e nd prevalent typ of amend pe dment) tend to be citie towns or special dis d es, r stricts, pa articularly water, sanita w ation, irrigat tion and fire districts, w e which have experienc a e ced de ecrease in their tax bas due to th econom ic downturn Since 20 t se he n. 008-09, 105 5 ag gencies hav impleme ve ented a total of 139 con ntract amen ndments involving Sec cond Tie for new hires. er h Go overnment Code section 20903 (Golden Ha ( andshake) a allows an agency to am mend its contract to pr rovide two years of add y ditional ser rvice credit to eligible me embers who retire dur ring a desig gnated wind dow period when certa ain requirements are met. Window per s W riods which span 90 – 180 days c be can stablished at the time the contract is amende or at a la date. T chart be a t ed ater The elow es ind dicates the number of window pe eriods that h have been established over the p d past fiv years by public agencies and schools. In recent years, public a ve s agencies ha ave tended to utilize the Golden Hands shake as a cost saving measure much more g e equently tha in prior years, while Schools a using th Golden H an y e are he Handshake less fre fre equently.
.
Members of the Benefits and Program Administration Committee August 16, 2011 Page 5 of 5
In summary, agency utilization of cost saving measures has increased since the economic downturn began in 2007-2008. The number of agencies amending their contracts for benefit improvements has decreased, while the utilization of cost saving measures such as implementation of Second Tiers for new hires has increased, as agencies seek financial relief from the market downturn and budgetary concerns. V. STRATEGIC PLAN: This item is not a specific product of the Strategic or Annual Plans, but is part of the regular and ongoing workload of the Customer Account Services Division and other affected divisions. VI. RESULTS/COSTS: None
_____________________________ DARRYL WATSON, Chief Customer Account Services Division
__________________________ DONNA RAMEL LUM Deputy Executive Officer Customer Services and Support
