AgdaPkt 2014-02-10 Closed and Regular

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9.A - Page 1 REPORT To the Honorable Mayor and City Council From the City Manager February 10, 2014 SUBJECT Public Employees' Pension Reform Act of 2013 Study Session RECOMMENDATION Review the information provided. No Council action is recommended. BACKGROUND The Public Employees' Pension Reform Act was enacted in California on January 1, 2013. The Act includes several significant changes for all employers within the CaIPERS retirement system, as well as nearly all other state and local retirement systems in the State. This legislation was enacted in response to the rise in pension costs for the State and local government agencies, primarily due to the great recession of 2009 and demographic shifts leading to an increased ratio of retirees to workers as members of the "baby boom" generation of workers reached retirement age. This legislation amends the Public Employee's Retirement Law (PERL) to create new mandatory pension formulas with reduced benefit levels, as well as a number of limitations designed to reduce the overall cost of pensions. The major provisions of PEPRA apply to new members" of a retirement system, defined as newly hired employees who have either never been a member of CaIPERS or a retirement system eligible for reciprocity, or have not been a member within the last six months prior to hire. These provisions include: • A reduced pension formula of 2% at age 62 for miscellaneous members, and 2.7% at age 55 for local safety members, based on highest three-year average final compensation • Mandatory employee contribution level set at 50% of the "normal cost" of the pension benefit (The normal cost is the annual cost of service accrual for the upcoming fiscal year for active employees. It does not cover the cost of the accrued unfunded liability.) • A cap on qualifying, or "pensionable" compensation, as well as certain exclusions of additional or special pays, such as uniform allowance. • Elimination of employer-paid member contributions • Prohibitions on purchasing additional service credit, also known as "air time"