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Pension Reform Series: Memorandums of Understanding

pension

While some of PEPRA applies to current members, most of the significant provisions apply to "new members."

A new member is an individual hired by the agency on or after January 1, 2013 who:

  1. Was not a member of a public retirement system before January 1, 2013 or
  2. Was a member of a public retirement system before January 1, 2013 that is not subject to reciprocity with the new public employer's plan; or
  3. Alternatively, anyone who was an active member of a retirement system, has a break in service of six months or more, and returns to active membership in the same system with a new employer.

Given this definition, for the foreseeable future, most lateral hires will not be new members, as the major public retirement systems in California have reciprocity with each other. New members will likely be those hired right out of school, from the private sector or from out of state.

Under PEPRA, there is a limited exception to immediate application where there is an unexpired MOU entered into before 2013. In that case, the employee contributions required by the MOU will apply to new members until the MOU expires, is extended or is amended. At that time, new members will pay 50 percent of normal cost (or higher if negotiated and agreement is reached) and the employer will not be able to pay any portion of the new member's required contribution, regardless of what an MOU might provide. On the other hand, the mandated formulas and all other PEPRA provisions apply to new members on January 1, 2013, regardless of a contrary MOU.

PEPRA has limited impact on current employees and future agency employees who do not come within the definition of new member. Consequently, an existing MOU will generally be enforced as written as to these employees. One notable exception is an existing MOU that provides for the creation of a second tier of retirement benefits for new hires (who do not qualify as new members) to be effective in 2013 or later. It is our understanding that, at least for CalPERS agencies, those second tiers must be effective in 2012 or they will be unavailable. Based on the information we have to date, CalPERS will likely not process a request to create a second tier in 2013 or later, even if agreed to in an MOU entered into in 2012 or earlier.

Existing MOUs will generally be enforceable as to current members and new hires who are not new members under PEPRA. For new members, except for some short term delay in implementation of employee contribution requirements, an existing MOU that contradicts PEPRA will generally not be enforceable as to those issues.

The above interpretations are based on the information available to date. The Legislature may issue clarifying legislation. CalPERS may also issue its guidance on how it interprets PEPRA. These could affect how PEPRA will be applied. Public agencies are advised to keep on top of all the latest developments on PEPRA

 

 

 

 

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