Magazine Article

Q&A on AB 340
Questions & Answers from CFA about the new State Employee Pension Law

Question: What is Assembly Bill (AB) 340?

Answer: AB 340 (Furutani) and its companion bill AB 197 (Buchanan) were passed on the last day of the legislative session. It enacts significant changes to California public employee pensions. The Assembly passed the main provisions in AB 340 by a vote of 48-8 with many Republican members abstaining; the Senate passed the bill 36-1.

AB 340 makes changes to the pension benefits that may be offered to employees hired on or after January 1, 2013. These include a new maximum benefit and a lower-cost pension formula for newly hired employees with a requirement to work longer to reach full retirement age and a cap on the amount used to calculate an individual’s pension.

Q: What will be the impact of AB 340 on current CSU employees?

A: Most of AB 340 does not affect current state employees, except for a few provisions:

  • Most state employees will be affected by the requirement that the employee and employer equally share normal costs of pension benefits (50/50 share of costs). However, current employees of the California State University are not affected by the 50/50 cost-sharing portion of AB
    340. All CSU employees hired after January 1, 2013 WILL be subject to 50/50 cost sharing. This will increase new employee contributions to 8 percent.
  • Currently, employees can purchase up to five years of service credit for time that was not in PERS service; this is called purchasing “airtime.” Airtime will be gone as of January 1, 2013. CalPERS will honor requests to purchase airtime that are received by December 31, 2012. The ability to purchase Service Prior to Membership, as well as buying back service credit from any unfunded leaves of absence, will remain.
  • A public employee who commits a felony connected with the performance of official duties will forfeit retirement benefits accrued after the date the felony occurred.
  • Retired annuitants will be limited to 960 hours in a consecutive 12-month period. This is a current practice that is retained.
  • A person who retires after January 1, 2013 is prohibited from returning to work as a retired annuitant for a period of 180 days. However, FERP eligible employees can continue to apply and, if approved, return to service even within that 180-day window.

Q: What is the impact of AB 340 on future CSU employees?

A: Anyone who becomes an employee on or after January 1, 2013 will be required to pay half of the normal costs of the pension benefit. Currently, normal costs are approximately 16 percent of gross salary; the employee would pay half. AB 340 reduces the benefit formula and increases the retirement age. The new defined benefit formula as of January 1, 2013 will be 2 percent at age 62, with an early retirementage of 52 and a maximum benefit factor of 2.5 percent at age 67.

Q: Will the legislation affect me if I’m retired?

A: The legislation limits retirees from working more than 960 hours or 120 days per year for any public employer in the same public retirement system from which the retiree receives benefits. It also requires a 180-day “sit-out” period before a retiree can return to work except under limited circumstances that are outlined in CalPERS analysis of the legislation.

Q: Will Lecturers who retire be subject to the 180-day (6-month) waiting period before being re-employed as a retired annuitant?

A: Yes.

Q: Now that it is signed into law by the governor, when will the legislation go into effect?
A: The bill will take effect on January 1, 2013.

Q: Does the 50/50 cost-sharing proposal affect CSU employees?
A: Current CSU employees are not impacted by the 50/50 cost sharing portion of the pension deal. However, all CSU employees hired after January 1, 2013 WILL be subject to 50/50 cost sharing.

Q: Will current employees have their final compensation calculated based on their highest 12 consecutive-month period or 36 consecutive-month period?
A: For current employees, the pension benefit will be based on their highest average annual final 12-consecutive months of compensation. For employees hired on or after January 1, 2013, the pension benefit will be based on their highest average annual final compensation during a consecutive 36-month period, subject to the cap of $110,000 pensionable salary for calculating the retirement benefit.

Q: Will FERP-eligible employees be subject to the 180-day delay for return-toservice?
A: No. FERP-eligible employees can continue to apply and, if approved, return to service even within that 180-day window.

Q: Does the provision mandating that pensionable salary will be capped at $110,100 for those in Social Security apply to current employees?
A: No. This provision only applies to those hired on or after January 1, 2013.

Q: How did the Governor and the Legislature come up with this proposal?
A: On October 27, 2011, Governor Brown proposed a 12-point plan to reform all public employee pension systems in California. Last fall, he submitted his pension reform plan to the Conference Committee on Public
Employee Pensions. The committee held several hearings around the state, and legislative leaders held several meetings with the Governor’s Office before reaching an agreement on a final report.

The report, which was released as AB 340 on August 28, 2012, contains most of the governor’s 12 provisions but does not include a mandatory 401K hybrid plan for new employees. Instead, the bill caps pensionable salary at $110,100 for those in Social Security. It doesn’t address the governor’s proposals dealing with retiree health care or appointments to the CalPERS board of directors.

The conference committee voted 4-2 to send AB 340 to the Senate and Assembly for an up or down vote. The legislature approved the bill on August 31 and Gov. Brown signed
it on September 12, 2012.

Q: What does AB 340 NOT do?
A: Several regressive changes that would have affected CSU faculty adversely were negotiated out of the bill. These include proposals to:

  • Increase vesting period and contributions for retiree health care
  • Establish a hybrid 401k pension system
  • Change the composition of the CalPERS Board of Administration.

Q: Will this bill put an end to the attacks on public employee pensions?
A: It is CFA’s hope that enactment of AB 340 will stop the momentum of anti-pension zealots who have been mobilizing to qualify ballot initiatives to gut pensions and force public employees into 401K type plans.

Q: I still have a specific question about my retirement and individual circumstance. Who should I talk to?
A: You should contact a CalPERS agent directly. Call toll-free 888 CalPERS (888- 225-7377).

PLEASE NOTE: These comments are based on the union’s understanding of AB 340 at California Faculty magazine press time. New information could become available. These questions are not intended to address all issues that could arise from the bill. For more about your particular situation as a CSU faculty member, contact CalPERS tollfree 888-CalPERS (888-225-7377) or calpers.ca.gov

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