HomeMy WebLinkAbout7-AB 340 - Public Employees' Pension Reform Act (PEPRA) Agenda Item # 7
■ UCKEE r
DistrictPubCr- Utility
ACTION
To: Board of Directors
From: Nancy Waters
Date: November 15, 2012
Subject: Consideration of Actions to Implement AB 340 - Public Employees'
1. WHY THIS MATTER IS BEFORE THE BOARD
This matter involves the implementation of AB340, the California Public Employees'
Pension Reform Act (PEPRA). The District and its employee groups wish to achieve
immediate compliance with AB340, not increase retirement cost to District ratepayers,
and try to mitigate the effects on current and future employees. Board action is
required to make changes to employee benefits and any structural changes to the
MOU with IBEW 1245.
2. HISTORY
California's AB340 was signed into law by the Governor with the effective date of
January 1, 2013. Many of the mandated changes will impact current employees and
future new hires to the District.
The provisions of AB340 affecting District employees are:
• Current employees (on the 2.7% @ 55 plan) must pay at least 50% of "normal
cost" of their plan, up to 8% of their "pensionable" wages.
• Employees hired after 1/1/13 (with no prior CalPERS membership within the
past six months) shall have a new formula for their pension, 2% @ 62. They
also must pay at least of 50% of the "normal cost" of their plan.
• Employees on the 2% @ 62 plan shall have a cap on their pensionable wages
of $110,100 (adjusted annually to equal the social security contribution and
benefit base).
3. NEW INFORMATION
This action involves changing the pension structure for the union employees covered
by the MOU with IBEW, unrepresented employees, the General Manager, and
authorization of a 2013 COLA for the District's unrepresented employees.
District management and union representatives have met several times to formulate a
plan to comply with AB340, mitigate the financial effects on employees, minimize
financial inequality between new employees and current employees, while not
increasing the District's CalPERS cost to the ratepayers.
The following structure has been tentatively agreed to by District management and the
union members, as well as the unrepresented employees of the District.
Retirement Structure for IBEW Represented Employees:
Current employees:
• Beginning on January 1, 2013, employees shall pay 8% of their wages for the
cost of their pension.
• The District shall pay all remaining CalPERS costs not covered by employees.
• Employees shall receive an amount equal to 1.89% of their wages in the form of
a contribution to a flexible spending benefit, that will not be reportable to
CalPERS as pensionable wages.
Employees hired after January 1, 2013:
• Employees shall pay 50% of the "normal cost" of the 2% @ 62 plan estimated
to be 6.05% the first year, based on CalPERS data.
• The District shall pay all remaining CalPERS costs not covered by employees.
• Employees shall pay into a fund, with a matching contribution paid by the
District, of which the employees will be 100% vested, but the District will have
control of the account. The amount required to be paid will be the amount
needed to equal the amount the employees in the the 2.7% @ 55 plan are
paying (this structure brings equality on the net paycheck amounts for
employees in both plans). Employees will gain individual control of their account
after three years, pending any legal challenges and litigation to AB340.
• The District shall establish a second holding account to set aside 10.37% of
wages for each employee in the 2% @ 62 plan. This amount is equal to the cost
difference between the two plans, and shall be used, if necessary, to pay the
buy-in cost of new employees later joining the 2.7% @ 55 plan, if challenges to
AB340 require this. Contributions shall end after three years, and the fund will
be terminated with funds returned to the District's general fund.
The Letter of Agreement with SEW 1245 is included as Attachment 1, and outlines the
implementation structure for union employees.
Retirement Structure for Unrepresented Employees and General Manager
Unrepresented employees and the General Manager shall follow the same structure.
Changes to the General Manager's employment agreement must be made by
ordinance, included as Attachment 2.
Unrepresented Employees COLA
Union employees and the General Manager currently have a 2013 COLA built into
their contracts. Unrepresented employees have no contract, and therefore, separate
authorization of their 2013 COLA is required. The October 2012 CPI-W (used for union
employees and the General Manager's COLA) will be released on November 16th. At
this time, the CPI-W is estimated to be between 1 .8% and 2.2%.
4. FISCAL IMPACT
The implementation of AB340 as outlined is revenue neutral to the District.
Union Represented Employees Current 1/1/13 as Proposed
Employee Contribution 6.11% 8.00%
District Contribution 30.32% 28.43%
Total 36.43% 36.43%
Unrepresented Employees
Employee Contribution 5.71% 8.00%
District Contribution 30.72% 28.43%
Total 36.43% 36.43%
General Manager
Employee Contribution 5.36% 8.00%
District Contribution 31.07% 28.43%
Total 36.43% 36.43%
The 2013 COLA for the District's unrepresented employees will be about 2% and is
included in the FY13 budget.
5. RECOMMENDATION
1) Approve the changes to the MOU with IBEW 1245 implementing pension changes
for current and future employees.
2) Approve the changes to pension calculations for unrepresented employees.
3) Approve the ordinance and amendment to the General Manager's employment
agreement changing the pension structure.
4) Authorize a 2013 COLA for unrepresented employees based on the October 2012
CPI-W.
VlavL I
Nancy Waters Michael D. Holley
Human Resource Manager General Manager
Attachment 1
Letter of Agreement
IBEW 1245 and Truckee Donner PUD
Implementation of California Public Employees' Pension Reform Act (PEPRA)
November 5, 2012
1. Preamble
The District and the Union jointly wish to comply with AB340 and to mitigate the effects of
AB340 on current and future employees, while not increasing the CalPERS cost to District
ratepayers. Additionally, both parties wish to minimize financial inequality between new
employees on the 2% @ 62 plan with employees on the 2.7% @ 55 plan.
2. History of Existing CalPERS Retirement Plan
August 2004:The District joined CalPERS with the 2% @ 60 plan.The District agreed to
purchase prior service for the employees,thus creating the side-fund liability. Employees
turned over their personal funds in existing plans to CalPERS to reduce the amount of the
liability.The District assumed the balance of the liability.The District and the Union agreed that
employees would contribute 3%of their pensionable wages (hereafter referred to as "wages")
through payroll.
January 2011:The Union and the District agreed to transition to the 2.7% @ 55 formula with
employees assuming all additional costs with no additional cost to the District. Union
employees relinquished 5.03%of existing benefits back to the District, and agreed to contribute
an additional 3.88%of their wages to cover increased costs. Employees agreed to contribute a
pro-rata share of 29.13%of all future increases or decreases to CalPERS employer rate.
July 2011:The District refinanced the CalPERS side-fund liability with a private lender at a lower
interest rate. District and Union negotiated to lower the employee's contribution rate to the
side-fund by 1.65%on January 1, 2012 due to the lower borrowing costs. All employees
currently pay 3.50%of their wages to the side-fund liability and 2.61%to CalPERS. The District
currently pays 10.41%to the side-fund liability.The District pays a total of 19.91%to CalPERS,
consisting of 14.52%employer portion and 5.39%employee portion.
3.AB340 Pension Reform Provisions Affecting District Employees
(a) For employees hired on, or before, December 31, 2012:
• PEPRA requires that employees pay at least 50%of"normal cost" of the existing
2.7% @ 55 plan, up to 8%of wages.
(b) For employees hired after January 1, 2013, PEPRA requires that:
Attachment 1
• New employees (with no prior CalPERS membership within the past six months)
shall join in the 2% @ 62 plan and must pay at least 50%of the "normal cost" of
this plan, up to 8%of wages.
• An annual salary cap for wages will be capped at$110,100 (adjusted annually to
the social security contribution and benefit base).
(c) CalPERS will determine the eligibility of employees newly hired by the District to join the
2.7% @ 55 plan or the 2% @ 62 plan.
4. Future Pension Payment Structure to Comply with PEPRA
(a) Beginning on 1/1/13, all union employees shall receive 1.89%of their wages in the form of a
District contribution into a Flexible Spending Plan. This amount will not be reportable to
CalPERS as wages, and can be used at the employee's discretion.
(b) Beginning on 1/1/13, For Employees eligible for the 2.7% @ 55 Plan:
• Employees shall pay 50%of"normal costs" as defined by CaIPERS, not to exceed
8%of wages to be adjusted annually on July I"of each year by the District,
based on cost data from CalPERS.
• District shall pay all remaining CAPERS employer and employee costs not
covered by the employees.
• The net employee cost for the first year is 11.14%of wages.
(c) Beginning on 1/1/3, All Other Employees (2% @ 62 Plan):
• Employees shall pay 50%of"normal costs" as defined by CaIPERS, not to exceed
8%of wages. Initial costs shall be based on CalPERS data, and annually adjusted
on July 1st of each year by the District, based on cost data from CAPERS. 50%of
the normal cost for the first year is estimated to be 6.05%.
• District shall pay all remaining CalPERS employer and employee costs not
covered by the employees.
• Employees shall pay an amount into a holding account, hereafter referred to as
"Fund A", of which they will be 100%vested, but the District shall have sole
authority regarding the control of these funds.The amount will be a percentage
of wages equal to the net employee cost of the 2.7% @ 55 Plan, plus the District
contribution toward a Flexible Spending Plan as described in subsection (a), less
the 50%of the normal cost of the 2% @ 62 Plan. For the first year the amount
would be 6.98%of wages, calculated as follows: 11.14% net employee cost of
the 2.7% @ 55 Plan, plus 1.89%District contribution to a Flexible Spending Plan,
Attachment 1
less 6.05%employee portion of the normal cost of the 2% @ 62. Plan.This
amount shall be adjusted annually by the District, based on CaIPERS data.
• District shall match the 6.98%as adjusted annually into Fund A for each
employee participating in the 2% @ 62 plan,which the employees will be 100%
vested, but the District shall have control of these funds.
• The District shall pay 10.37%of wages for each employee in the 2% @ 62 plan
into a District managed holding account,for which the employees are 0%vested.
This shall be referred to as "Fund B".
• Employees earning in excess of$110,100(or the current amount of the cap),
shall have a District contribution to Fund A.The amount will be calculated by
their individual wages amount less the current amount of the cap, multiplied by
the percentage of normal cost paid by the District.
5. Future Legal Challenges and Litigation to AB340 by Outside Parties
(a)The existence of the holding accounts, Funds A and B, and the District and employee's
contribution to these accounts shall remain in effect until any court challenges to AB340, if any,
are completed, not to exceed 3 years from the date of this LOA, unless the time frame is
extended or reduced by mutual agreement between the Union and the District.
(b) If the bifurcated pension plans remain in effect after litigation:
• The amount of individual and District contributions to Fund A shall continue, but
shall be transferred to the individual employee's existing ICMA or CaIPERS 457(b)
or 401(a) plans, as selected by the employee and of which the employee will
have full control.
• District contributions to Fund B shall end and shall be returned to the District's
general fund.
(c) If the courts do not allow for bifurcated plans, employees in the 2% @ 62 plan will transfer
to the 2.7% @ 55 plan. All funds in Fund A plus a matching amount from Fund B will be used to
pay for the employee's buy-in to the 2.7% @ 55 plan. District contributions to Funds A and B
will be terminated after funds are dispersed.The employee (current and new hire) contribution
shall revert to the structure outlined in the now current MOU.
(d)Any overages or under-funding for the buy-in will be funded jointly by the District and the
affected employee proportional to their contributions at the time of buy-in.
Attachment 1
6. Other
Under no circumstances will an employee hired on, or prior to, December 31, 2012 be allowed
to transfer to the 2% @ 62 plan, unless they separate from the District and have a six-month
gap in service, and return to work at the District.
Additional funds in 457(b) or 401(a) accounts as described in Section 4(c) are independent of
any other Supplemental Income Plan (SIP) and will not be subject to District matching.
7. Employee Separation from Employment at the District
At the time of separation from employment at the District, all employee and District
contributions to CalPERS will be handled by CalPERS according to its vesting regulations.
At the time of separation from employment at the District, all employee contributions and
District matching contributions to Fund A shall be relinquished to the employee's control.
8. Future, Unknown Effects from AB340 or Associated Litigation
The District and the Union recognize this MOU cannot forecast issues and agree that unknown
problems may arise related to this agreement. Both parties agree, if necessary, to open this
MOU and resolve issues or problems as needed while using Part 1 (above) as guiding principles.
This Tentative Agreement is subject to ratification by affected members of Local 1245 and
acceptance by the TDPUD Board of Directors.
TA Date: l e
For the District: For the Union:
Attachment 2
■ UCKEE f
DistrictPubkc Utility
Ordinance No. 2012 - 03
EFFECTING THE EMPLOYMENT AGREEMENT FOR THE
GENERAL MANAGER
WHEREAS, the Board of Directors employs a General Manager to manage the day by day affairs
of the District;
WHEREAS, the Board of Directors executed an Employment Agreement with the General Manager
that expires on June 30, 2015;
WHEREAS, the Board of Directors wish to comply with provisions of AB340, mandating employees
to pay 50% of the "normal costs" of their CalPERS pensionable wages.
THEREFORE, BE IT ENACTED by the Board of Directors of the District that effective thirty days
from the date of passage of this ordinance the following actions occur:
1. The General Manager's Employment Agreement term shall be revised to reflect that
beginning January 1, 2013; the employee shall pay 50% of the "normal cost" of the plan,
up to 8% of pensionable wages. The employee shall receive 2.64% of their wages in the
form of a contribution into a flexible spending benefit. (Exhibit "A")
2. That the District Clerk is directed to publish this ordinance in accordance with the laws of
the State of California.
PASSED AND ADOPTED by the Board of Directors of the Truckee Donner Public Utility District at
a regular meeting thereof duly called and held within said District on the fifteenth day of November
2012 by the following roll call vote:
AYES:
NOES:
ABSTAIN:
TRUCKEE DONNER PUBLIC UTILITY DISTRICT
By
Tony Laliotis, President of the Board
ATTEST:
Michael D. Holley, Clerk of the Board
Exhibit "A"
AMENDMENT No. 1
To
TRUCKEE DONNER PUBLIC UTILITY DISTRICT
EMPLOYMENT AGREEMENT
GENERAL MANAGER
This Amendment No. 1 to the Truckee Donner Public Utility District Employment
Agreement General Manager is made and entered into this fifteenth day of November, 2012, by
and between the Truckee Donner Public Utility District, (hereinafter called "Employer" or
"District") and Michael D. Holley, (hereinafter called "Employee" or"Holley") as follows:
WHEREAS, the Employer and Employee desire to amend the Truckee Donner Public
Utility District Employment Agreement General Manager entered into between them on March
17, 2010 ("Agreement"); and
WHEREAS, the District's Board of Directors approved the terms and conditions set for
the in this Amendment No. 1 during its special meeting on November 15, 2012.
NOW THEREFORE, the Employer and Employee agree as follows:
Section 7: Retirement of the Agreement is amended to read as follows:
A. The Employer agrees to enroll the Employee into the CaIPERS retirement
system in accordance with the Employer's agreement with CaIPERS. Beginning on
January 1, 2013, Employee shall pay 50% of "normal cost" of the plan, up to 8% of
pensionable wages.
B. The Employee shall receive 2.64% of wages in the form of a contribution into a
flexible spending benefit. This amount will not be reportable to CaIPERS as wages, and
can be used at the employee's discretion.
C. For and in consideration of Employee's performance of duties as the Employer's
Water Utility Manager, in addition to the performance of the other duties described in
Section 2, above, Employer shall annually make a lump sum contribution to Employee's
Supplemental Income Plan equal to five percent (5%) of Employee's Base Salary. Each
annual lump sum contribution shall be made during July, with the first contribution being
made in July 2010. Each annual lump sum contribution shall be calculated as five
percent (5%) of Employee's Base Salary at the time the contribution is made.
Except as expressly stated herein, all other terms and conditions of the agreement shall remain
unchanged and in full force and effect.
Employer: Employee:
Tony Laliotis Michael D. Holley
President of the Board
Truckee Donner Public Utility District