The Public Employee Pension Reform Act of 2012 (“PEPRA”), comprised of AB 340 and AB 197, will go into effect January 1, 2013, and amends various provisions of the Public Employees’ Retirement Law, Teachers’ Retirement Law and County Employees’ Retirement Law of 1937 (“CERL”). PEPRA applies to nearly all public employers in California except the University of California, charter cities and charter counties (like San Francisco and San Jose), unless these entities participate in retirement systems governed by state statute (e.g., CalPERS, CalSTRS or county plans adopted pursuant to CERL).
The more significant changes relating to pension reform apply only to new employees. However, some provisions also apply to current employees. One major change is that many employees will have to begin paying half the normal cost of retirement by the year 2018, up to 8%. Employees in ’37 Act Counties will have to contribute up to 14% of their salaries to retirement, and will have additional terms impact their benefit as well. In jurisdictions where our members do not pay the whole employee contribution to retirement, this will likely have an impact on wages and take home pay. However, the bill has provided unions and employers 5 years to negotiate a way to comply with this provision.
Deadline to Buy “Air time” Another Provision in Bill
Under AB 340, employees will no longer be able to submit applications to purchase nonqualified service credits, commonly known as “air time,” starting January 1, 2013. Active CalPERS members with five years of qualifying service credit may currently be allowed to purchase up to five years of additional service credit that can be used toward retirement. Many investment professionals consider air time a great deal for retirees as the extra service credit enables members to earn a guaranteed 7-8% return, with no risk of investment losses, as opposed to the 3% return typically available for similar investments in the private sector. A similar benefit is offered to some, but not all members, enrolled in other retirement systems which are also impacted by AB 340.
CalPERS allows members to calculate the potential costs of purchasing airtime based on their individual employment history using an online “Service Credit Cost Estimator.” If you are interested in learning more about air time purchases, please contact the retirement system directly to learn more about eligibility and cost.
For non-CalPERS members, get more information to determine your eligibility and benefits related to purchasing service credit at the links below:
If you would like to take advantage of this benefit before the new law goes into effect, be sure to file your application to buy air time before c.o.b. on December 31, 2012. Submitting an application does not commit you to purchasing air time; you have the right to withdraw your application if you change your mind.