On September 12, 2012, Governor Brown signed AB 340, the Public Employees Pension Reform Act (PEPRA). The bill makes many changes to the pensions of public service workers in California - including LACERA members; however, most of them are for future hires (those hired on or after December 1, 2012) and DO NOT impact current employees.
The following describes the impact of PEPRA on current employees and new hires:
IMPACT OF PEPRA ON CURRENT EMPLOYEES:
Most importantly, whichever LACERA retirement plan you are now in (Plan D or E), you will keep, and most plan provisions will remain the same.
- No mandatory 50% normal cost sharing
- No change in what qualifies as pensionable compensation
- No change to disability formulas
Some changes that will impact the retirement system, including for current employees, as a result of PEPRA include the following:
- Additional Retirement Credit (ARC), or "Air Time": Effective January 1, 2013, County employees will no longer have the ability to purchase additional retirement credit, commonly referred to as air time. To be eligible to purchase air time, an employee must have five (5) years of County service. The last date to submit an application to LACERA to purchase air time is December 31, 2012. Once an application has been submitted, the employee has 30 days to decide if he or she wants to actually purchase the air time and enter into a binding contract. Payments can be made on a lump sum basis, or a payment plan can be structured with LACERA over a ten (10) year period. To submit a non-binding application for air time, go to www.Members.LACERA.com, log into "My LACERA" and follow the directions on the screen. Alternatively, you can call LACERA 7:00 AM to 5:30 PM, Monday to Friday toll-free at (800) 786-6464.
- Double-dipping: Currently, retirees can return to service without reinstatement for up to 120 days (960 hours) in a fiscal year but only after 90 days of separation (unless over the Normal Retirement Age). Under PEPRA, civilian retirees will have to be separated for 180 days before returning to service. However, under PEPRA the Board of Supervisors has the right to waive the waiting period.
- Felons: Effective January 1, 2013, a County worker who commits a felony arising out of work duties will forfeit any of the retirement benefits he or she accrued after the date the felony occurred. Any contributions made since the date of the crime would be returned without interest.
- Eliminates retroactive pension increases: Any future pension improvements cannot be applied to prior service - no retroactivity.
- Eliminates "pension holidays": The County is now required to make its annual contribution to LACERA and cannot take a "pension holiday" even if the plan is overfunded.
IMPACT OF PEPRA ON NEW HIRES-NEW GENERAL PLAN "G"
PEPRA mandates that public retirement systems, including LACERA, modify their retirement plans to incorporate a lower benefit formula and employee cost sharing. As a result, Plan E has been closed for new hires. Plan D still exists, but only for current employees (pre-PEPRA). Also, a new lower cost/lower benefit plan (General Plan G) will take effect as the new defined benefit contributory retirement plan for all General (non-safety) employees hired on or after December 1, 2012.
Summary of new General Plan G provisions for new hires:
- Retains all allowable Plan D benefits.
- Benefit formula is 2.5% at age 67 (Plan D is 2.43% at 65).
- Employee must pay 50% of the plan's normal cost after our current Fringe Benefit contract expires on September 30, 2013.
- Only base pay is considered as compensation for retirement purposes. Bonus pay, allowances, buy-backs, and unused healthcare contributions (such as the waiver amount in Choices) are not considered as pensionable compensation under the new General Plan G.
- Pensionable compensation for new hires is capped at $132,120 annual (amount will be adjusted annually based on the Consumer Price Index for All Urban Consumers).
- Final compensation is defined as average of 3 consecutive years (Plan D has single highest year).
- 5 years vesting period.
- Disability retirement provisions, death, and survivor benefits as in Plan D
- 2% COLA
For more information regarding PEPRA or the new General Plan G for New Hires (employees hired on or after December 1, 2012), please visit LACERA's website at www.lacera.com or contact LACERA at 800-786-6464.