State of California M E M O R A N D U M REFERENCE CODE: 99-053 DATE: October 20, 1999 TO: Employee Benefit Officers Personnel Officers FROM: Department of Personnel Administration Policy and Operations Division SUBJECT: Retirement Benefit Enhancements CONTACT: Oscar A. Alarcon, Personnel Program Analyst (916) 324-0523, CALNET 454-0523 FAX: (916) 325-0524 OFFICE VISION: DPA(OscarAlarcon) INTERNET: OscarAlarcon@DPA.CA.GOV Governor Davis signed SB 400 on September 29, 1999. This bill contains numerous retirement benefit enhancements that were negotiated with State employee organizations. These new benefits will become effective for represented and excluded employees who are in employment status on or after JANUARY 1, 2000. Unless otherwise specified, these benefits apply to all State employees who are members of the California Public Employees' Retirement System (CalPERS). FIRST TIER ELECTION RIGHTS FOR SECOND TIER MEMBERS Employees who are currently in the Second Tier Plan will be able to elect to become members of the First Tier Plan. Upon electing coverage under the First Tier Plan, an employee would be able to "buyback" Second Tier service under the First Tier Plan. These elections can be made at any time prior to retirement. State employees who are currently in some other membership category, such as State safety, and have prior service credited under the Second Tier Plan will also be eligible to buy that service under the new First Tier Plan. MODIFIED FIRST TIER PLAN Last year, the Modified First Tier (MFT) Plan was negotiated with Bargaining Units 8, 16, and 19. State employees who are currently in the MFT will be merged into the new First Tier Plan. Therefore, on January 1, 2000, they will become First Tier members, make member contributions at the First Tier rate, and their retirement benefits will be based on one-year final compensation. In addition, sick-leave credits will be converted to CalPERS service credit at retirement. These employees will have all of their past service under the MFT converted to First Tier service. Any past service that is credited under the Second Tier Plan may be purchased under the First Tier Plan, as described above. FIRST TIER MEMBERSHIP AND SECOND TIER OPTION FOR NEW HIRES All new employees, including reinstatements, hired on and after January 1, 2000, who are eligible for miscellaneous and industrial CalPERS membership will be covered under the First Tier Plan. However, they will have the right to elect to be covered under the Second Tier Plan. The election must be made within 180 days of appointment. If no election was made within that period, an employee would remain a First Tier member with no further opportunity to elect Second Tier membership. ENHANCED SERVICE RETIREMENT FORMULA FOR FIRST TIER MEMBERS The First Tier Plan has been enhanced to provide 2 percent of pay for each year of service at age 55, rather than 60 as is currently provided. This new formula will apply to State members who are employed by the State on or after January 1, 2000. Past First Tier service will be credited under this new formula. (The chart on the attachment contains the current and the new age benefit factors.) ENHANCED SERVICE RETIREMENT FORMULAS FOR SAFETY, PEACE OFFICER/FIREFIGHTER (PO/FF), AND PATROL MEMBERS AND BENEFIT LIMITS The service retirement formulas for State safety, PO/FF, and patrol members have been improved. The chart on Attachment A contains the new age benefit factors for these members. These new formulas will apply to State members who are employed by the State on or after January 1, 2000. Past service in the former formulas for these employees will be credited under the new formulas. If an employee in any of these membership categories has past service credited under the Second Tier, it may be purchased under the First Tier Plan, as described above. In addition to the new formulas, the limitation on the service retirement benefit for PO/FF and patrol members will be increased to 90 percent of final compensation for employees who retire after January 1, 2000. The limitation for safety members is unchanged at 80 percent of final compensation. FIFTH LEVEL OF THE 1959 SURVIVOR BENEFIT The 1959 Survivor Benefit is a death benefit provided to the survivors of State employees who are not covered by Social Security and who die prior to retirement. This death benefit has been improved to provide the following schedule of monthly allowances: 1. $1,800 to a spouse who has care of two or more eligible children, or to three or more eligible children not in the care of the spouse. 2. $1,500 to a spouse with one eligible child, or to two eligible children not in the care of the spouse. 3. $750 to one eligible child not in the care of the spouse; or to the spouse, who had no eligible children at the time of the employee's death, upon reaching age 60. The current employee contribution of $2 per month will continue. ALTERNATIVE PRE-RETIREMENT DEATH BENEFIT This preretirement death benefit currently provides a monthly allowance to the surviving spouse or to the dependent children of a State employee who had 20 or more years of CalPERS' service and was not of minimum retirement age at the time of death. At this time, health and dental benefits coverage are extended to the survivors only if they pay for the coverage. The Alternative Pre-Retirement Death Benefit is being improved to provide a monthly allowance calculated as though the employee had been of minimum retirement age at the time of death. In addition, the survivors will now be provided health and dental coverage and receive the State's contribution for this coverage. This improved benefit applies to all excluded employees and to all represented employees other than those in Units 5, 6, and 8. MISCELLANEOUS PROVISIONS - The amount of monthly compensation that will be exempt from employee retirement contributions for members in Bargaining Units 4 and 15 will be changed for the period between January 1, 2000 and August 31, 2000. For members covered by Social Security and who contribute into CalPERS at 5 percent, the exempt amount is increased from $513 to $753. For members not subject to Social Security and who contribute into CalPERS at 6 percent, the exempt amount shall be increased from $317 to $517. The exemption amounts will return to their current levels on September 1, 2000. - The installment payment period for buybacks will be increased from 8 years (96 monthly installments) to 15 years (180 monthly installments). - In addition to the current buyback provisions, employees will be allowed to buy portions of their service at a time, and a retiring member can take an actuarial reduction in the monthly allowance to pay for a service purchase. In addition, service buybacks can be made by "rolling over" employee deferrals in a qualified 401(a) or 401(k) defined contribution program, if allowed by the other plan. - The rate of contributions for safety, PO/FF, and patrol members shall change effective July 1, 2001, as follows: - - All State safety members will pay 8 percent of monthly compensation in excess of $238; - - PO/FF members in Unit 6 and related excluded employees will pay 10 percent on monthly compensation in excess of $863; - - PO/FF members in Units 7 and 8 and related excluded employees will pay 8 percent on monthly pay in excess of $513; and - - All patrol members will pay 1.5 percent of monthly pay in excess of $863. - Education leave credits at the time of retirement will be converted to CalPERS' service for employees in Units 3 and 21. The education leave credits will be converted to CalPERS' service on the basis of 0.004 for each day of accrued leave. - Unit 16 employees who were reclassified to safety membership in 1998 and who elected to remain under the miscellaneous formula will be allowed to elect to become subject to the new safety formula. CalPERS is presently preparing all of the notices, election materials, calculation programs, and data modifications necessary to implement these new benefit enhancements. During the first week of December 1999, CalPERS will mail an election package to members with State Second Tier service to provide cost information. This will allow them to elect to be covered by the new formula for past and future service or for future service only. Full benefit comparison information will also be provided, including retirement estimates under both tiers. Employees can access the CalPERS' website at www.calpers.ca.gov for further information. Further, the Retirement Calculator on the CalPERS' website has been updated to add the new benefit factors. Any questions about the retirement program should be directed to CalPERS at (800) 352-2238. Questions regarding this memorandum may be directed to Oscar Alarcon, Policy and Operations Division, at (916) 324-0523. Bob Painter Policy Manager "Attachment will be mailed with the hard copy."