Pension Reform Impacts
The California Public Employees’ Pension Reform Act (PEPRA) was approved in 2012 and took effect January 1, 2013. View the Summary of PEPRA (PDF) for CalPERS' interpretations on key areas of PEPRA and related changes to the California Public Employees' Retirement Law (PERL).
Below are key areas that impact employers.
Employer and member rates will be examined every year in the fall. If there is a change in the rates, they'll be updated the following summer. Changes will be communicated through the Annual Valuation Report provided to each employer.
Contracting Agencies & School Districts
PEPRA provides that beginning in 2018 an employer may require employees to pay 50 percent of the total annual normal cost up to an 8 percent contribution rate for miscellaneous employees, and an 11 or 12 percent contribution rate for safety employees. PEPRA doesn't require an employer to implement this change but may do so once the employer has completed the good faith bargaining process as required by law, including any impasse procedures requiring mediation and fact finding.
Employer Paid Member Contributions (EPMC) are generally prohibited for new members, unless an existing MOU effective January 1, 2013, or prior, will be impaired. However, EPMC are prohibited for new members once the impaired MOU is amended, extended, renewed, or expires. In addition, PEPRA prohibits the reporting of EPMC as pensionable compensation and further prohibits the conversion of EPMC to final compensation for new members, regardless of impairment.
Multiple Retirement Formulas
For employers with multiple retirement formulas, CalPERS will look to its existing practice related to two tiers of benefits when providing employer contribution rates for new members.
- For public agency plans in a risk pool, a separate employer rate will be provided for the new PEPRA benefit formula.
- For public agency plans that do not participate in a risk pool, a combined rate will be provided.
- For state and school employers, a single combined employer rate per plan will continue to be used.
When submitting payroll, employers don't need to identify whether a member is classic or a new PEPRA member. However, employers will be required to report contributions at the appropriate rate. The Participant Pension Enrollment Data Report identifies any new members enrolled under PEPRA. Employers may access the report through the Cognos application in my|CalPERS.
PEPRA did not address classic state members’ contributions. However, AB 340 did identify certain increases for classic state members. For more detailed information on these employee contribution increases, please refer to the Proposed Changes in Employee Contribution Rates for State Employees (PDF).
The Certification of Memorandum of Understanding (MOU) Impairment (PERS-CASD-800) (PDF) can be used by employers to notify CalPERS in writing if they certify the terms of their MOU in effect on or before January 1, 2013, will be impaired by their compliance with the requirements of one or more provisions of Government Code Section 7522.30.
To confirm CalPERS received your agency’s Certification of MOU Impairment, follow these steps:
- Log in to my|CalPERS as a Business Partner.
- Select Common Tasks located on the left side navigation area.
- Select Document History.
- In Document History, enter “1420” in the Document Number field.
- Select Search.
- To obtain the document, select my|CalPERS1420 or Print Locally.
PEPRA doesn't impact a classic member's retirement formula and service credit. If an employer enhanced its retirement formula prior to January 1, 2013, the classic member will retain and accrue service credit under the enhanced retirement formula, provided the member continues employment with that employer.
Employers are able to report some items of special compensation for new members so long as the items meet the definitional requirements of pensionable compensation and are not excluded by the pensionable compensation statute. Further information is provided in Circular Letter 200-062-12 (PDF).
In 2014, CalPERS proposed regulations to clarify its interpretation of the items that may be reported as pensionable compensation. These regulations have since expired without approval. A new proposed regulation detailing items of allowable pensionable compensation is expected to be introduced in late 2015. Until regulations are approved and implemented, continue reporting pensionable compensation according to Circular Letter 200-062-12.
As a result of changes to my|CalPERS, employers no longer contribute on earnings in excess of the Internal Revenue Code section 401(a)(17) limit for classic members, nor do they contribute on earnings in excess of the pensionable compensation limit set forth in PEPRA for new members. Further information is provided in Circular Letter 200-007-14 (PDF).
Retirees engaged as independent contractors, consultants, or hired through third-party employers (e.g., temp agency), whose employment does not meet the California common law employment test, are not subject to PERL or PEPRA requirements.
If, however, the employment constitutes a California common law employment (employer-employee) relationship, the employment is subject to the applicable PERL and PEPRA requirements regardless of the employment’s characterization.
If the retiree’s employment is subject to the PERL and PEPRA requirements, employers need to enroll the retiree into mylCalPERS as they would any other retired annuitant, and report hours and pay rate through my|CalPERS.
Policies & Procedures
- Employer Training Classes
- Sample 180-Day Wait Period Resolution - Disability Retirement - Public Agency (PDF)
- Sample 180-Day Wait Period Resolution - Disability Retirement - School (PDF)
- Sample 180-Day Wait Period Resolution - Service Retirement - Public Agency (PDF)
- Sample 180-Day Wait Period Resolution - Service Retirement - School (PDF)