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).
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.
The court decision State of California v. United States Department of Labor ended the Assembly Bill 1222 PEPRA exemption for California transit employees who became new members on or after January 1, 2013.
Beginning April 20, 2015, CalPERS sent notifications to the impacted employers and employees and began creating new appointments placing members into the PEPRA retirement benefit formula effective December 30, 2014. CalPERS applied a new appointment effective December 30, 2014. Also, once payroll was corrected CalPERS applied a permanent separation, effective December 29, 2014, to the classic retirement benefit formula appointment.
If a member retired prior to their appointment change from all classic to classic/PEPRA, an adjustment to their retirement benefit needs to be processed. CalPERS is developing reports that will be available in my|CalPERS to identify all active and retired members who have submitted a retirement application. This will assist in proactively identifying affected members at receipt of application to avoid the need for an adjustment.
Effective December 30, 2014, when enrolling new members, employers are no longer required to have employees complete the Transit Employer Certification Form or to update the my|CalPERS enrollment to reflect employees' exempt statuses. Employers must continue to obtain all necessary enrollment information, such as the Member Reciprocal Self Certification Form (PDF), to ensure employee is enrolled correctly. Contact CalPERS Customer Contact Center at 888 CalPERS (or 888-225-7377 ) if you feel their membership enrollment level is not correct.
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)