Systemwide Human Resources

September 12, 2012

TO: All CSU Employees

FROM: Gail Brooks, Vice Chancellor, Human Resources

RE: Public Employee Pension Reform Act of 2012

The Public Employee Pension Reform Act of 2012 was signed by the governor today and will become law on January 1, 2013. As you can imagine, there are many complexities to this legislation and we are diligently working with CalPERS on the interpretation of the bill (AB 340) as it pertains to CSU employees. We understand there are many questions regarding the impact of this bill and will provide you with information as quickly as possible. Listed below are some highlights of AB 340.

Impact to existing and new (hired on or after 1-1-13) employees:

  • Airtime - prohibits purchases of nonqualified service; however, applications received by CalPERS prior to 1-1-13 would still be eligible.

  • Post-retirement employment- requires a 180-day “sit-out” period before a retiree could return to work unless the appointment is:

    • Necessary to fill a critically needed position and has been approved by a governing body in a public meeting

    • Retiree is eligible to participate in the Faculty Early Retirement Program (FERP)

  • Forfeit pension benefits--felony conviction committed within the scope of official duties

  • Retroactive pension increases--prohibit retroactive pension benefit changes that apply to service performed prior to the enhancement

Impact to employees newly hired on or after 1-1-13:

  • Retirement contribution–employee will be responsible for contributing 50% of the pension contribution rate calculated by CalPERS that is used to fund the employee’s retirement benefit. The employer will pay the remaining 50%.

  • New cap on compensation that can be applied to benefit formula--limits amount of compensation used to calculate the retirement benefit equal to the Social Security wage index limit ($110, 000 for 2012). This amount is adjusted annually based on the Consumer Price Index (CPI).

Defined Benefit Retirement Formulas

Retirement Plans

Hired prior to 1-15-11

Hired on or after
1-15-11

Hired on or after 1-1-13

State Misc. Tier 1

(all eligible employees except public safety)

2% at 55 (one year highest compensation)

2% at 60 (36 month average compensation)

2% at 62 (consecutive 36 month subject to cap)

Public Safety

Retirement Plans

Hired prior to
1-15-11

Hired on or after 1-15-11

Hired on or after
1-1-13

PO/FF (MPP Public Safety)

3% at 50 (one year highest compensation)

2.5% at 55 (36 month average compensation)

2.5% at 57 (consecutive 36 month subject to cap)

State Safety (limited to Intermittent Peace Officer)

2.5% at 55 (one year of highest compensation

2% at 55 (36 month average compensation

2% at 57 (consecutive 36 month subject to cap)

Hired prior to
7-1-11

Hired on or after 7-1-11

Hired on or after
1-1-13

PO/FF (Unit 8)

3% @ 50 (one year highest compensation)

2.5% at 55 (36 month average compensation)

2.5% at 57 (consecutive 36 month subject to cap)

Please note: Employees who became members of CalPERS on or after July 1, 1996 are subject to the IRC 401(a)(17) limit, which restricts the amount of compensation that can be used to calculate the CalPERS retirement benefit. For 2012, the limit is $250,000.

There is other language in the bill that may impact the CSU. We are working to identify those provisions and will provide you with periodic updates. In addition, we will be establishing a Pension Reform FAQ that will be available soon. In the meantime, you can forward your questions to benefitsInsider@calstate.edu.

You can track the Pension Reform Plan on the governor’s website or on the CalPERS website