1. ACSA leadership Summit 2014 STRS Pension Reform and Impact on Negotiation Presented by Mays Kakish, Chief Business Official Moreno Valley USD Jon McNeil, Assistant Superintendent Whittier City School District

2. Pension Reform Act of 2013 (PEPRA) The California Public Employees’ Pension Reform Act of 2013 (PEPRA) made significant changes to public employee pension systems, including CalSTRS and California Public Employees’ Retirement System (CalPERS), and imposed system changes to reduce their future fiscal liabilities Assembly Bill (AB) 340 (Chapter 296, Statutes of 2012) primarily affected prospective CalSTRS and CalPERS members who joined the pension systems after January 1, 2013, and retained existing benefits for existing pension system members, referred to generally as “classic members.”

3. AB 340 is the concept of equally sharing the cost of a member’s benefit between the employer and the employee AB 340 specifies in Government Code Section 7522.30 that “[e]qual sharing of normal costs between public employers and public employees shall be the standard The law also recognized the possibility that existing employment agreements may stipulate other cost-sharing schemes and, therefore, included a provision to protect the integrity of existing contractual arrangements.

4. AB 340 cont. For all intents and purposes, the cost-sharing requirements of PEPRA did not affect the ability of employers to pay a portion or all of an employee’s contributions for their classic members if that benefit was provided through a collective bargaining agreement or other type of employment contract.

5. AB 1381 In 2013, the Assembly Public Employees, Retirement and Social Security Committee introduced a “clean-up” bill to PEPRA: AB 1381 (Chapter 559, Statutes of 2013). Specifically, AB 1381 amended Education Code Section (E.C.) 22909, relating to employer-paid employee contributions for CalSTRS, stipulating that employers are prohibited from paying employee contributions for both PEPRA and classic members. Contractual arrangements shall be honored through the duration of the contract. However, the bill prohibited any “renewal, amendment, or any other extension of [a] written agreement” from authorizing an employer to pay for an employee’s contribution.

6. AB 1381 cont. Amends Education Code section 22909 to prohibit employer-paid member contributions for CalSTRS 2% at 60 members in collective bargaining agreements that are entered into or changed on or after January 1, 2014. Employers can continue to pay all or a portion of employee contributions, as outlined in the collective bargaining agreement, for CalSTRS 2% at 60 members whose bargaining agreements are still in effect as of January 1, 2014. However, employers cannot negotiate new bargaining agreements, or extend, renew or amend current bargaining agreements, to provide employer-paid member contributions for CalSTRS 2% at 60 members.

7. AB 1381 cont. The bill was signed into law on October 4, 2013, and became effective January 1, 2014. The changes to E.C. 22909 impact both PEPRA and classic CalSTRS members, barring employers from paying for employees’ contributions, thus conforming to the intent of PEPRA’s “equal cost-sharing” principle. Importantly, AB 1381 did not impact classic CalPERS members. Therefore, employers retain the authority to pay the employee contributions for classic CalPERS members.

8. SB 1220 (Torres) SB 1220 is a second CalSTRS “clean-up” bill that further amends E.C. 22909 to specify that the prohibition of employers to pay for CalSTRS members’ contributions apply to both an agreement with an exclusive representative or a written employment agreement. Presumably, this amendment captures CalSTRS members who are not represented by a unit and thus would not be covered by a collective bargaining agreement. This provision likely affects management and/or cabinet-level certificated staff who are classic CalSTRS members and who in prior years had the benefit of employer-paid member contributions. SB 1220 –Approved by the senate and presented to the governor on August 25, 2014 “Written employment agreements” were unintentionally excluded from the provisions in which employers are restricted from paying the member’s portion of contributions to the DB Program. This measure clarifies that written employment agreements are to be included in the provisions in which employers are restricted from paying the member’s portion of contributions to the DB Program

9. AB 1381 cont. At the expiration of a collective bargaining agreement or written employment agreement that contain provisions for pension cost-sharing schemes that are not consistent with PEPRA’s “equal cost-sharing” requirement, agencies must either eliminate those provisions or amend the provision to specify that any CalSTRS employee is required to contribute 50% of the normal costs of the defined benefit plan.

10. STRS Classification The window of time for restructuring creditable compensation that exists for contracts involves 4 options: Don’t do a thing Move some of the non-salary funds and put into a 403B or STRS pension 2 Partially restructure – look at elements of your contract (i.e. mileage… reduce mileage reimbursement to within the county and anything outside of that include into salary) Completely restructure – Do everything you can between now and Jan 2016 and move into salary. Then set aside for at least 7 years because this is the window of time you can be audited. New regulations comes into effect in Jan 1, 2015.

11. STRS creditable service – ACSA is in the midst of having some clean-up language regarding this. ACSA is trying to protect folks who may not have completed the STRS Election Form The law is vague regarding what should be creditable service. For example, many districts now hire an ED-TECH person who requires a credential. ACSA is considering that STRS would be any position that requires a credential. ACSA is trying to have a grandfather clause If you stay in the same position but change districts an election form is still required.

12. STRS Lawsuit Public opinion regarding pensions has been a prevalent issue recently STRS increased their audits of employment contracts. Little guidance regarding guidance of creditable compensation. ACSA has been researching the cases that are now being audited by STRS, particularly regarding spiking issues. Issues audited such as: change in job title in final year of service, health benefits included in creditable compensation, etc. ACSA is seeing that the STRS audits are impacting the individual… employee ACSA took 5 cases and entered into a consolidated pleading, like a class action suit.

13. ACSA is challenging STRS The statue is unconstitutionally vague when it comes to creditable compensation. To hold employees accountable to the eye of the beholder auditor position is not okay. Each plaintiff has had a severe violation of due process. ACSA is requesting that STRS has a due process before they take funds out of a person’s pension. Filed case in July 2014. ACSA is not named in the case, however this is on behalf of all ACSA members. Results thus far: 1) Jan 2015, creditable compensation regulations will be released. Plaintiffs will have hearing in March 2015 to beg for due process. ACSA is revising superintendent contract template and they are training on creditable compensation regulations. They are also working on the lawsuit.

14. Impact on Negotiation The concept of “Total Compensation”: Salary Fixed Charges and Health and Welfare Benefits There is no additional funding in LCFF to offset the additional expense for increased DB

15. STRS impact : State rates 2014-14 8.88% 2015-16 10.73% 2016-17 12.58% 2017-18 14.43% 2018-19 16.28% 2019-20 18.13% 2020-21 19.10%

16. STRS impact Moreno Valley USD and Whittier City SD MVUSD WCSD 2014-14 $952,884$155,605 2015-16 $2,878,497$604,333 2016-17 $2,966,623$1,057,445 2017-18 $2,966,623$1,539,728 2018-19 $2,966,623$2,041,062 2019-20 $1,555,473$2,562,023 2020-21$2,870,392

17. How does this compare to our budget MVUSD WCSD 1% Salary increase = $2,467,643$605,222 Increase in STRS rate for 2015-16 = $2,878,497$604,333 Which equates to 1.166%

18. Questions