Senate Bill 1032 - Eliminate the Terminated Agency Pool

February 13, 2018

Summary:

SB 1032 repeals the Terminated Agency Pool (TAP) within the California Public Employees’ Retirement System (CalPERS).

Issue Background:

SB 1032 ultimately allows entities contracted with CalPERS to terminate their contracts without paying the exorbitant termination fee associated with leaving the system. CalPERS exists to provide pensions and health benefits for California’s public employees, retirees, and their families. It is CalPERS’ fiduciary duty to manage its funds’ investments so that it may provide benefits and pensions to its members. It is not within the scope of these responsibilities to constrain its member agencies and dictate how they manage their funds should they wish to invest elsewhere.

The TAP was created to provide benefit payments to CalPERS members who are credited with service from agencies that terminate their contracts with the system. Before terminating a contract with CalPERS, an agency must have a funded status of 100% plus an additional 7% for mortality fluctuation. This 107% must be paid in a one-time termination fee so that CalPERS can continue providing benefit payments to that agency’s members.

Some entities contracting with CalPERS cannot afford to continue to make regular payments to the system and want to look for more affordable alternatives in providing an effective and sustainable retirement for their employees. Unfortunately, contract termination has proven to be damaging to entities, such as the City of Loyalton and the East San Gabriel Valley Human Services Consortium (LA Works). These entities were unable to pay CalPERS’ steep termination fee and employees’ pensions were cut, instead. Loyalton’s four retired city employees had their pensions cut by about 60% and LA works cut the pensions of close to 200 employees by 63%.

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Contact:

Spencer Street, (916) 651-4037
Spencer.Street@sen.ca.gov