AMENDED IN SENATE JULY 1, 2026

AMENDED IN SENATE MAY 13, 2026

AMENDED IN ASSEMBLY JANUARY 22, 2026

AMENDED IN ASSEMBLY APRIL 11, 2025

AMENDED IN ASSEMBLY MARCH 10, 2025

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

94

Introduced by Assembly Member McKinnor

(Coauthors: Assembly Members Addis, Ahrens, Alanis, Ávila Farías, Boerner, Calderon, Castillo, Chen, Connolly, Flora, Hoover, Krell, Nguyen, Ortega, Pacheco, Patel, Patterson, Ramos, Ransom, Sharp-Collins, and Solache)

February 21, 2025

An act to amend Sections 7522.02, 7522.10, 7522.15, 7522.25, and 20516 of, and to add Sections 7522.19 and 7522.26 to, the Government Code, relating to public employees’ retirement, and making an appropriation therefor.

Vote: majority   Appropriation: yes   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

The Public Employees’ Retirement Law (PERL) establishes the Public Employees’ Retirement System (PERS) to provide a defined benefit to members of the system based on final compensation, credited service, and age at retirement, subject to certain variations. Existing law creates the Public Employees’ Retirement Fund, which is continuously appropriated for purposes of PERS, including depositing employer and employee contributions. Under the California Constitution, assets of a public pension or retirement system are trust funds.

The California Public Employees’ Pension Reform Act of 2013 (PEPRA) establishes a variety of requirements and restrictions on public employers offering defined benefit pension plans. In this regard, PEPRA restricts the amount of compensation that may be applied for purposes of calculating a defined pension benefit for a new member, as defined, by restricting it to specified percentages of the contribution and benefit base under a specified federal law with respect to old age, survivors, and disability insurance benefits.

Existing law, the Teachers’ Retirement Law, establishes the State Teachers’ Retirement System (STRS) and creates the Defined Benefit Program of the State Teachers’ Retirement Plan, which provides a defined benefit to members of the program, based on final compensation, creditable service, and age at retirement, subject to certain variations.

This bill, for service performed on and after January 1, 2027, would prohibit the pensionable compensation for calendar year 2027 used to calculate the defined benefit paid to a new member of a retirement system subject to PEPRA who retires from the system from exceeding specified percentages of the contribution and benefit base under the specified federal law with respect to old age, survivors, and disability insurance benefits. The bill would make related, conforming changes to these provisions on pensionable compensation. The bill also would require a new member of STRS to be subject to specified limits of the Teachers’ Retirement Law.

PEPRA requires each retirement system that offers a defined benefit plan for safety members of the system to use one of 3 formulas for safety members, 2% at age 57, 2.5% at age 57, or 2.7% at age 57.

This bill would establish new retirement formulas, for employees first hired on or after January 1, 2027, as 2.5% at age 55, 2.7% at age 55, or 3% at age 55, subject to certain exceptions. For new members hired on or after January 1, 2013, who are safety members, the bill would require employers to adjust the formulas for service performed on or after January 1, 2027, to offer the formula that has the same fraction at age 55 as the fraction at age 57 in the formula the employer offered pursuant to existing law. The bill would authorize a public employer and a recognized employee organization to negotiate a prospective increase to the retirement benefit formulas for safety members and new safety members, consistent with the formulas permitted under PEPRA, including the new formulas described above.

This bill would authorize an employer and its employees to agree in a memorandum of understanding to be subject to a higher safety plan or a lower safety plan, subject to certain requirements, including that the memorandum of understanding is collectively bargained in accordance with applicable laws.

By increasing the contribution to continuously appropriated funds, and by increasing expenditures from those funds, this bill would make an appropriation.

The people of the State of California do enact as follows:

SECTION 1.

The Legislature finds and declares the following:

(a) California is experiencing significant challenges in the recruitment and retention of safety personnel, including firefighters, police officers, and other first responders. Competitive retirement benefits are critical to ensuring an adequate and well-trained public safety workforce.

(b) Firefighters face heightened risks of occupational diseases, including elevated cancer rates. Studies have shown that firefighters have a significantly higher risk of developing multiple types of cancer due to prolonged exposure to carcinogens and hazardous materials in the line of duty. In 2022, the International Agency for Research on Cancer identified the occupation of firefighting as a Class 1 carcinogen.

(c) The physical demands of safety positions are extraordinary, requiring peak physical performance, endurance, and exposure to high-stress, life-threatening situations on a daily basis. These factors contribute to increased rates of disability, injury, and early retirement compared to other professions.

(d) Adjusting the retirement age and pension formulas for safety employees is necessary to maintain a sustainable and effective workforce while addressing the unique health and occupational challenges faced by these personnel.

(e) California has a strong history of protecting and promoting collective bargaining rights and providing opportunities for employees and employers to bargain over certain retirement benefits that further enhances opportunities for public employers and employees to partner on stronger retirement security.

(f) The compensation cap established under the California Public Employees’ Pension Reform Act of 2013 places limits that are significantly less than the current federal limit. To reflect current wage rates across both safety and miscellaneous employees, it is necessary to reconsider the appropriate compensation cap level, consistent with federal limits.

SEC. 2.

Section 7522.02 of the Government Code is amended to read:

7522.02.

(a) (1) Notwithstanding any other law, except as provided in this article, on and after January 1, 2013, this article shall apply to all state and local public retirement systems and to their participating employers, including the Public Employees’ Retirement System, the State Teachers’ Retirement System, the Legislators’ Retirement System, the Judges’ Retirement System, the Judges’ Retirement System II, county and district retirement systems created pursuant to the County Employees Retirement Law of 1937 (Chapter 3 (commencing with Section 31450) of Part 3 of Division 4 of Title 3), independent public retirement systems, and to individual retirement plans offered by public employers. However, this article shall be subject to the Internal Revenue Code and Section 17 of Article XVI of the California Constitution. The administration of the requirements of this article shall comply with applicable provisions of the Internal Revenue Code and the Revenue and Taxation Code.

(2) Notwithstanding paragraph (1), this article shall not apply to the entities described in Section 9 of Article IX of, and Sections 4 and 5 of Article XI of, the California Constitution, except to the extent that these entities continue to be participating employers in any retirement system governed by state statute. Accordingly, any retirement plan approved before January 1, 2013, by the voters of any entity excluded from coverage by this section shall not be affected by this article.

(3) (A) Notwithstanding paragraph (1), this article shall not apply to a public employee whose interests are protected under Section 5333(b) of Title 49 of the United States Code until a federal district court rules that the United States Secretary of Labor, or their designee, erred in determining that the application of this article precludes certification under that section, or until January 1, 2016, whichever is sooner.

(B) If a federal district court upholds the determination of the United States Secretary of Labor, or their designee, that application of this article precludes them from providing a certification under Section 5333(b) of Title 49 of the United States Code, this article shall not apply to a public employee specified in subparagraph (A).

(4) Notwithstanding paragraph (1), this article shall not apply to a multiemployer plan authorized by Section 302(c)(5) of the federal Taft-Hartley Act (29 U.S.C. Sec. 186(c)(5)) if the public employer began participation in that plan prior to January 1, 2013, and the plan is regulated by the federal Employee Retirement Income Security Act of 1974 (29 U.S.C. Sec. 1001 et seq.).

(b) The benefit plan required by this article shall apply to public employees who are new members as defined in Section 7522.04.

(c) (1) Individuals who were employed by any public employer before January 1, 2013, and who became employed by a subsequent public employer for the first time on or after January 1, 2013, shall be subject to the retirement plan that would have been available to employees of the subsequent employer who were first employed by the subsequent employer on or before December 31, 2012, if the individual was subject to concurrent membership for which creditable service was performed in the previous six months or reciprocity established under any of the following provisions:

(A) Article 5 (commencing with Section 20350) of Chapter 3 of Part 3 of Division 5 of Title 2.

(B) Chapter 3 (commencing with Section 31450) of Part 3 of Division 4 of Title 3.

(C) Any agreement between public retirement systems to provide reciprocity to members of the systems.

(D) Section 22115.2 of the Education Code.

(2) An individual who was employed before January 1, 2013, and who, without a separation from employment, changed employment positions and became subject to a different defined benefit plan in a different public retirement system offered by their employer shall be subject to that defined benefit plan as it would have been available to employees who were first employed on or before December 31, 2012.

(d) If a public employer, before January 1, 2013, offers a defined benefit pension plan that provides a defined benefit formula with a lower benefit factor at normal retirement age and results in a lower normal cost than the defined benefit formula required by this article, that employer may continue to offer that defined benefit formula instead of the defined benefit formula required by this article, and shall not be subject to the requirements of Section 7522.10 for pensionable compensation subject to that formula. However, if the employer adopts a new defined benefit formula on or after January 1, 2013, that formula must conform to the requirements of this article or must be determined and certified by the retirement system’s chief actuary and the retirement board to have no greater risk and no greater cost to the employer than the defined benefit formula required by this article and must be approved by the Legislature. New members of the defined benefit plan may only participate in the lower cost defined benefit formula that was in place before January 1, 2013, or a defined benefit formula that conforms to the requirements of this article or is approved by the Legislature as provided in this subdivision.

(e) If a public employer, before January 1, 2013, offers a retirement benefit plan that consists solely of a defined contribution plan, that employer may continue to offer that plan instead of the defined benefit pension plan required by this article. However, if the employer adopts a new defined benefit pension plan or defined benefit formula on or after January 1, 2013, that plan or formula must conform to the requirements of this article or must be determined and certified by the retirement system’s chief actuary and the system’s board to have no greater risk and no greater cost to the employer than the defined benefit formula required by this article and must be approved by the Legislature. New members of the employer’s plan may only participate in the defined contribution plan that was in place before January 1, 2013, or a defined contribution plan or defined benefit formula that conforms to the requirements of this article. This subdivision shall not be construed to prohibit an employer from offering a defined contribution plan on or after January 1, 2013, either with or without a defined benefit plan, whether or not the employer offered a defined contribution plan prior to that date.

(f) (1) If, on or after January 1, 2013, the Cities of Brea and Fullerton form a joint powers authority pursuant to the provisions of the Joint Exercise of Powers Act (Article 1 (commencing with Section 6500) of Chapter 5), that joint powers authority may provide employees the defined benefit plan or formula that those employees received from their respective employers prior to the exercise of a common power, to which the employee is associated, by the joint powers authority to any employee of the City of Brea, the City of Fullerton, or a city described in paragraph (2) who is not a new member and subsequently is employed by the joint powers authority within 180 days of the city providing for the exercise of a common power, to which the employee was associated, by the joint powers authority.

(2) On or before January 1, 2017, a city in Orange County that is contiguous to the City of Brea or the City of Fullerton may join the joint powers authority described in paragraph (1) (1), but not more than three cities shall be permitted to join.

(3) The formation of a joint powers authority on or after January 1, 2013, shall not act in a manner as to exempt a new employee or a new member, as defined by Section 7522.04, from the requirements of this article. New members may only participate in a defined benefit plan or formula that conforms to the requirements of this article.

(g) (1) If, on or after January 1, 2013, the Belmont Fire Protection District, the Estero Municipal Improvement District, and the City of San Mateo form a joint powers authority pursuant to the provisions of the Joint Exercise of Powers Act (Article 1 (commencing with Section 6500) of Chapter 5), that joint powers authority may provide employees the defined benefit plan or formula that those employees received from their respective employers prior to the exercise of a common power, to which the employee is associated, by the joint powers authority to any employee of the Belmont Fire Protection District, the Estero Municipal Improvement District, and the City of San Mateo who is not a new member and subsequently is employed by the joint powers authority within 180 days of the agency providing for the exercise of a common power, to which the employee was associated, by the joint powers authority.

(2) The formation of a joint powers authority on or after January 1, 2013, shall not act in a manner as to exempt a new employee or a new member, as defined by Section 7522.04, from the requirements of this article. New members may only participate in a defined benefit plan or formula that conforms to the requirements of this article.

(h) (1) On or after January 1, 2026, the Pajaro Regional Flood Management Agency, a joint powers authority formed pursuant to the provisions of the Joint Exercise of Powers Act (Chapter 5 (commencing with Section 6500)), may provide a defined benefit plan or formula pursuant to paragraph (2) to an employee of a member agency of the joint powers authority or of another public agency, as defined in Section 20056, who is not a new member and who is subsequently employed by the joint powers authority within 180 days of the effective date of the retirement plan contract amendment made pursuant to this section.

(2) On or before April 1, 2026, the Pajaro Regional Flood Management Agency may select a defined benefit plan or formula offered by one of its member agencies prior to the exercise of a common power which the member agency offered to its employees on December 31, 2012, and designate that formula for its employees as specified in paragraph (1).

(3) This subdivision does not exempt a new employee or a new member from the requirements of this article. New members may only participate in a defined benefit plan or formula that conforms to the requirements of this article.

(i) The Judges’ Retirement System and the Judges’ Retirement System II shall not be required to adopt the defined benefit formula required by Section 7522.20, 7522.25, or 7522.26, or the compensation limitations defined in Section 7522.10.

(j) This article shall not be construed to provide membership in any public retirement system for an individual who would not otherwise be eligible for membership under that system’s applicable rules or laws.

(k) On and after January 1, 2013, each public retirement system shall modify its plan or plans to comply with the requirements of this article and may adopt regulations or resolutions for this purpose.

(l) On and after January 1, 2024, a county and a trial court that separate their joint contract into individual contracts pursuant to Section 20471.2 may provide employees the defined benefit plan or formula that those employees received from their respective employers prior to the exercise of the option to separate, provided that the employee subsequently does not otherwise meet the definition of a new employee.

SEC. 3.

Section 7522.10 of the Government Code is amended to read:

7522.10.

(a) On and after January 1, 2013, each public retirement system shall modify its plan or plans to comply with the requirements of this section for each public employer that participates in the system.

(b) Whenever pensionable compensation, as defined in Section 7522.34, is used in the calculation of a benefit, the pensionable compensation shall be subject to the limitations set forth in subdivision (c).

(c) (1) For service performed on January 1, 2013, to December 31, 2026, inclusive, the pensionable compensation used to calculate the defined benefit paid to a new member who retires from the system shall not exceed the following applicable percentage of the contribution and benefit base specified in Section 430(b) of Title 42 of the United States Code on January 1, 2013, as adjusted under paragraph (1) of subdivision (d):

(A) One hundred percent for a member whose service is included in the federal system.

(B) One hundred twenty percent for a member whose service is not included in the federal system.

(2) For service performed on and after January 1, 2027, the pensionable compensation used to calculate the defined benefit paid to a new member who retires from the system shall not exceed the following applicable percentage of the contribution and benefit base specified in Section 430(b) of Title 42 of the United States Code on January 1, 2027, as adjusted under paragraph (1) of subdivision (d):

(A) One hundred percent for a member whose service is included in the federal system.

(B) One hundred thirty-five percent for a member whose service is not included in the federal system.

(3) A new member of the State Teachers’ Retirement System shall be subject to the limit established pursuant to subdivision (d) of Section 22119.3 of, or subdivision (c) of Section 26139.5 of, the Education Code.

(d) (1) The retirement system shall adjust the pensionable compensation described in subdivision (c) based on the annual changes to the Consumer Price Index for All Urban Consumers: U.S. City Average, calculated by dividing the Consumer Price Index for All Urban Consumers: U.S. City Average, for the month of September in the calendar year preceding the adjustment by the Consumer Price Index for All Urban Consumers: U.S. City Average, for the month of September of the previous year rounded to the nearest thousandth. The adjustment shall be effective annually on January 1, beginning in 2014 for paragraph (1) of subdivision (c) and 2028 for paragraph (2) of subdivision (c).

(2) The Legislature reserves the right to modify the requirements of this subdivision with regard to all public employees subject to this section, except that the Legislature may not modify these provisions in a manner that would result in a decrease in benefits accrued prior to the effective date of the modification.

(e) A public employer shall not offer a defined benefit or any combination of defined benefits, including a defined benefit offered by a private provider, on compensation in excess of the limitation in subdivision (c).

(f) (1) Subject to the limitation in subdivision (c) of Section 7522.42, a public employer may provide a contribution to a defined contribution plan for compensation in excess of the limitation in subdivision (c) provided the plan and the contribution meet the requirements and limits of federal law.

(2) A public employee who receives an employer contribution to a defined contribution plan shall not have a vested right to continue receiving the employer contribution.

(g) Any employer contributions to any employee defined contribution plan above the pensionable compensation limits in subdivision (c) shall not exceed the employer’s contribution rate, as a percentage of pay, required to fund the defined benefit plan for income subject to the limitation in subdivision (c) of Section 7522.42.

(h) The retirement system shall limit the pensionable compensation used to calculate the contributions required of an employer or a new member to the amount of compensation that would be used for calculating a defined benefit as set forth in subdivision (c) or (d).

SEC. 4.

Section 7522.15 of the Government Code is amended to read:

7522.15.

Except as provided in subdivisions (d) and (e) of Section 7522.02, each public employer and each public retirement system that offers a defined benefit plan shall offer only the defined benefit formulas established pursuant to Sections 7522.20, 7522.25, and 7522.26 to new members.

SEC. 5.

Section 7522.19 is added to the Government Code, to read:

7522.19.

(a) Notwithstanding any other provision of this article, a public employer and a recognized employee organization may negotiate a prospective increase to the retirement benefit formulas for safety members and new safety members, consistent with the formulas permitted under this article, including Section 7522.26.

(b) Benefit formula increases adopted pursuant to this section shall be established in accordance with Section 7522.44.

SEC. 6.

Section 7522.25 of the Government Code is amended to read:

7522.25.

(a) Each retirement system that offers a defined benefit plan for safety members of the system shall use one or more of the defined benefit formulas prescribed by this section. A member may retire for service under any of the formulas in this section after five years of service and upon reaching 50 years of age.

(b) The Basic Safety Plan shall provide a pension at retirement for service equal to the percentage of the member’s final compensation set forth opposite the member’s age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member.

(c) The Safety Option Plan One shall provide a pension at retirement for service equal to the percentage of the member’s final compensation set forth opposite the member’s age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member.

(d) The Safety Option Plan Two shall provide a pension at retirement for service equal to the percentage of the member’s final compensation set forth opposite the member’s age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member.

(e) On and after January 1, 2013, an employer shall offer one or more of the safety formulas prescribed by this section to new members who are safety employees. The formula offered shall be the formula that is closest to, and provides a lower benefit at 55 years of age than, the formula provided to members in the same retirement classification offered by the employer on December 31, 2012.

(f) On and after January 1, 2013, an employer and its employees subject to Safety Option Plan One or Safety Option Plan Two may agree in a memorandum of understanding to be subject to Safety Option Plan One or the Basic Safety Plan, subject to the following:

(1) The lower plan shall apply to members first employed on or after the effective date of the lower plan and shall be agreed to in a memorandum of understanding that has been collectively bargained in accordance with applicable laws.

(2) A retirement plan contract amendment with a public retirement system to alter a retirement formula pursuant to this subdivision shall not be implemented by the employer in the absence of a memorandum of understanding that has been collectively bargained in accordance with applicable laws.

(3) An employer shall not use impasse procedures to impose the lower plan.

(4) An employer shall not provide a different defined benefit for nonrepresented, managerial, or supervisory employees than the employer provides for other public employees, including represented employees, of the same employer who are in the same membership classifications.

(g) Pensionable compensation used to calculate the defined benefit shall be limited as described in Section 7522.10.

(h) This section shall only apply to service performed between January 1, 2013, and December 31, 2026.

SEC. 7.

Section 7522.26 is added to the Government Code, to read:

7522.26.

(a) On and after January 1, 2027, each retirement system that offers a defined benefit plan for safety members of the system shall use one or more of the defined benefit formulas prescribed by this section. A member may retire for service under any of the formulas in this section after five years of service and upon reaching 50 years of age.

(b) The Basic Safety Plan shall provide a pension at retirement for service equal to the percentage of the member’s final compensation set forth opposite the member’s age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member.

(c) The Safety Option Plan One shall provide a pension at retirement for service equal to the percentage of the member’s final compensation set forth opposite the member’s age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member.

(d) The Safety Option Plan Two shall provide a pension at retirement for service equal to the percentage of the member’s final compensation set forth opposite the member’s age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member.

(e) The Safety Option Plan Three shall provide a pension at retirement for service equal to the percentage of the member’s final compensation set forth opposite the member’s age at retirement, taken to the preceding quarter year, in the following table, multiplied by the number of years of service in the system as a safety member. For service subject to this subdivision, the benefit limit shall be 90 percent of final compensation.

(f) For new members hired on or after January 1, 2027, who are safety members, an employer shall offer the formula in this section that has the same fraction at age 55 as the fraction at age 57 in the formula the employer offered pursuant to Section 7522.25 as of December 31, 2026, unless the employer and employees have agreed to a higher or lower safety plan pursuant to subdivisions (h) or (i).

(g) For new members hired on or after January 1, 2013, who are safety members, the employer shall adjust their formula as follows:

(1) For service performed between January 1, 2013, and December 31, 2026, the retirement age and formula shall be as offered by the employer between January 1, 2013, and December 31, 2026, and subject to Section 7522.25.

(2) For service performed on or after January 1, 2027, the employer shall offer the formula in this section that has the same fraction at age 55 as the fraction at age 57 in the formula the employer offered pursuant to Section 7522.25. The formula offered shall maintain the percentage of compensation factor offered as of December 31, 2026, unless the employer and employees have agreed to a higher or lower safety plan pursuant to subdivisions (h) or (i).

(3) This section shall not be construed to provide retroactive benefits to employees. This section shall adjust the prospective benefit for safety employees by adjusting the retirement age to 55.

(h) An employer and its employees may agree in a memorandum of understanding to be subject to a higher safety plan, subject to the following:

(1) The higher plan shall apply to members on or after the effective date of the higher plan and shall be agreed to in a memorandum of understanding that has been collectively bargained in accordance with applicable laws.

(2) The higher plan adopted pursuant to this subdivision shall be subject to Section 7522.44.

(i) An employer and its employees may agree in a memorandum of understanding to be subject to a lower safety plan, subject to the following:

(1) The lower plan shall apply to members first employed on or after the effective date of the lower plan and shall be agreed to in a memorandum of understanding that has been collectively bargained in accordance with applicable laws.

(2) A retirement plan contract amendment with a public retirement system to alter a retirement formula pursuant to this subdivision shall not be implemented by the employer in the absence of a memorandum of understanding that has been collectively bargained in accordance with applicable laws.

(3) An employer shall not use impasse procedures to impose the lower plan.

(4) An employer shall not provide a different defined benefit for nonrepresented, managerial, or supervisory employees than the employer provides for other public employees, including represented employees, of the same employer who are in the same membership classifications.

(j) Pensionable compensation used to calculate the defined benefit shall be limited as described in Section 7522.10.

(k) A safety member that is subject to a defined benefit formula prescribed by this section, who is not a new member, shall be subject to contribution rates established pursuant to Section 7522.30.

SEC. 8.

Section 20516 of the Government Code is amended to read:

20516.

(a) Notwithstanding any other provision of this part, with or without a change in benefits, a contracting agency and its employees may agree, in writing, to share the costs of the employer contribution. The cost sharing pursuant to this section shall also apply for related nonrepresented employees as approved in a resolution passed by the contracting agency.

(b) The collective bargaining agreement or memorandum of understanding ratified by the employee bargaining unit and the governing body of the contracting agency shall specify the exact percentage of member compensation that shall be paid toward the current service cost of the benefits by members or the methodology for calculating that cost-sharing rate. The member contributions shall be contributions over and above normal contributions otherwise required by this part and shall be treated as normal contributions for all purposes of this part. The contributions shall be uniform, except as described in subdivision (c), with respect to all members within each of the following classifications: local miscellaneous members, local police officers, local firefighters, county peace officers, and all local safety members other than local police officers, local firefighters, and county peace officers. The balance of any costs shall be paid by the contracting agency and shall be credited to the employer’s account. An employer shall not use impasse procedures to impose member cost sharing on any contribution amount above that which is authorized by law.

(c) Member cost sharing may differ by classification for groups of employees subject to different levels of benefits pursuant to Sections 7522.20, 7522.25, 7522.26, and 20475, or by a recognized collective bargaining unit if agreed to in a memorandum of understanding reached pursuant to the applicable collective bargaining laws.

(d) This section shall not apply to any contracting agency nor to the employees of a contracting agency until the agency elects to be subject to this section by contract or by amendment to its contract made in the manner prescribed for approval of contracts. Contributions provided by this section shall be withheld from member compensation or otherwise collected when the contract amendment becomes effective. Once the contracting agency elects to be subject to this section, contract amendments shall not be required to effectuate cost sharing in subsequent collective bargaining agreements or memoranda of understanding ratified by the employee bargaining unit and the governing body of the agency; provided, however, that if a collective bargaining agreement or memorandum of understanding sets forth a methodology for calculating the cost-sharing rate instead of an exact percentage, the contracting agency shall provide the retirement system with a signed side letter ratified by the employee bargaining unit and the agency indicating the exact percentage at least 90 days prior to the effective date of the cost-sharing rate as set forth in the signed side letter.

(e) For the purposes of this section, all contributions, liabilities, actuarial interest rates, and other valuation factors shall be determined on the basis of actuarial assumptions and methods that, in the aggregate, are reasonable and that, in combination, offer the actuary’s best estimate of anticipated experience under this system.

(f) Nothing in this section shall preclude a contracting agency and its employees from independently agreeing in a memorandum of understanding to share the costs of any benefit, in a manner inconsistent with this section. However, any agreement in a memorandum of understanding that is inconsistent with this section shall not be part of the contract between this system and the contracting agency.

(g) If, and to the extent that, the board determines that a cost-sharing agreement under this section would conflict with Title 26 of the United States Code, the board may refuse to approve the agreement.

(h) Nothing in this section shall require a contracting agency to enter into a memorandum of understanding or collective bargaining agreement with a bargaining representative in order to increase the amount of member contributions when such a member contribution increase is authorized by other provisions under this part.

SEC. 9.

It is the intent of the Legislature that this act shall not be construed to affect any retirement benefits or pension rights accrued before its effective date.