BILL ANALYSIS
AB 1987
Page 1
Date of Hearing: April 21, 2010
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Alberto Torrico, Chair
AB 1987 (Ma) - As Amended: April 15, 2010
SUBJECT : Public retirement: final compensation: computation:
retirees.
SUMMARY : Establishes minimum requirements that all public
retirement systems must be operated in accordance with including
specifying what may be used in determining an employee's final
compensation, requiring the establishment of an ongoing audit
process with penalties for noncompliance, and prohibiting, for a
period of at least 180 days, a retiree from returning to
employment with the public employer on a part-time or contract
basis. Specifically, this bill :
1)Makes various findings and declarations regarding the
manipulation of retirement benefits, including pension
spiking, and the duties of the retirement systems to employ
sound and equitable principles of oversight and the treatment
of compensation.
2)Requires each retirement system to establish accountability
provisions for participating employers that include an ongoing
audit process and penalty provisions for noncompliance.
3)Authorizes a retirement system to not include in retirement
calculations any compensation they determine was paid for the
principal purpose of enhancing a member's retirement benefit.
4)Limits cash conversions of accrued employee benefits, as
specified, and prohibits final settlement or termination pay
from being included in retirement calculations.
5)Prohibits a retiree from returning to work as a retired
annuitant or as a contract employee for a period of 180 days
after retirement. This requirement will apply to anyone
retiring on and after January 1, 2011.
6)Limits the compensation used in retirement calculations for
members who are not in a group or class to the average
increase in compensation received during the final
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compensation period and the proceeding two years by employees
in the same or related group as the member.
7)Specifies that all other provisions of the bill become
operative for all active and future members of the retirement
system beginning July 1, 2011.
8)Specifies that this bill will not become operative unless SB
1425 (Simitian) of this year is also enacted.
EXISTING LAW :
1)Authorizes over 40 public retirement systems for the State's
public employees, including CalPERS; CalSTRS; the 20 counties
operating retirement systems under the County Employees'
Retirement Law of 1937 ('37 Act); and independent public
retirement systems, mostly for cities and special districts.
These systems provide defined benefit retirement allowances
based on employees' years of service, age at retirement, and
final compensation (highest paid 12 or 36 months of
employment).
2)Through laws, rules, local ordinances, and collective
bargaining agreements allows public employers to pay
differentials, bonuses, overtime, separation pay, holiday pay,
and other forms of compensation in addition to base pay and
require that participating employers accurately and timely
report to the retirement boards the amount of compensation
paid to employees, including special forms of pay, changes in
employment status, leaves, and other factors that impact
compensation.
3)Allows a retired public employee or teacher to return to
public employment with an employer covered by the retirement
system he or she retired from on a part-time basis, as
specified. An employee who exceeds the limited time base or
earnings, as specified, may be subject to reinstatement into
the retirement system and reduction or cessation of his or her
retirement allowance or earnings.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, "Sensible reforms will
prevent abuse, level the playing field and protect taxpayers.
Retirement systems have a duty to protect the health of their
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retirement system for the public employers and for the public
employees who depend on a secure and adequate retirement. And
the Legislature has a duty to taxpayers to guard against abuses
that threaten the health of the system by making sure that
resources are used fairly and equitably.
"AB 1987 attacks abusive practices, preventing a few individuals
from putting retirement at risk for the vast majority of honest,
hard-working public servants, and gives retirement systems the
tools to keep their assets safe and secure. Specifically, this
bill would place the following restrictions and responsibilities
on all public retirement systems in California:
All retirement boards will have the same power to deny
intentionally spiked or manipulated pension payments to
those few who claim them. Employees and employers would
have to prove that the pension increase was justified.
Employees will no longer be able to accrue years of
vacation time and cash it all in at the end of their work
to increase the base on which their pensions are
calculated. The only thing that can be counted will be what
an employee earns within a single year.
Large severance or settlement pay for an employee headed
out the door to retirement will no longer be allowed to be
factored in towards pensions. Additionally, pay raises for
a single individual, such as a city manager, or Fire Chief,
can't be counted unless others get similar raises.
Double-dipping will be addressed by prohibiting a newly
retired individual from returning to work without
re-instating and suspending their retirement allowance, for
an employer covered by the retirement system they retired
from, for at least six months, even if they attempt to come
back as an independent contractor.
State and local retirement systems will be required to
establish accountability provisions that include regular
audits and impose penalties for inaccurate or misleading
information provided by employers or employees.
Provides retirement systems with the ability to
recalculate and reduce retirement allowances if they
determine that someone's reported salary, and the benefit
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calculated based on that salary, has been intentionally
spiked."
Those organizations adopting an "oppose unless amended" position
on the bill have raised objections to requiring a 180 day break
in service between the date a person retires and the date he or
she may return to work as a paid retiree. The Judicial Council
of California states that this prohibition would "?disrupt court
calendars and increase the existing backlog in criminal and
civil cases." The California State Association of Counties
(CSAC) states that "a six-month wait for every retiree is overly
broad and is an inappropriate interference on a local public
employer's ability to choose the best candidate for a job and to
efficiently and effectively manage resources." CSAC also
believes that a better way to address pension spiking abuses
would be to restrict final compensation earnable to base salary
or wage compensation only.
SB 1425 (Simitian) is a companion measure to this bill and is
intended to strengthen anti-spiking provisions in the Teachers'
Retirement Law and the Public Employees' Retirement Law.
REGISTERED SUPPORT / OPPOSITION :
Support
John Chiang, California State Controller (Sponsor)
California Federation of Teachers
Glendale City Employees Association
Organization of SMUD Employees
Peace Officers Research Association of California
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Opposition
California Association of School Business Officials (unless
amended)
California State Association of Counties (unless amended)
Judicial Council of California (unless amended)
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957