BILL ANALYSIS
AB 1987
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Date of Hearing: May 12, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1987 (Ma) - As Amended: April 29, 2010
Policy Committee: P.E.R. &
S.S.Vote: 6-0
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill places new standards and limitations on public
retirement systems in California with respect to final
compensation calculations, ongoing audits and penalties for
non-compliance, and prohibitions against retirees from
immediately returning to work on a part time or contract basis.
Specifically, the bill:
1)Requires each retirement system to establish accountability
provisions for participating employers that include an ongoing
audit process and penalty provisions for noncompliance.
2)Excludes cash conversions of accrued employee benefits from
being included in retirement calculations.
3)Prohibits final settlement or termination pay from being
included in retirement calculations.
4)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 applies to anyone retiring
on and after January 1, 2011.
5)Limits the increases in compensation that can be used in
retirement calculations by members during their final three
years preceding retirement to the average increases in
compensation received by similarly situated employees in the
same or closely comparable group. Promotions or routine merit
increases would not be affected by this provision.
6)Authorizes a retirement system to not include in retirement
AB 1987
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calculations any compensation they determine was paid for the
principal purpose of enhancing a member's retirement benefit.
7)Specifies that this bill will not become operative unless SB
1425 (Simitian) of this year is also enacted.
FISCAL EFFECT
1)CalPERS indicates that costs associated with this bill would
be absorbable. It would incur minor costs to review special
compensation or other negotiated provisions before MOU's take
effect, offset by decreases in workload associated with making
such determinations at the time of individual members'
retirement. Also minor and probably absorbable costs for
programming changes associated with coding any newly approved
special compensation item.
2)DPA indicates that a six month prohibition against returning
to work as a contract employee or annuitant may have an
adverse impact on the expertise and productivity of state
departments. However, it is not possible to quantify the
dollar impact of these effects.
3)Significant costs to local pension funds to administer the
provisions of this bill, not reimbursable.
COMMENTS
1)Purpose . The bill is intended to address pension spiking and
other abuses that benefit relatively few at the expense of the
overall pension system. The author assert that the bill
"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."
2)Background . Existing law authorizes over 40 public retirement
systems in California, including CalPERS, CalSTRS, 20 counties
operating 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).
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Over the past several years, there have been numerous reported
instances of "pension spiking" whereby an employee is provided
a dramatic one year boost in pre-retirement compensation, or
cashes in large vacation and leave balances and is allowed to
use the one-time proceeds in the "final year" compensation
calculation. Some forms of these practices are restricted by
specific pension funds. For example, in 1994, the legislature
passed SB 53, (Chapter 1297/1994), which among other things
excludes cash outs of vacation or leave balances in "earnable
compensation" used for purposes of the retirement calculations
of state CalPERS members. However, there is no statewide law
governing these practices.
3)Opposition. Several organizations oppose the bill's provision
requiring a 180 day break in service between the date a person
retires and returns as a paid retiree. For example, the
Judicial Council of California claims this prohibition
disrupts court calendars and increases the existing backlog in
criminal and civil cases. The California State Association of
Counties states that the six month wait period is overly broad
and is an inappropriate interference on a local public
employer's ability to effectively manage.
4)Contingent enactment . The enactment of this bill is contingent
upon enactment of SB 1425 (Simitian), which strengthens
anti-spiking provisions in the Teachers' Retirement Law and
the Public Employees' Retirement Law.
Analysis Prepared by : Brad Williams / APPR. / (916) 319-2081