BILL ANALYSIS
AB 1987
Page 1
ASSEMBLY THIRD READING
AB 1987 (Ma)
As Amended June 1, 2010
Majority vote
PUBLIC EMPLOYEES 6-0 APPROPRIATIONS 15-0
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|Ayes:|Torrico, Harkey, |Ayes:|Fuentes, Conway, |
| |Furutani, Hernandez, Ma, | |Bradford, Coto, Davis, |
| |Nestande | |Hill, Hall, Harkey, |
| | | |Miller, Nielsen, Norby |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Establishes minimum standards and requirements for
all public retirement systems in California with respect to
final compensation, ongoing audits with penalties for
noncompliance, and prohibitions against a retiree from
immediately 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
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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
compensation period and the proceeding two years by employees
in the same or related group as the member.
7)Makes the specific statutory changes needed to bring the
provisions of the County Employees' Retirement Law of 1937
('37 Act) into compliance with the new requirements imposed on
all public retirement systems by the bill.
8)Requires the retirement boards to promulgate regulations to
more specifically delineate what is excluded from "special
compensation" and specifically require items of remuneration
identified by the board and consistent with agreements reached
in specified court cases including Ventura County Deputy
Sheriffs' Assn. v. Board of Retirement (1997) 16 Cal. 4th 483
(Ventura) to be included as special compensation.
9)Specifies that nothing in the bill prohibits modification,
through collective bargaining, of special compensation items
agreed to in the Ventura decision.
10)Prohibits retirees of '37 Act retirement systems, charter
city retirement systems and the police officers' and firemen's
pension systems from returning to work as a retired annuitant
or as a contract employee for a period of 180 days after
retirement.
11)Specifies that any retired member who violates the 180 day
rule is required to:
a) Reimburse the retirement system for any retirement
allowance received during that time;
b) Pay to the retirement system the employee contributions
that would have been made during that time if the person
had reinstated; and,
c) Contribute toward reimbursement for administrative
expenses incurred by the system if determined to be at
fault.
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12)Specifies that a county or district that hires someone in
violation of the 180 day rule is required to pay the employer
contributions, plus interest that would have been paid had the
person reinstated and, if determined to be at fault, any
administrative expenses incurred by the system.
13)Specifies that all other provisions of the bill become
operative for all active and future members of the retirement
system beginning July 1, 2011.
14)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 the California Public Employees'
Retirement System (CalPERS); the California State Teachers'
Retirement System (CalSTRS); the 20 counties operating
retirement systems under the '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)Allows public employers, through laws, rules, local
ordinances, and collective bargaining agreements, 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 : According to the Assembly Appropriations
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Committee:
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 MOUs take
effect, offset by decreases in workload associated with making
such determinations at the time of individual members'
retirement. Minor and probably absorbable costs for
programming changes associated with coding any newly approved
special compensation item.
2)The Department of Personnel Administration 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 : 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
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:
1)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.
2)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
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thing that can be counted will be what an employee earns
within a single year.
3)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.
4)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.
5)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.
6)Provides retirement systems with the ability to recalculate
and reduce retirement allowances if they determine that
someone's reported salary, and the benefit 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.
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Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0004609