BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 1987
Lou Correa, Chair Hearing date: June 23, 2010
AB 1987 (Ma) as amended 6/01/10 FISCAL: YES
PUBLIC RETIREMENT SYSTEMS: PROHIBITS PENSION SPIKING AND
REQUIRES 180 DAY BREAK IN EMPLOYMENT FOLLOWING RETIREMENT
HISTORY :
Sponsor: Honorable John Chiang, California State
Controller
Prior legislation: SB 1425 (Simitian, Correa)
Assembly PER&SS Committee
(contains provisions
consistent with this bill)
ASSEMBLY VOTES :
PER & SS 6-0 4/21/10
Appropriations 15-0 5/12/10
Assembly Floor 75-0 6/03/10
SUMMARY :
This bill would:
1)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.
2)makes requirements specific to the 1937 Act County
Retirement Systems.
3)requires that both this bill and SB 1425, which contains
provisions specific to the California Public Employees'
Retirement System (CalPERS) and the California State
Teachers' Retirement System (CalSTRS), be enacted for
either bill to be effective.
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Date: 6/17/10 Page 1
BACKGROUND AND ANALYSIS :
1) Existing law :
a) 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).
b) 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.
c) 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.
2)Specifically, this bill :
a) 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.
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b) requires each retirement system to establish
accountability provisions for participating employers
that include an ongoing audit process and penalty
provisions for noncompliance.
c) 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.
d) limits cash conversions of accrued employee benefits,
as specified, and prohibits final settlement or
termination pay from being included in retirement
calculations.
e) 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.
f) 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.
g) 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.
h) 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. (Note:
Ventura and subsequent related judicial rulings and
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Date: 6/17/10 Page 3
settlement agreements, which only applied to counties
governed under the 1937 Act Retirement Law, required
various cash payments in addition to base salary to be
counted as annual compensation.)
i) specifies that nothing in the bill prohibits
modification, through collective bargaining, of special
compensation items agreed to in the Ventura decision.
j) 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, effective for
individuals who retire on and after January 1, 2011.
aa) specifies that all other provisions of the bill
become operative for all active and future members of
the retirement systems beginning July 1, 2011.
bb) specifies that this bill will not become operative
unless SB 1425 (Simitian, Correa) of this year is also
enacted.
3) SB 1425 (Simitian, Correa) 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.
COMMENTS :
1) Arguments in Support
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.
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Date: 6/17/10 Page 4
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:
a) 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.
b) 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.
c) 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.
d) 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.
e) 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.
f) provides retirement systems with the ability to
recalculate and reduce retirement allowances if they
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Date: 6/17/10 Page 5
determine that someone's reported salary, and the
benefit calculated based on that salary, has been
intentionally spiked.
2) Arguments in Opposition
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 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 and to statutorily
reverse the impacts of the Ventura County and subsequent
judicial decisions that have allowed certain collectively
bargained types of pay to be included in compensation.
3) SUPPORT :
Honorable Bill Lockyer, California State Treasurer
California Federation of Teachers (CFT)
Glendale City Employees Association (GCEA)
Los Angeles County Employees Retirement Association
(LACERA)
Organization of SMUD Employees (OSE)
Retired Public Employees Association (RPEA)
San Bernardino Public Employees Association (SBPEA)
San Luis Obispo County Employees Association (SLOCEA)
Santa Rosa City Employees Association (SRCEA)
4) OPPOSITION :
California Association of School Business Officials
(CASBO), (Oppose Unless Ameneded)
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Date: 6/17/10 Page 6
California Special Districts Association (CSDA), (Oppose
Unless Amended)
California State Association of Counties (CSAC), (Oppose
Unless Amended)
City of West Covina
Olivenhain Municipal Water District (OMWD)
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Date: 6/17/10 Page 7