BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1987 (Ma)
Hearing Date: 08/12/2010 Amended: 08/02/2010
Consultant: Maureen Ortiz Policy Vote: PE&R 5-0
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BILL SUMMARY: AB 1987 places new standards and limitations on
public retirement systems to ensure that a change in a member's
compensation is not made principally for the purpose of
enhancing that member's retirement benefit effective July 1
2011. Additionally, the bill prohibits a retired person from
returning to work on a part time or contract basis for 180 days
after separating from service.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Admin/audits ---unknown, potentially significant
non-reimbursable-- Local
180 day prohibition ----------potentially hundreds of
thousands of
dollars
in revenue loss-------------- General
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STAFF COMMENTS: SUSPENSE FILE.
Local retirement systems will incur unknown but significant,
non-reimbursable, costs for provisions requiring an audit
process, regulations and other administrative duties. Although
there may be some revenue from penalties imposed for
noncompliance, ultimately each pension system will save in
future benefit costs by eliminating the practice of compensation
spiking solely to enhance an individual's retirement benefit.
Although several entities have expressed concerns over the
prohibition on retirees returning to work as retired annuitants
or as contract employees for 180 days after separating from
service, most of those arguments are based on logistical
factors. The Franchise Tax Board (FTB), however, indicates that
this prohibition could result in substantial revenue loss to the
state.
The FTB currently employs approximately 50 retired annuitants
that are hired only in short term services in critical need
areas where no other viable option exists to immediately fill
the position such as in the following circumstances: a)
finishing large, complex audits of multistate corporations and
banks, b) performing highly technical information technology
duties on projects that if delayed could jeopardize the FTB's
ability to timely assess and collect the proper amount of tax
revenue, and c) training successors on technical matters
pertaining to complex tax laws. The FTB has been experiencing a
sudden retirement of key staff due to compensation issues
involving furloughs, proposed pay cuts, and uncertainties
pertaining to proposed retirement benefit modifications.
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AB 1987 (Ma)
Specifically, AB 1987 does the following:
a)Requires each retirement system to establish, either by
statute or regulation, accountability provisions for
participating employers that include an ongoing audit process
and penalty provisions for noncompliance including untimely or
inaccurate submissions of any information required by the
board.
b)Authorizes a board to assess a reasonable fee to cover the
cost of any audit, adjustment, or correction when it has been
determined that a county or district knowingly failed to
comply with the reporting requirements; and prohibits the
county or district from passing those costs on to an employee.
c)Prohibits the use of any payrate, salary, special
compensation, or other renumeration that has been determined
by the board to have been paid for the principal purpose of
enhancing a member's retirement benefit from being used in the
calculation of that benefit.
d)Excludes cash conversions of accrued employee benefits that
exceed the amount that is both earned and payable to the
member from being included in retirement calculations.
e)Prohibits final settlement or termination pay from being
included in retirement calculations.
f)Prohibits a retiree from returning to work as a retired
annuitant or as a contract employee for a period of 180 days
after retirement, and applies this provision to any person who
retires after January 1, 2011.
g)Limits the increases in compensation that can be used in
retirement calculations by members during their final
compensation period, plus two additional years, to the average
increases in compensation received by comparable employees.
h)Allows a retirement board to become independent districts
within a county if agreed to by all impacted parties.
i)Allows a board to promulgate regulations that delineate what
shall be excluded from "special compensation" and specifically
excludes items such as uniform allowance, holiday pay, and
other items consistent with Ventura County Deputy Sheriffs'
Assn v. Board of Retirement. However, the bill will not
prevent a county or district and a bargaining unit from
agreeing to eliminate from final compensation those items
identified in "Ventura".
j)Defines various terms including "group or class", "payrate",
"salary", "special compensation", and "compensation earnable"
so that all retirement systems will apply the terms in a
consistent manner.
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AB 1987 (Ma)
aa) Proclaims that it is not the intent of the
Legislature for the provisions of this bill to reduce the
pension of any person who has retired prior to July 1, 2011.
AB 1987 requires a county or district, when reporting
information to the board, to identify the pay period in which
the compensation was earned regardless of when reported or paid.
Existing law authorizes over 40 public retirement systems in
California which include CalPERS, CalSTRS, 20 counties operating
under the County Employees Retirement Law of 1937, as well as
independent public retirement systems for cities and special
districts. All systems provide defined benefit retirement
allowances based on an employee's age, years of credited
service, and final compensation (either the highest 12 or 36
months of employment).
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 that are added to
the final compensation calculation. Some forms of these
practices are restricted by specific pension funds. For
example, SB 53 (Chapter 1297, Statutes of 1994) excludes cash
outs of vacation or leave balances used for purposes of the
retirement calculations of members under CalPERS. However,
there is no statewide law governing these practices.
AB 1987 contains findings and declarations that it is the
responsibility of the Legislature to provide guidance to every
retirement system so that each system can determine the proper
elements that go into calculating a member's retirement benefit
as recognized by the laws governing each retirement system.
AB 1987 provides that its provisions will not become effective
unless SB 1425 (Simitian) is also enacted and takes effect on or
before January 1, 2011. SB 1425 implements anti-spiking
provisions, and a 180 day revolving door prohibition, for state
and local employees that are members of CalPERS and CalSTRS.
That bill is currently pending in the Assembly.