BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1987|
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THIRD READING
Bill No: AB 1987
Author: Ma (D)
Amended: 8/17/10 in Senate
Vote: 21
SENATE PUBLIC EMP. & RET. COMMITTEE : 5-0, 6/23/10
AYES: Correa, Corbett, Ducheny, Hollingsworth, Liu
NO VOTE RECORDED: Ashburn
SENATE APPROPRIATIONS COMMITTEE : 11-0, 08/12/10
AYES: Kehoe, Ashburn, Alquist, Corbett, Emmerson, Leno,
Price, Walters, Wolk, Wyland, Yee
ASSEMBLY FLOOR : 75-0, 6/3/10 - See last page for vote
SUBJECT : Public retirement: final compensation:
computation:
retirees
SOURCE : Hon. John Chiang, California State Controller
DIGEST : This bill 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.
ANALYSIS :
CONTINUED
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Existing Law
1.Authorizes over 40 public retirement systems for the
state's public employees, including the California Public
Employees' Retirement System (PERS); the California State
Teachers' Retirement system (STRS); the 20 counties
operating retirement systems under the County Employees'
Retirement Law of 1937 ('37 Act) County Retirement
System; 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 requires 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.
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
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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 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 '37 Act into compliance with the new
requirements imposed on all public retirement systems by
this 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. (Note: Ventura and
subsequent related judicial rulings and settlement
agreements, which only applied to counties covered under
the 1937 Act Retirement Law, required various cash
payments in addition to base salary to be counted as
annual compensation.)
9.Specifies that nothing in this bill prohibits
modification, through collective bargaining, of special
compensation items agreed to in the Ventura decision.
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10.Prohibits retirees of '37 Act retirement systems,
charter city retirement systems and the police officers'
and firemen's pension system 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.
11.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.
12.Specifies that all other provisions of the bill become
operative for all active and future members of the
retirement system beginning July 1, 2011.
13.Specifies that this bill will not become operative
unless SB 1425 (Simitian and Correa) is also enacted.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Unable to verify at time of writing)
Hon. John Chiang, California State Controller
Hon. Bill Lockyer, California State Treasurer
California Federation of Teachers
Glendale City Employees Association
Los Angeles County Employees Retirement Association
Organization of SMUD Employees
Retired Public Employees Association
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
OPPOSITION : (Unable to verify at time of writing))
California Association of School Business Officials (oppose
unless amended)
California Special Districts Association (oppose unless
amended)
California State Association of Counties (oppose unless
amended)
City of West Covina
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Olivenhain Municipal Water District
ARGUMENTS IN SUPPORT : According to the author's office,
"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:
"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
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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
determine that someone's reported salary, and the
benefit calculated based on that salary, has been
intentionally spiked."
Related Legislation
AB 1425 (Simitian and 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.
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..
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Blakeslee, Block, Blumenfield, Bradford, Brownley,
Buchanan, Caballero, Charles Calderon, Carter, Chesbro,
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Conway, Cook, Coto, Davis, De La Torre, De Leon, DeVore,
Emmerson, Eng, Evans, Feuer, Fletcher, Fong, Fuentes,
Fuller, Furutani, Gaines, Galgiani, Garrick, Gilmore,
Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber,
Huffman, Jeffries, Jones, Knight, Lieu, Logue, Bonnie
Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande,
Niello, Nielsen, V. Manuel Perez, Portantino, Ruskin,
Salas, Saldana, Silva, Skinner, Smyth, Solorio, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, John
A. Perez
NO VOTE RECORDED: Bill Berryhill, Tom Berryhill, Norby,
Audra Strickland, Vacancy
CPM:cm 8/17/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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