BILL NUMBER: SB 1425	AMENDED
	BILL TEXT

	AMENDED IN ASSEMBLY  AUGUST 19, 2010
	AMENDED IN ASSEMBLY  AUGUST 16, 2010
	AMENDED IN SENATE  MAY 4, 2010
	AMENDED IN SENATE  APRIL 5, 2010

INTRODUCED BY   Senators Simitian and Correa
   (Principal coauthor: Assembly Member Ma)
   (Coauthor: Senator DeSaulnier)

                        FEBRUARY 19, 2010

   An act to amend Sections 22112.5, 22119.2, 22461, 22905, 
24214.5,  25009, 26302,  26505, and 26806 
 and 26505 of, to amend, repeal, and add Sections 24214.5 and
26806  of, and to add Section 26307 to, the Education Code, and
to amend Sections 20221, 20630, 20636, 20636.1, and 21220 of, and to
add Sections 7500.5 and 21220.3 to, the Government Code, relating to
public retirement systems.


	LEGISLATIVE COUNSEL'S DIGEST


   SB 1425, as amended, Simitian. Public retirement: final
compensation: computation: retirees.
   (1) The Public Employees' Retirement Law (PERL) creates the Public
Employees' Retirement System (PERS), which provides a defined
benefit to its members based on age at retirement, service credit,
and final compensation. PERL defines "final compensation" for
purposes of calculating a member's retirement allowance. The State
Teachers' Retirement Law (STRL) and the retirement laws for county
employees and city employees also provide for a defined benefit based
on age at retirement, service credit, and final compensation.
   This bill would provide that any change in salary, compensation,
or remuneration principally for the purpose of enhancing a member's
benefits would not be included in the calculation of a member's final
compensation for purposes of determining that member's defined
benefit. The bill would generally require the board of each state and
local public retirement system to establish, by regulation,
accountability provisions that would include an ongoing audit process
to ensure that a change in a member's salary, compensation, or
remuneration is not made principally for the purpose of enhancing a
member's retirement benefits. This bill would revise the definition
of "creditable compensation" and would limit the calculation of a
member's final compensation to an amount not to exceed the average
increase in compensation received within the final compensation
period and the 2 preceding years by employees in the same or a
related group as that member. This bill would also require a board of
each state and local public retirement system to establish, by
regulation, a requirement that a  retired person 
 person who retires on or after January 1, 2012,  may not
perform services for any employer covered by a state or local
retirement system until that person has been separated from service
for a period of at least 180 days. This bill would provide for the
implementation of these required changes under the laws that govern
PERS and STRL.
   (2) The Defined Benefit Supplement Program under STRL provides
supplemental retirement, disability, final, and termination benefits,
payable either in a lump-sum payment or as an annuity, to members
receiving benefits under the Defined Benefit Program of the State
Teachers' Retirement Plan.
   This bill would provide that member and employer contributions
credited to the Defined Benefit Supplemental Program would include
remuneration earnable within a 5-year period in excess of 125% of
that member's compensation earnable in the year prior to that 5-year
period. This bill would provide, in the case of a member who retires
on or after January 1,  2011   2012  , and
who elects to receive his or her retirement benefit under the Defined
Benefit Supplemental Program as a lump-sum payment, that the
lump-sum payment would not be payable until 180 days have elapsed
following the effective date of the member's retirement.
   (3) This bill includes Legislative findings expressing the public
purpose that would be served by the enactment of this bill.
   This bill would, except as otherwise specified, provide that its
provisions would become operative on July 1, 2011. This bill would
further provide that it would only become operative if AB 1987 of the
2009-10 Regular Session is also enacted and takes effect on or
before January 1, 2011.
   Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.


THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:

  SECTION 1.  (a) The Legislature finds and declares that:
   (1) State and local public retirement boards have been authorized
under the law to administer retirement systems that provide adequate,
secure retirement benefits to participants who dedicate their life's
work to public service, and their beneficiaries.
   (2) Employees partner with their public agency employers to fund
this benefit.
   (3) Any manipulation of those benefits creates harm for the
employees, beneficiaries, employers, and taxpayers and should not be
permitted.
   (b) The Legislature further finds and declares that:
   (1) The efficacy of the retirement systems is threatened by the
behavior of those who seek to unfairly and unjustifiably enhance or
"spike" their pensions.
   (2) Neither the Legislature nor the courts ever anticipated a
circumstance where the application of the retirement law would result
in a method that permits inequitable application of compensation
rules in order to enhance an individual's retirement allowance.
   (3) 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.
   (4) Retirement systems must employ sound principles that provide
consistent treatment of compensation throughout a member's career and
consistent treatment of compensation earnable among all classes of
employees.
   (5) In order to provide consistent treatment across the retirement
systems, the reporting procedures used by each retirement system and
its participating employers must be sufficiently precise so as to
enable the retirement system to distinguish between items of
remuneration that are and are not properly included in a member's
final compensation.
   (c) The Legislature further finds and declares that consistent
administration of state and local public retirement systems is a
matter of statewide concern.
   (d) The Legislature further finds and declares that the procedures
contained in this act provide the appropriate method for resolving
the inequitable application of compensation rules; and therefore,
provide for the consistent administration of state and local
retirement systems that is in the public's best interest.
  SEC. 2.  Section 22112.5 of the Education Code is amended to read:
   22112.5.  (a) "Class of employees" means a number of employees
considered as a group because they are employed to perform similar
duties, are employed in the same type of program, or share other
similarities related to the nature of the work being performed.
   (b) One employee shall not be considered a class of employees.
   (c) The board shall have the right to override the determination
by an employer as to whether or not a group constitutes a "class of
employees" within the meaning of this section.
  SEC. 3.  Section 22119.2 of the Education Code is amended to read:
   22119.2.  (a) "Creditable compensation" means remuneration that is
payable in cash by an employer to all persons in the same class of
employees, if applicable, and is paid to an employee for performing
creditable service.
   (1) Creditable compensation shall be designated as either of the
following:
   (A) Salary or wages paid in accordance with a salary schedule or
employment agreement for the performance of creditable service or the
use of an employer-approved leave during a specified period of time,
the right of which accrues in proportion to the service performed or
the leave used, except as provided in subparagraph (B). Salary or
wages shall be credited to the Defined Benefit Program or the Defined
Benefit Supplement Program in accordance with subdivisions (b) and
(f) of this section and with Section 22905.
   (B) Remuneration that is paid in addition to salary or wages,
providing it is payable to all persons who are in the same class of
employees, if applicable, in the same dollar amount, the same
percentage of salary or wages, or the same percentage of the amount
being distributed. For purposes of this subparagraph, "remuneration
that is paid in addition to salary or wages" shall be credited to the
Defined Benefit Supplement Program in accordance with Section 22905
and shall include:
   (i) Reimbursements or allowances for expenses, the payment of
which is not substantiated pursuant to Section 274(d) of the Internal
Revenue Code.
   (ii) Cash payments made by the employer in exchange for a member's
waiver of a right to receive any payment, amount, or benefit
described in paragraphs (5) and (6) of subdivision (c).
   (iii) Compensation that is payable for a specified number of times
as limited by law, a collective bargaining agreement, or an
employment agreement.
   (iv) Compensation that is payable for meeting specified criteria,
the right of which does not accrue in proportion to service performed
or leave used.
   (v) Compensation that is payable for attaining a specific age
threshold.
   (vi) Compensation that is payable for meeting performance-related
criteria, provided that the compensation is not used as the basis for
subsequent increases in salary or wages.
   (vii) Compensation that is payable in exchange for an agreement to
terminate employment, except as excluded from "creditable
compensation" as defined in paragraph (9) of subdivision (c).
   (viii) Any other payments the board may determine, pursuant to
regulations, to be "remuneration that is paid in addition to salary
or wages."
   (2) Creditable compensation shall include the following:
   (A) Member contributions that are picked up by an employer
pursuant to Section 22903 or 22904.
   (B) Amounts that are deducted from a member's compensation,
including, but not limited to, salary deductions for participation in
a deferred compensation plan; deductions to purchase an annuity
contract, tax-deferred retirement plan, or insurance program; and
contributions to a plan that meets the requirements of Section 125,
401(k), 403(b), or 457 of Title 26 of the United States Code.
   (C) Any other amounts the board may determine, pursuant to
regulations, to be "creditable compensation."
   (b) Any salary or other remuneration determined by the board to
have been paid to enhance a member's benefits shall not be credited
under the Defined Benefit Program. Contributions on that compensation
shall be credited to the Defined Benefit Supplement Program. A
presumption by the board that salary or other remuneration was paid
to enhance the member's benefits may be rebutted by the member or by
the employer on behalf of the member. Upon receipt of sufficient
evidence to the contrary, a presumption by the board that salary or
other remuneration was paid to enhance the member's benefits may be
reversed.
   (c) "Creditable compensation" does not mean and shall not include:

   (1) Remuneration that is not payable in cash or is not payable to
all persons who are in the same class of employees.
   (2) Remuneration that is paid for service that is not creditable
service pursuant to Section 22119.5.
   (3) Remuneration that is paid in addition to salary if it is not
payable to all persons in the same class of employees in the same
dollar amount, the same percentage of salary, or the same percentage
of the amount being distributed pursuant to subparagraph (B) of
paragraph (1) of subdivision (a).
   (4) Remuneration that is paid for unused accumulated leave.
   (5) Annuity contracts, tax-deferred retirement plans, or insurance
programs and contributions to plans that meet the requirements of
Section 125, 401(k), or 403(b) of Title 26 of the United States Code
when the cost is covered by an employer and is not deducted from the
member's salary.
   (6) Fringe benefits provided by an employer.
   (7) Expenses paid by an employer.
   (8) Expenses reimbursed by an employer, the payment of which is
substantiated pursuant to Section 274(d) of the Internal Revenue
Code.
   (9) Severance pay or compensatory damages or money paid to a
member in excess of salary as a compromise settlement.
   (10) Any other payments the board may determine, pursuant to
regulations, not to be "creditable compensation."
   (d) An employer or individual who knowingly or willfully reports
compensation in a manner inconsistent with subdivision (a) or (c) may
be subject to prosecution for fraud, theft, or embezzlement in
accordance with the Penal Code. The system may establish procedures
to ensure that compensation reported by an employer is in compliance
with this section.
   (e) For purposes of this section, remuneration shall be considered
payable if it would be paid to any person who meets the
qualifications or requirements specified in a collective bargaining
agreement or an employment agreement as a condition of receiving the
remuneration.
   (f) This definition of "creditable compensation" reflects sound
principles that support the integrity of the retirement fund. Those
principles include, but are not limited to, consistent treatment of
compensation throughout a member's career, consistent treatment of
compensation among an entire class of employees, consistent levels or
ranges of compensation paid by the employer for a specified ongoing
position, preventing adverse selection, and excluding from
compensation earnable remuneration that is paid to enhance a member's
benefits. The board shall determine the appropriate crediting of
contributions between the Defined Benefit Program and the Defined
Benefit Supplement Program according to these principles, to the
extent not otherwise specified pursuant to this part.
  SEC. 4.  Section 22461 of the Education Code is amended to read:
   22461.  A school district, community college district, county
superintendent of schools, California State University, or other
employing agency that retains the services of a retired member under
Section 24116, 24214, or 24215 shall do both of the following
regardless of whether the retired member performs the services as an
employee of the employer, an employee of a third party, or an
independent contractor:
   (a) Prior to retention, advise the retired member of the earnings
limitation set forth in Sections 24116, 24214, 24214.5, and 24215.
   (b) Maintain accurate records of the retired member's earnings and
report those earnings monthly to the system and the retired member
regardless of the method of payment or the fund from which the
payments were made.
  SEC. 5.  Section 22905 of the Education Code is amended to read:
   22905.  (a) Member contributions pursuant to Section 22901,
employer contributions pursuant to Section 22903 or 22904, and member
contributions made by an employer pursuant to Section 22909 shall be
credited to the member's individual account under the Defined
Benefit Program or the Defined Benefit Supplement Program, whichever
is applicable pursuant to the provisions of this part.
   (b) Member and employer contributions on a member's compensation
under the following circumstances shall be credited to the member's
Defined Benefit Supplement account:
   (1) Compensation for creditable service that exceeds one year in a
school year.
   (2) Compensation that is consistent with subdivision (b) of
Section 22119.2.
   (3) Remuneration that is paid in addition to salary, in accordance
with subparagraph (B) of paragraph (1) of subdivision (a) of Section
22119.2.
   (4) (A) Remuneration increasing a member's compensation earnable
    during a five-year period, that includes the last year in which
the member's final compensation is determined and the four years
prior to that year, in which creditable compensation was earned, that
exceeds 125 percent of the member's compensation earnable in the
year prior to that five-year period, provided that both of the
following conditions are satisfied:
   (i) The remuneration is not subject to a written agreement with an
exclusive representative entered into by an employer pursuant to
Chapter 10.7 (commencing with Section 3540) of Division 4 of Title 1
of the Government Code, or in the case of a member employed by a
charter school, the remuneration is earned in a position that is
precluded from being represented by an exclusive representative
pursuant to Section 3543.4 of the Government Code.
   (ii) The remuneration is not a result of the termination of
employment with one employer and the beginning of employment with
another employer.
   (B) The board may, by plan amendment, increase the percentage
specified in subparagraph (A), if the board determines that the
average rate of increase in salary and wages paid during the previous
five-year period to members employed by the 10 employers with the
largest number of members exceeded 5 percent in any of those five
years.
   (c) A member may not make voluntary pretax or posttax
contributions under the Defined Benefit Supplement Program, except as
provided in subdivision (d), nor may a member redeposit amounts
previously distributed based on the balance in the member's Defined
Benefit Supplement account.
   (d) Member and employer contributions pursuant to paragraph (1) of
subdivision (b) under the Defined Benefit Supplement Program shall
be credited to the accounts of members as of July 1 each year
following a determination by the system under the provisions of this
part that those contributions should be credited to the Defined
Benefit Supplement Program. Any other contributions under the Defined
Benefit Supplement Program, pursuant to paragraph (2), (3), or (4)
of subdivision (b), shall be credited to the individual account of
the member upon receipt by the system. Contributions to a member's
Defined Benefit Supplement account shall be identified separately
from the member's contributions credited under the Defined Benefit
Program.
   SEC. 6.    Section 24214.5 of the  
Education Code   is amended to read: 
   24214.5.  (a) Notwithstanding Section 24214, as of July 1, 2010,
the postretirement compensation limitation that shall apply to the
compensation for performance of the activities identified in
subdivision (a) or (b) of Section 22119.5 either as an employee of an
employer, an employee of a third party, or as an independent
contractor shall be zero dollars ($0) during the first six calendar
months after a member retired for service under this part, if the
member is below normal retirement age at the time the compensation is
earned.
   (b) If a member retired for service under this part earns
compensation for performing activities identified in subdivision (a)
or (b) of Section 22119.5 in excess of the limitation specified in
subdivision (a), as an employee of an employer, as an employee of a
third party, or as an independent contractor, within the California
public school system, the member's retirement allowance shall be
reduced by the amount of the excess compensation. The amount of the
reduction may be equal to the monthly allowance payable but may not
exceed the amount of the annual allowance payable under this part for
the fiscal year in which the excess compensation was earned. 
   (c) This section shall remain in effect only until January 1,
2012, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2012, deletes or extends
that date.  
  SEC. 6.    Section 24214.5 of the Education Code
is amended to read:
   24214.5.  
   SEC. 7.    Section 24214.5 is added to the  
Education Code   ,   to read: 
    24214.5.   (a) Notwithstanding Section 24214, for
employees retiring on or after January 1,  2011 
 2012  , the postretirement compensation limitation that
shall apply to the compensation for performance of the activities
identified in subdivision (a) or (b) of Section 22119.5 either as an
employee of an employer, an employee of a third party, or as an
independent contractor within the California public school system
shall be zero dollars ($0) during the first 180 days after a member
retired for service under this part.
   (b) If a member retired for service under this part earns
compensation for performing activities identified in subdivision (a)
or (b) of Section 22119.5 in excess of the limitation specified in
subdivision (a), as an employee of an employer, as an employee of a
third party, or as an independent contractor, within the California
public school system, the member's retirement allowance shall be
reduced by the amount of the excess compensation. The amount of the
reduction may be equal to the monthly allowance payable but may not
exceed the amount of the annual allowance payable under this part for
the fiscal year in which the excess compensation was earned. 
   (c) This section shall become operative on January 1, 2012. 
   SEC. 7.   SEC. 8.   Section 25009 of the
Education Code is amended to read:
   25009.  (a) A member's retirement benefit under the Defined
Benefit Supplement Program shall be an amount equal to the balance of
credits in the member's Defined Benefit Supplement account on the
date the retirement benefit becomes payable.
   (b) A retirement benefit shall be a lump-sum payment, or an
annuity payable in monthly installments, or a combination of both a
lump-sum payment and an annuity, as elected by the member on the
application for a retirement benefit. Any retirement benefit paid as
an annuity under this chapter shall be subject to Section 25011 or
25011.1.
   (c) If a member who retires on or after January 1,  2011
  2012  , elects to have the retirement benefit
paid as a lump-sum payment, that payment shall be payable after 180
days have elapsed following the effective date of the member's
retirement.
   (d) Upon distribution of the entire retirement benefit in a
lump-sum payment, no other benefit shall be payable to the member or
the member's beneficiary under the Defined Benefit Supplement
Program.
   (e) A member may not apply a lump-sum payment made to the member
pursuant to this section for any of the following purposes:
   (1) Purchasing service credit pursuant to Chapter 14 (commencing
with Section 22800), Chapter 14.2 (commencing with Section 22820), or
Chapter 14.5 (commencing with Section 22850).
   (2) Redepositing previously refunded retirement contributions
pursuant to Chapter 19 (commencing with Section 23200).
   SEC. 8.   SEC. 9.   Section 26302 of the
Education Code is amended to read:
   26302.  (a) If more or less than the contributions required by
this part are paid to the plan based on salary paid to a participant,
proper adjustment shall be made by the employer within 60 days of
discovery or of notification by the system, and any contributions
deducted in error from the participant's salary shall be returned to
the participant by the employer within the same time period.
   (b) The board, in accordance with regulations, shall assess
penalties for late or improper adjustments pursuant to Section 26301.
These penalties shall be assessed at a rate equal to the penalties
imposed under subdivision (b) of Section 23008 and shall be deemed to
be interest earned in the year in which the penalty is received.
   SEC. 9.   SEC. 10.   Section 26307 is
added to the Education Code, to read:
   26307.  A school district, community college district, county
superintendent of schools, the California State University, or other
employing agency that retains the services of a retired participant
to perform the activities described in subdivision (a) or (b) of
Section 26113 shall do both of the following, regardless of whether
the retired participant performs the services as an employee of the
employer, an employee of a third party, or as an independent
contractor:
   (a) Prior to retention, advise the retired participant of the
limitations on employment set forth in Sections 26505, 26806, 26810,
26911, and 27204.
   (b) Maintain accurate records of the retired participant's
earnings and report those earnings monthly to the system and the
retired participant, regardless of the method of payment or the fund
from which the payments are made.
   SEC. 10.   SEC. 11.   Section 26505 of
the Education Code is amended to read:
   26505.  If a participant who has retired and is receiving an
annuity under the Cash Balance Benefit Program becomes reemployed
prior to 60 years of age or becomes reemployed on or after 60 years
of age but within one year of his or her retirement date, to perform
creditable service as an employee of an employer, as an employee of a
third party, or as an independent contractor within the California
public school system, the annuity shall be terminated, the employee
account and the employer account of the participant shall be credited
with respective balances that reflect the actuarial equivalent of
the participant's retirement benefit as of the date of the
reemployment and the Annuitant Reserve shall be reduced by the amount
of the credits. If a participant who has retired and is receiving an
annuity under the Cash Balance Benefit Program becomes reemployed on
or after age 60 and more than one year after retirement to perform
creditable service under the plan, the annuity shall continue and
employee contributions and employer contributions for the creditable
service shall be made to the plan and shall be credited to new
employee and employer accounts established on behalf of the
participant.
   SEC. 12.    Section 26806 of the   Education
Code   is amended to read:
   26806.   (a)    The normal form of retirement
benefit under this part is a lump-sum payment. Upon distribution of
the lump-sum payment to the participant, no further benefits shall be
payable from the plan with respect to the Cash Balance Benefit
Program. 
   (b) This section shall remain in effect only until January 1,
2012, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2012, deletes or extends
that date.  
  SEC. 11.    Section 26806 of the Education Code is
amended to read:
   26806.  
   SEC. 13.    Section 26806 is added to the  
Education Code   , to read: 
    26806.   (a) The normal form of retirement benefit under
this part is a lump-sum payment. Upon distribution of the lump-sum
payment to the participant, no further benefits shall be payable from
the plan with respect to the Cash Balance Benefit Program. Effective
January 1,  2011   2012  , the lump-sum
payment shall not be payable before 180 days have elapsed following
the date of termination of employment.
   (b) The application to receive the normal form of a retirement
benefit shall be automatically canceled if the participant performs
creditable service as an employee of an employer, as an employee of a
third party, or as an independent contractor within the California
public school system within 180 days following the date of
termination of employment. 
   (c) This section shall become operative on January 1, 2012. 
   SEC. 12.   SEC. 14.   Section 7500.5 is
added to the Government Code, to read:
   7500.5.  (a) In order to safeguard the integrity and soundness of
public retirement systems, ensure prompt delivery of benefits and
related services to the participants and their beneficiaries, and
minimize employer expenses, state and local public retirement systems
shall administer retirement benefits in accordance with the
principles articulated in this section. Nothing in this section shall
be construed to limit the Legislature's authority to adopt more
restrictive benefit provisions applicable to a state or local public
retirement system.
   (b) The board of each state and local public retirement system
shall establish, by statute or regulation, accountability provisions
that shall include an audit process to ensure compliance with the
principles articulated in the provisions of this section. The
accountability provisions shall be enforceable by the imposition of
monetary penalties or fees, including, but not limited to, untimely
or inaccurate submissions of any information that the board may
require in the administration of the system.
   (c) Any payrate, salary, special compensation, or other
remuneration determined by the board of a state or local public
retirement system to have been paid for the principal purpose of
enhancing a member's retirement benefits under that system shall not
be included in compensation earnable. Where the board of a state or
local public retirement system determines that payrate, salary,
special compensation, or other remuneration was paid for the
principal purpose of enhancing a member's benefit, the member or the
employer may present evidence to the contrary. Upon receipt of
sufficient evidence to the contrary, a board may reverse its
determination that payrate, salary, special compensation, or other
remuneration was paid for the principal purpose of enhancing a member'
s retirement benefits.
   (d) Cash conversions of accrued employee benefits in amounts that
exceed the amount that is both earned and payable to the member
during the member's applicable final compensation measurement period
shall not be credited to, or included in, compensation earnable by
any state or local public retirement system.
   (e) Final settlement pay or any similar payment that is received
by a member upon retirement or separation from employment  ,
 shall not be included in compensation earnable by any state
or local public retirement system.
   (f) A retired person, who has not reinstated following retirement,
shall have a separation in service for a period of at least 180 days
before performing service for any employer covered by the state or
local retirement system from which he or she retired, whether as an
employee, through a third party, or as an independent contractor.
This requirement shall apply to all persons who retire on and after
January 1,  2011   2012  .
   (g) Any increase in compensation earnable for an employee who is
not in a group or class shall not exceed, during the final
compensation period as well as two years immediately preceding the
final compensation period, the average increase in compensation
earnable during the same period for all similarly situated members in
the closest related group or class of that same employer.
   (h) For the purposes of implementing this section, all state or
local public retirement systems shall have terms or definitions
consistent with the following:
   (1) "A group or class" means a number of employees of the same
employer considered together because they share job similarities,
work location, collective bargaining unit, or other logical work
grouping. Under no circumstance shall one employee be considered a
group or class.
                                                          (2)
"Payrate" or "salary" means the normal rate of pay or base pay of the
member paid in cash and pursuant to publicly available pay schedules
to similarly situated members of the same group or class for
services rendered on a full-time basis during normal working hours.
   (3) "Payrate" or "salary" for a member who is not in a group or
class means the rate of pay or base pay, paid in cash and pursuant to
publicly available pay schedules, for services rendered on a
full-time basis during normal working hours, subject to the
limitations of subdivision (g).
   (4) "Special compensation" includes a payment received for special
skills, knowledge, abilities, work assignment, workdays or hours, or
other work conditions.
   (5) "Compensation earnable" includes payrate, salary, special
compensation, or other remuneration, or any combination of the
foregoing, of the member.
   SEC. 13.   SEC. 15.   Section 20221 of
the Government Code is amended to read:
   20221.  Each state employer, school employer, and the chief
administrative officer of a contracting agency or any other person
who its governing body may designate shall furnish all of the
following:
   (a) Immediate notice to the board, in the manner prescribed by the
system, of the change in status of any member resulting from hiring,
transfer, promotion, leave of absence, resignation, reinstatement,
dismissal, or death.
   (b) Immediate notice to the board, in the manner prescribed by the
system, of any change that may impact a member's payrate or special
compensation, as defined in Section 20636 or 20636.1, resulting from
the adoption, termination, or amendment of any labor policy or
agreement.
   (c) Any additional information concerning any member or the
employer that the board may require in the administration of this
system.
   (d) The services of its officer and departments that the board may
request in connection with claims by members against this system.
   The board may assess a reasonable fee on any employer who fails to
provide information as required by this section within the
applicable time limits.
   SEC. 14.   SEC. 16.   Section 20630 of
the Government Code is amended to read:
   20630.  (a) As used in this part, "compensation" means the
remuneration paid out of funds controlled by the employer in payment
for the member's services performed during normal working hours or
for time during which the member is excused from work because of any
of the following:
   (1) Holidays.
   (2) Sick leave.
   (3) Industrial disability leave, during which, benefits are
payable pursuant to Sections 4800 and 4850 of the Labor Code, Article
4 (commencing with Section 19869) of Chapter 2.5 of Part 2.6, or
Section 44043 or 87042 of the Education Code.
   (4) Vacation.
   (5) Compensatory time off.
   (6) Leave of absence.
   (b) When compensation is reported to the board, the employer shall
identify the pay period in which the compensation was earned
regardless of when reported or paid. Compensation shall be reported
in accordance with Section 20636 or 20636.1 and shall not exceed
compensation earnable, as defined in Section 20636 or 20636.1.
   (c) The board may assess a reasonable amount to cover the cost of
audit, adjustment, or correction, where it determines that an
employer knowingly failed to comply with subdivision (b). An employer
will be found to have knowingly failed to comply with subdivision
(b) if the board determines that the employer either:
   (1) Knew or should have known that the compensation reported was
not compensation earnable, as defined in Section 20636 or 20636.1.
   (2) Failed to identify the pay period in which compensation
earnable was earned as required.
   (d) An employer shall not pass on to an employee any costs
assessed pursuant to subdivision (c).
   SEC. 15.  SEC. 17.   Section 20636 of
the Government Code is amended to read:
   20636.  (a) "Compensation earnable" by a member means the payrate
and special compensation of the member, as defined by subdivisions
(b), (c), and (g), and as limited by Section 21752.5.
   (b) (1) "Payrate" means the normal monthly rate of pay or monthly
base pay of the member paid in cash to similarly situated members of
the same group or class of employment for services rendered on a
full-time basis during normal working hours, pursuant to publicly
available pay schedules. "Payrate," for a member who is not in a
group or class, means the monthly rate of pay or monthly base pay of
the member, paid in cash and pursuant to publicly available pay
schedules, for services rendered on a full-time basis during normal
working hours, subject to the limitations of paragraph (2) of
subdivision (e).
   (2) "Payrate" shall include an amount deducted from a member's
salary for any of the following:
   (A) Participation in a deferred compensation plan.
   (B) Payment for participation in a retirement plan that meets the
requirements of Section 401(k) of Title 26 of the United States Code.

   (C) Payment into a money purchase pension plan and trust that
meets the requirements of Section 401(a) of Title 26 of the United
States Code.
   (D) Participation in a flexible benefits program.
   (3) The computation for a leave without pay of a member shall be
based on the compensation earnable by him or her at the beginning of
the absence and shall report special compensation separately from
payrate.
   (4) The computation for time prior to entering state service shall
be based on the compensation earnable by him or her in the position
first held by him or her in state service.
   (c) (1) Special compensation of a member includes a payment
received for special skills, knowledge, abilities, work assignment,
workdays or hours, or other work conditions.
   (2) Special compensation shall be limited to that which is
received by a member pursuant to a labor policy or agreement or as
otherwise required by state or federal law, to similarly situated
members of a group or class of employment that is in addition to
payrate. If an individual is not part of a group or class, special
compensation shall be limited to that which the board determines is
received by similarly situated members in the closest related group
or class that is in addition to payrate, subject to the limitations
of paragraph (2) of subdivision (e).
   (3) Special compensation shall be for services rendered during
normal working hours and, when reported to the board, the employer
shall identify the pay period in which the special compensation was
earned.
   (4) Special compensation may include the full monetary value of
normal contributions paid to the board by the employer, on behalf of
the member and pursuant to Section 20691, if the employer's labor
policy or agreement specifically provides for the inclusion of the
normal contribution payment in compensation earnable.
   (5) The monetary value of a service or noncash advantage furnished
by the employer to the member, except as expressly and specifically
provided in this part, is not special compensation unless regulations
promulgated by the board specifically determine that value to be
"special compensation."
   (6) The board shall promulgate regulations that delineate more
specifically and exclusively what constitutes "special compensation"
as used in this section. A written petition to request an addition to
the exclusive list that identifies and defines "special compensation"
items contained in board regulations may be made pursuant to Section
11340.7. A uniform allowance, the monetary value of
employer-provided uniforms, holiday pay, and premium pay for hours
worked within the normally scheduled or regular working hours that
are in excess of the statutory maximum workweek or work period
applicable to the employee under Section 201 et seq. of Title 29 of
the United States Code shall be included as special compensation and
appropriately defined in those regulations.
   (7) Special compensation does not include any of the following:
   (A) Final settlement pay.
   (B) Payments made for additional services rendered outside of
normal working hours, whether paid in lump sum or otherwise.
   (8) A written request may be submitted for the board's
determination as to whether specific compensation items meet the
definition of special compensation. Determinations shall be made on
these requests within 90 calendar days of receipt of all information
required to be submitted by the board.
   (C) Other payments the board has not affirmatively determined to
be special compensation.
   (d) Notwithstanding any other provision of law, payrate and
special compensation schedules, ordinances, or similar documents
shall be public records available for public scrutiny.
   (e) (1) As used in this part, "group or class of employment" means
a number of employees considered together because they share
similarities in job duties, work location, collective bargaining
unit, or other logical work-related grouping. One employee may not be
considered a group or class.
   (2) Increases in compensation earnable granted to an employee who
is not in a group or class shall be limited during the final
compensation period applicable to the employees, as well as the two
years immediately preceding the final compensation period, to the
average increase in compensation earnable during the same period
reported by the employer for all similarly situated members in the
closest related group or class, or who are in the same membership
classification, except as may otherwise be determined pursuant to
regulations adopted by the board that establish reasonable standards
for granting exceptions.
   (f) As used in this part, "final settlement pay" means pay or cash
conversions of employee benefits that are in excess of compensation
earnable, that are granted or awarded to a member in connection with,
or in anticipation of, a separation from employment. The board shall
promulgate regulations that delineate more specifically what
constitutes final settlement pay.
   (g) (1) Notwithstanding subdivision (a), "compensation earnable"
for state members means the average monthly compensation, as
determined by the board, upon the basis of the average time put in by
members in the same group or class of employment and at the same
rate of pay, and is composed of the payrate and special compensation
of the member. The computation for an absence of a member shall be
based on the compensation earnable by him or her at the beginning of
the absence and for time prior to entering state service shall be
based on the compensation earnable by him or her in the position
first held by him or her in that state service.
   (2) Notwithstanding subdivision (b), "payrate" for state members
means the average monthly remuneration paid in cash out of funds paid
by the employer to similarly situated members of the same group or
class of employment, pursuant to publicly available pay schedules, in
payment for the member's services or for time during which the
member is excused from work because of holidays, sick leave,
vacation, compensating time off, or leave of absence. "Payrate" for
state members shall include:
   (A) An amount deducted from a member's salary for any of the
following:
   (i) Participation in a deferred compensation plan established
pursuant to Chapter 4 (commencing with Section 19993) of Part 2.6.
   (ii) Payment for participation in a retirement plan that meets the
requirements of Section 401(k) of Title 26 of the United States
Code.
   (iii) Payment into a money purchase pension plan and trust that
meets the requirements of Section 401(a) of Title 26 of the United
States Code.
   (iv) Participation in a flexible benefits program.
   (B) A payment in cash by the member's employer to one other than
an employee for the purpose of purchasing an annuity contract for a
member under an annuity plan that meets the requirements of Section
403(b) of Title 26 of the United States Code.
   (C) Employer "pick up" of member contributions that meets the
requirements of Section 414(h)(2) of Title 26 of the United States
Code.
   (D) Disability or workers' compensation payments to safety members
in accordance with Section 4800 of the Labor Code.
   (E) Temporary industrial disability payments pursuant to Article 4
(commencing with Section 19869) of Chapter 2.5 of Part 2.6.
   (F) Other payments the board may determine to be within "payrate."

   (3) Notwithstanding subdivision (c), "special compensation" for
state members shall mean all of the following:
   (A) The monetary value, as determined by the board, of living
quarters, board, lodging, fuel, laundry, and other advantages of any
nature furnished to a member by his or her employer in payment for
the member's services.
   (B) Compensation for performing normally required duties, such as
holiday pay, bonuses (for duties performed on regular work shift),
educational incentive pay, maintenance and noncash payments,
out-of-class pay, marksmanship pay, hazard pay, motorcycle pay,
paramedic pay, emergency medical technician pay, Peace Officer
Standards and Training (POST) certificate pay, and split shift
differential.
   (C) Compensation for uniforms, except as provided in Section
20632.
   (D) Other payments the board may determine to be within "special
compensation."
   (4) "Payrate" and "special compensation" for state members do not
include any of the following:
   (A) The provision by the state employer of a medical or hospital
service or care plan or insurance plan for its employees (other than
the purchase of annuity contracts as described below in this
subdivision), a contribution by the employer to meet the premium or
charge for that plan, or a payment into a private fund to provide
health and welfare benefits for employees.
   (B) A payment by the state employer of the employee portion of
taxes imposed by the Federal Insurance Contribution Act.
   (C) Amounts not available for payment of salaries and that are
applied by the employer for the purchase of annuity contracts
including those that meet the requirements of Section 403(b) of Title
26 of the United States Code.
   (D) Benefits paid pursuant to Article 5 (commencing with Section
19878) of Chapter 2.5 of Part 2.6.
   (E) Employer payments that are to be credited as employee
contributions for benefits provided by this system, or employer
payments that are to be credited to employee accounts in deferred
compensation plans. The amounts deducted from a member's wages for
participation in a deferred compensation plan may not be considered
to be "employer payments."
   (F) Payments for unused vacation, annual leave, personal leave,
sick leave, or compensating time off, whether paid in lump sum or
otherwise.
   (G) Final settlement pay.
   (H) Payments for overtime, including pay in lieu of vacation or
holiday.
   (I) Compensation for additional services outside regular duties,
such as standby pay, callback pay, court duty, allowance for
automobiles, and bonuses for duties performed after the member's
regular work shift.
   (J) Amounts not available for payment of salaries and that are
applied by the employer for any of the following:
   (i) The purchase of a retirement plan that meets the requirements
of Section 401(k) of Title 26 of the United States Code.
   (ii) Payment into a money purchase pension plan and trust that
meets the requirements of Section 401(a) of Title 26 of the United
States Code.
   (K) Payments made by the employer to or on behalf of its employees
who have elected to be covered by a flexible benefits program, where
those payments reflect amounts that exceed the employee's salary.
   (L) Other payments the board may determine are not "payrate" or
"special compensation."
   (5) If the provisions of this subdivision, including the board's
determinations pursuant to subparagraph (F) of paragraph (2) and
subparagraph (D) of paragraph (3), are in conflict with the
provisions of a memorandum of understanding reached pursuant to
Section 3517.5 or 3560, the memorandum of understanding shall be
controlling without further legislative action, except that if the
provisions of a memorandum of understanding require the expenditure
of funds, those provisions may not become effective unless approved
by the Legislature in the annual Budget Act. No memorandum of
understanding reached pursuant to Section 3517.5 or 3560 may exclude
from the definition of either "payrate" or "special compensation" a
member's base salary payments or payments for time during which the
member is excused from work because of holidays, sick leave,
vacation, compensating time off, or leave of absence. If items of
compensation earnable are included by memorandum of understanding as
"payrate" or "special compensation" for retirement purposes for
represented and higher education employees pursuant to this
paragraph, the Department of Personnel Administration or the Trustees
of the California State University shall obtain approval from the
board for that inclusion.
   (6) (A) Subparagraph (B) of paragraph (3) prescribes that
compensation earnable includes compensation for performing normally
required duties, such as holiday pay, bonuses (for duties performed
on regular work shift), educational incentive pay, maintenance and
noncash payments, out-of-class pay, marksmanship pay, hazard pay,
motorcycle pay, paramedic pay, emergency medical technician pay, POST
certificate pay, and split shift differential; and includes
compensation for uniforms, except as provided in Section 20632; and
subparagraph (I) of paragraph (4) excludes from compensation earnable
compensation for additional services outside regular duties, such as
standby pay, callback pay, court duty, allowance for automobile, and
bonuses for duties performed after regular work shift.
   (B) Notwithstanding subparagraph (A), the Department of Personnel
Administration shall determine which payments and allowances that are
paid by the state employer shall be considered compensation for
retirement purposes for an employee who either is excluded from the
definition of state employee in Section 3513, or is a nonelected
officer or employee of the executive branch of government who is not
a member of the civil service.
   (C) Notwithstanding subparagraph (A), the Trustees of the
California State University shall determine which payments and
allowances that are paid by the trustees shall be considered
compensation for retirement purposes for a managerial employee, as
defined in Section 3562, or supervisory employee as defined in
Section 3580.3.
   SEC. 16.   SEC. 18.   Section 20636.1 of
the Government Code is amended to read:
   20636.1.  (a) Notwithstanding Section 20636, and Section 45102 of
the Education Code, "compensation earnable" by a school member means
the payrate and special compensation of the member, as defined by
subdivisions (b) and (c), and as limited by Section 21752.5.
   (b) (1) "Payrate" means the normal monthly rate of pay or monthly
base pay of the member paid in cash to similarly situated members of
the same group or class of employment for services rendered on a
full-time basis during normal working hours, pursuant to publicly
available pay schedules. For purposes of this part, for classified
members, full-time employment is 40 hours per week, and payments for
services rendered, not to exceed 40 hours per week, shall be reported
as compensation earnable for all months of the year in which work is
performed. "Payrate," for a member who is not in a group or class,
means the monthly rate of pay or monthly base pay of the member, paid
in cash and pursuant to publicly available pay schedules, for
services rendered on a full-time basis during normal working hours,
subject to the limitations of paragraph (2) of subdivision (e).
   (A) For the purposes of this section, "classified members" shall
mean members who retain membership under this system while employed
with a school employer in positions not subject to coverage under the
Defined Benefit Program under the State Teacher's Retirement System.

   (B) For the purposes of this section, and Sections 20962 and
20966, "certificated members" shall mean members who retain
membership under this system while employed in positions subject to
coverage under the Defined Benefit Program under the State Teacher's
Retirement System.
   (2) The computation for any leave without pay of a member shall be
based on the compensation earnable by him or her at the beginning of
the absence.
   (3) The computation for time prior to entering state service shall
be based on the compensation earnable by him or her in the position
first held by him or her in state service.
   (c) (1) Special compensation of a school member includes any
payment received for special skills, knowledge, abilities, work
assignment, workdays or hours, or other work conditions.
   (2) Special compensation shall be limited to that which is
received by a member pursuant to a labor policy or agreement or as
otherwise required by state or federal law, to similarly situated
members of a group or class of employment that is in addition to
payrate. If an individual is not part of a group or class, special
compensation shall be limited to that which the board determines is
received by similarly situated members in the closest related group
or class that is in addition to payrate, subject to the limitations
of paragraph (2) of subdivision (e).
   (3) Special compensation shall be for services rendered during
normal working hours and, when reported to the board, the employer
shall identify the pay period in which the special compensation was
earned, and shall report special compensation separately from
payrate.
   (4) Special compensation may include the full monetary value of
normal contributions paid to the board by the employer, on behalf of
the member and pursuant to Section 20691, provided that the employer'
s labor policy or agreement specifically provides for the inclusion
of the normal contribution payment in compensation earnable.
   (5) The monetary value of any service or noncash advantage
furnished by the employer to the member, except as expressly and
specifically provided in this part, shall not be special compensation
unless regulations promulgated by the board specifically determine
that value to be "special compensation."
   (6) The board shall promulgate regulations that delineate more
specifically and exclusively what constitutes "special compensation"
as used in this section. A written petition to request an addition to
the exclusive list that identifies and defines "special compensation"
items contained in board regulations may be made pursuant to Section
11340.7. A uniform allowance, the monetary value of
employer-provided uniforms, holiday pay, and premium pay for hours
worked within the normally scheduled or regular working hours that
are in excess of the statutory maximum workweek or work period
applicable to the employee under Section 201 et seq. of Title 29 of
the United States Code shall be included as special compensation and
appropriately defined in those regulations.
   (7) Special compensation does not include any of the following:
   (A) Final settlement pay.
   (B) Payments made for additional services rendered outside of
normal working hours, whether paid in lump sum or otherwise.
   (C) Any other payments the board has not affirmatively determined
to be special compensation.
   (8) A written request may be submitted for the board's
determination as to whether specific compensation items meet the
definition of special compensation. Determinations shall be made on
these requests within 90 calendar days of receipt of all information
required to be submitted by the board.
   (d) Notwithstanding any other provision of law, payrate and
special compensation schedules, ordinances, or similar documents
shall be public records available for public scrutiny.
   (e) (1) As used in this part, "group or class of employment" means
a number of employees considered together because they share
similarities in job duties, work location, collective bargaining
unit, or other logical work-related grouping. Under no circumstances
shall one employee be considered a group or class.
   (2) Increases in compensation earnable granted to any employee who
is not in a group or class shall be limited during the final
compensation period applicable to the employees, as well as the two
years immediately preceding the final compensation period, to the
average increase in compensation earnable during the same period
reported by the employer for all similarly situated members in the
closest related group or class or who are in the same membership
classification, except as may otherwise be determined pursuant to
regulations adopted by the board that establish reasonable standards
for granting exceptions.
   (f) As used in this part, "final settlement pay" means any pay or
cash conversions of employee benefits that are in excess of
compensation earnable, that are granted or awarded to a member in
connection with or in anticipation of a separation from employment.
The board shall promulgate regulations that delineate more
specifically what constitutes final settlement pay.
   SEC. 17.   SEC. 19.   Section 21220 of
the Government Code is amended to read:
   21220.  (a) A person who has been retired under this system, for
service or for disability, may not be employed in any capacity
thereafter by the state, the university, a school employer, or a
contracting agency, unless any of the following conditions are
satisfied:
   (1) The employment qualifies for service credit in the University
of California Retirement Plan or the State Teachers' Retirement Plan.

   (2) He or she has first been reinstated from retirement pursuant
to this chapter.
   (3) For a person retiring on or after January 1,  2011
  2012  , the employment, without reinstatement, is
authorized by this article and at least 180 days have elapsed since
that person's retirement date.
   (b) A retired person whose employment without reinstatement is
authorized by this article shall acquire no service credit or
retirement rights under this part with respect to the employment.
   (c) Any retired member employed in violation of this article
shall:
   (1) Reimburse this system for any retirement allowance received
during the period or periods of employment that are in violation of
law.
   (2) Pay to this system an amount of money equal to the employee
contributions that would otherwise have been paid during the period
or periods of unlawful employment, plus interest thereon.
   (3) Contribute toward reimbursement of this system for
administrative expenses incurred in responding to this situation, to
the extent the member is determined by the executive officer to be at
fault.
                              (d) Any public employer that employs a
retired member in violation of this article shall:
   (1) Pay to this system an amount of money equal to employer
contributions that would otherwise have been paid for the period or
periods of time that the member is employed in violation of this
article, plus interest thereon.
   (2) Contribute toward reimbursement of this system for
administrative expenses incurred in responding to this situation, to
the extent the employer is determined by the executive officer of
this system to be at fault.
   SEC. 18.  SEC. 20.   Section 21220.3 is
added to the Government Code, to read:
   21220.3.  (a) A person who has retired under this system, for
service or for disability, may not render services for compensation
in any capacity for the state, the university, a school employer, or
a contracting agency, through a third party or as an independent
contractor, for a period of 180 days following the date of his or her
retirement.
   (b) Any retired member who provides services in violation of this
section shall:
   (1) Cease performing services for compensation and shall not be
eligible to again perform services for a period of 180 days following
the last date he or she performed services.
   (2) Contribute toward reimbursement for administrative expenses
incurred by the system because of the violation, to the extent that
the retired member is determined by the executive officer of this
system to be at fault. For purposes of this subdivision, a retired
member shall be determined to be at fault if the retired member knew
or should have known that he or she was performing services in
violation of this section.
   (c) Any public employer that utilizes the services of a retired
member in violation of this section shall contribute toward
reimbursement of this system for administrative expenses incurred by
this system because of the violation, to the extent that the employer
is determined, by the executive officer of this system, to be at
fault. For purposes of this subdivision, a public employer shall be
determined to be at fault if the public employer knew or should have
known that the retired member was performing services in violation of
this section.
   (d) This section shall apply to all persons who retire on and
after January 1,  2011   2012  .
   SEC. 19.   SEC. 21.   Except as
otherwise specifically provided, the provisions of this act shall
become operative on July 1, 2011.
   SEC. 20.  SEC. 22.   This bill shall
become operative only if Assembly Bill 1987 of the 2009-10 Regular
Session is enacted and takes effect on or before January 1, 2011.