BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | AB 340|
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THIRD READING
Bill No: AB 340
Author: Furutani (D)
Amended: 6/22/11 in Senate
Vote: 21
SEN.PUBLIC EMPLOY. & RETIRE. COMMITTEE : 5-0, 6/27/11
AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas
ASSEMBLY FLOOR : 73-0, 5/12/11 - See last page for vote
SUBJECT : County employees retirement
SOURCE : Author
DIGEST : This bill prohibits certain cash payments from
being included in compensation for the purpose of
determining a retirement benefit in county retirement
systems subject to the 1937 Act County Retirement Law, and
prohibits retirees in those retirement systems from
immediately returning to employment with the public
employer on a part-time or contract basis.
ANALYSIS :
Existing law:
1.Establishes the 20 county retirement systems operating
under the 1937 Act County Retirement Law ('37 Act), which
provide defined benefit retirement allowances based on
employees' years of service, age at retirement, and final
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compensation (most commonly, the 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 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
facts that impact compensation.
3.Defines "compensation earnable" in the '37 Act system as
the average compensation for the period under
consideration with respect to the average number of days
ordinarily worked by persons in the same grade or class
of positions during the period, and at the same rate of
pay.
4.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 findings and declarations that the act achieves
pension reforms, including giving retirement boards the
authority and responsibility to audit and deny
compensation that is paid to spike a pension and assess
penalties to employers for non-compliance, prohibiting
final settlement pay and various types of leave pay from
being included in retirement calculations, and
prohibiting the practice of "double-dipping," defined as
immediately (within 180 days) returning to public
employment after retirement.
2.Excludes from the definition of "compensation earnable"
payments for unused vacation time, annual leave,
personal leave, sick leave, or compensatory time off
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that exceeds what is earned and payable in a 12-month
period, payments for service rendered outside of normal
working hours, bonus payments, housing allowances,
severance pay, unscheduled overtime, and vehicle
allowances, as specified.
3.Authorizes a '37 Act retirement board to establish a
procedure for determining whether an element of
compensation as paid for the principal purpose of
pension spiking and requires the board to provide notice
to the employer and member when such a termination has
been made.
4.Specifies that compensation paid to a retiring member to
restore compensation the member would have been
entitled to receive pursuant to a collective bargaining
agreement that was subsequently deferred or modified, as
specified, will be considered compensation earnable and
not considered to have been paid for the purpose of
enhancing the member's retirement benefits.
5.Establishes compensation reporting requirements for
counties and districts and authorizes a '37 Act
retirement board to audit and determine the correctness
of specified information and assess a county or district
a reasonable cost to cover the cost of the audit and any
necessary adjustment or correction if the board
determines the county or district knowingly failed to
comply with the compensation reporting requirements.
6.Requires a county or district to enroll an eligible
employee into membership with the retirement system
within 90 days. Employers who fail to meet this
requirement are required to pay all costs in arrears for
member contributions and administrative costs of $500
per member.
7.Prohibits a person who retires on or after January 1,
2012, from returning to work as a retired annuitant or
as a contract employee for a period of 180 days after
retirement.
8.Specifies that a retiree hired in violation of the 180
days rule is required to reimburse the retirement system
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for any retirement allowance received during that period
and any administrative expenses incurred.
9.Specifies that a county or district that hires someone
in violation of the 180 day rule is required to
reimburse the retirement system for any administrative
expenses incurred if the county or district is
determined to be at fault by the executive officer of
the retirement system.
10.Clarifies that this act shall not be applied to reduce
the pension of any individual who has retired prior to
January 1, 2012.
Comments
Similarity to SB 27 (Simitian) and Previously Vetoed Bills .
The 180 day provision in this bill is similar to
provisions contained in SB 27 (Simitian) of this year. SB
27 prohibits, for 180 days after the date of retirement,
any member of the California Public Employees' Retirement
System (CalPERS) or the California State Teachers'
Retirement System (CalSTRS) who retires on or after January
1, 2013, from returning to work as a part-time, paid
employee, contracting employee, or employee of a third
party contractor for a period of 180 days following
retirement.
The provisions relative to working after retirement were
also contained in AB 1987 (Ma), 2009-10 Session, and SB
1425 (Simitian), 2009-10 Session, which were vetoed by the
Governor. The Governor did not mention the 180 day
provisions in his veto messages on the bills. Other
concerns with the bills were cited.
Related and Prior Legislation
SB 27 (Simitian), 2011-12 Session, among other things,
prohibits a retiree from returning to work as a retired
annuitant or contract employee for a period of 180 days
after retirement. (In Assembly Public Employees,
Retirement and Social Security Committee)
SB 1425 (Simitian), 2009-10 Session, would have established
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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. Passed the
Senate with a vote of 37-0 on August 31, 2010. The bill
was subsequently vetoed by Governor Schwarzenegger, whose
veto message read:
"The enactment of this bill is contingent upon the
enactment of AB 1987 (Ma). I am vetoing AB 1987
because it does not provide real pension reform. I am
still hopeful that the Legislature will pass an
acceptable bill that really addressed California's
pension problem."
AB 1987 (Ma), 2009-10 Session, would have established
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. Passed the
Senate with a vote of 28-1 on August 30, 2010. The bill
was subsequently vetoed by Governor Schwarzenegger, whose
veto message read:
"The practice of pension-spiking is a serious one that
deserves significant attention by the Legislature in
curbing the unacceptable manner in which individual
workers are able to artificially boost their retirement
payouts. There are numerous examples of public
employees taking home larger pension checks in
retirement than what they earned in base salary when
they were actually working.
"California does need a consistent standard that is
transparent, understandable, and implementable
throughout the state. While this bill purports to
address this issue by segregating out some of the
factors that have allowed pension spiking, in some
instances it still allows local pension boards to
determine what is ultimately counted in an employee's
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pension calculation. This does not provide a
consistent treatment of all employees. The taxpayers
of California deserve better. I am still hopeful that
the Legislature can send me acceptable pension reform
legislation."
FISCAL EFFECT : Appropriation: No Fiscal Com.: No
Local: No
SUPPORT : (Verified 6/29/11)
American Federation of State, County and Municipal
Employees, AFL-CIO
Association for Los Angeles Deputy Sheriffs
California Association of Psychiatric Technicians
California School Employees Association
Glendale City Employees Association
Los Angeles County Probation Officers Union
Organization of SMUD Employees
Redondo Beach Chamber of Commerce
Retired Public Employees Association
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Service Employees International Union
South Bay Association of Chambers of Commerce
OPPOSITION : (Verified 6/29/11)
Association of California Water Agencies
California District Attorneys Association
California State Association of Counties (oppose unless
amended)
ARGUMENTS IN SUPPORT : According to the author's office,
"California's public pension systems were established to
provide retirement security for those who give their lives
in public service. Recently, the benefits provided by
those systems have been tainted by a few individuals who
have taken advantage of the system. This is in part due to
the "37 Act's very broad and general definition of
'compensation earnable' (the amount of which a member's
pension is calculated). In these counties some public
employees, most of them in upper level positions, have
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taken advantage of this situation to include items in their
compensation that 'spike' their final compensation to
create vastly increased pension checks for themselves.
"The abusive practices engaged in by a few individual have
put retirement benefits at risk for the vast majority of
honest, hard-working public servants. Additionally, the
practice of having someone retire on Friday and come back
to work on Monday and being able to collect a full
retirement benefit along with a full paycheck, is something
the public simply will not tolerate any longer. Allowing
this 'double-dipping' to continue only adds to the growing
public concern over the pension being received by public
employees."
The author concludes, "This measure will address these
abusive practices by giving the '37 Act retirement boards
the authority and the obligation to deny compensation items
that are provided to an employee for the principal purpose
of enhancing a member's retirement, specifically excluding
certain payments from the definition of 'compensation
earnable', and requiring an employee to 'sit out' for 180
days after retirement before returning to service."
Supporters state, "AB 340 would eliminate the current
ability for employees to manipulate their final
compensation calculations to enhance their retirement
benefits. Additionally, AB 340 restricts the ability of
members to retire immediately and return to employment as a
retired annuitant and begin collecting a salary and pension
simultaneously?AB 340 ends 'double-dipping' employed by
many of the managers and highly compensated employees."
ARGUMENTS IN OPPOSITION : Those opposed to the bill are
concerned about the provision prohibiting a retiree from
returning to work for their previous employer until 180
days have elapsed from the day of retirement. They state,
"The use of recent retirees allows public agencies to save
public dollars during the recruitment period and until the
position is filled with a competent person. Many of the
positions for which retirees are re-hired temporarily are
highly skilled trade's positions which are difficult to
fill."
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ASSEMBLY FLOOR : 73-0, 5/12/11
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
Brownley, Buchanan, Butler, Charles Calderon, Campos,
Carter, Chesbro, Cook, Davis, Dickinson, Donnelly, Eng,
Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines,
Gatto, Gordon, Grove, Hagman, Halderman, Hall, Harkey,
Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman,
Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal,
Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell,
Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel
Pérez, Silva, Skinner, Smyth, Solorio, Swanson, Valadao,
Wagner, Wieckowski, Williams, Yamada, John A. Pérez
NO VOTE RECORDED: Cedillo, Conway, Galgiani, Garrick,
Gorell, Portantino, Torres
CPM:cm 6/29/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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