BILL ANALYSIS Ó
AB 340
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 340 (Furutani)
As Amended June 22, 2011
Majority vote
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|ASSEMBLY: |73-0 |(May 12, 2011) |SENATE: |35-0 |(July 11, |
| | | | | |2011) |
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Original Committee Reference: P.E.,R.& S.S.
SUMMARY : Prohibits certain cash payments from being counted as
compensation earnable for retirement purposes in counties operating
retirement systems pursuant to the County Employees' Retirement Law
of 1937 ('37 Act) and prohibits a retiree in those counties from
immediately returning to employment with the public employer on a
part-time or contract basis. Specifically, this bill :
1)Excludes from the definition of "compensation earnable" any
compensation determined by the retirement board to have been paid
for the principal purpose of enhancing a member's retirement
benefit which may include specified payments or cash conversions
made at the termination of employment or during the final average
salary period.
2)Excludes, further, from the definition of "compensation earnable"
payments for unused vacation time, annual leave, personal leave,
sick leave, or compensatory time off that exceeds what is earned
and payable in each 12-month period during the final average
salary period, payments for service rendered outside of normal
working hours, unscheduled overtime, and payments made at the
termination of employment, as specified.
3)Excludes, additionally, from the definition of "compensation
earnable," for members first hired on or after January 1, 2012,
employer provided housing and vehicle allowances.
4)Requires 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
determination has been made.
5)Specifies that compensation paid to a retiring member to restore
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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 a member's retirement benefits.
6)Establishes compensation reporting requirements for counties and
districts and authorizes a '37 Act retirement board to audit to
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.
7)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.
8)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.
9)Specifies that a retiree hired in violation of the 180 day rule is
required to reimburse the retirement system for any retirement
allowance received during that period.
10)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.
The Senate amendments :
1)Specify that certain payments or cash conversions made at the
termination of employment or during the final average salary
period may be excluded from the definition of "compensation
earnable" if a retirement board determines that those amounts were
paid for the principal purpose of enhancing a member's retirement
benefit.
2)Specify that employer provided housing and vehicle allowances are
only excluded from the definition of "compensation earnable," for
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members first hired on or after January 1, 2012.
3)Require 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 require the boards to
provide notice to the employer and member when such a
determination has been made.
EXISTING LAW :
1)Establishes the '37 Act, which provides for retirement systems for
county and district employees in those counties adopting its
provisions. Currently 20 counties operate retirement systems
under the '37 Act. 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)Defines "compensation earnable" in the '37 Act 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.
3)Allows a retired public employee 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.
AS PASSED BY THE ASSEMBLY , this bill was substantially similar to
the version approved by the Senate.
FISCAL EFFECT : Unknown
COMMENTS : According to the author, "California's public pension
systems were established to provide retirement security for those
who give their lives to 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 on which a member's pension is calculated). In these
counties some public employees, most of them in upper level
positions, have taken advantage of this situation to include items
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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 pensions 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 law 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 the 'double-dipping' employed
by many of the managers and highly compensated employees."
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."
The 180 day provision in this bill is similar to provisions
contained in SB 27 (Simitian) of 2011. SB 27 (Simitian) 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,
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paid employee; contracting employee; or, employee of a third party
contractor.
These provisions were also contained in AB 1987 (Ma) of 2010 and SB
1425 (Simitian) of 2010, which were vetoed by Governor
Schwarzenegger. Governor Schwarzenegger did not mention the 180 day
provisions in his veto messages on the bills. Other concerns with
the measures were cited.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN:
0001440