BILL ANALYSIS Ó
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 27
Gloria Negrete McLeod, Chair
Hearing date: March 21, 2011
SB 27 (Simitian and Negrete McLeod) as amended
3/03/11FISCAL: YES
PUBLIC RETIREMENT SYSTEMS: PROHIBITS PENSION SPIKING AND
REQUIRES 180 DAY BREAK IN EMPLOYMENT FOLLOWING RETIREMENT
HISTORY :
Sponsor: Author
Prior legislation: SB 53 (Russell)
Chapter 1297, Statutes of 1993
SB 1425 (Simitian)
Vetoed, 2010
SUMMARY :
SB 27 makes findings and declarations regarding public
employee retirement benefits and the need to consistently
distinguish which items of compensation are properly
included in members' final compensation for the purpose of
determining retirement benefits.
SB 27 adds requirements to laws governing the Public
Employees' Retirement System (CalPERS) and the State
Teachers' Retirement System (CalSTRS) to:
1) clarify and define which elements may and may not be
included in final compensation for the purpose of
calculating retirement benefits,
2) require that increases to employee compensation
during the final compensation period be consistent with
increases paid to other employees in the same or similar
occupational groups or classes,
3) require the boards of retirement systems to audit
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employer compliance with final compensation reporting
requirements and allow them to levy monetary penalties
or fees for non-compliance, and
4) prohibit, for 180 days after the date of retirement,
any public annuitant 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.
BACKGROUND AND ANALYSIS :
1)Existing state laws :
a) authorize CalPERS and CalSTRS to 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).
b) provide for the administration and oversight of the
CalPERS and CalSTRS retirement systems by their respective
Boards.
c) define final compensation, in general, as compensation
earned during an employee's highest-paid 36 month or 12
month period of service, depending on membership type, and
define which additional types of pay may be combined with
base pay to make up final compensation.
2)Existing laws, rules, and collective bargaining agreements
allow state and school employers to pay differentials,
overtime, separation pay, holiday pay, and other forms of
compensation in addition to base pay and require
participating employers to 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.
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3)Existing laws governing CalSTRS create both a traditional
defined benefit program and a supplemental program called
the Defined Benefit Supplement Program, into which
contributions are made on forms of compensation that may
not be included in final compensation used to calculate a
defined benefit allowance. These contributions accumulate
and are paid to members at retirement in a manner similar
to tax-deferred savings accounts.
4)Existing laws regarding working after retirement :
a) allow a retired public employee or teacher to return to
public employment as a part-time worker or subject to
reduced earnings, as specified, without a reduction in
retirement allowance and without earning additional service
credit in the public retirement system. 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.
b) do not prohibit a retired public employee or teacher
from drawing a retirement allowance while working as an
independent contractor or employee of a third party
contracting with a public employer.
5)This bill :
a) states 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,
b) clarifies and defines in CalPERS and CalSTRS which
forms of compensation may be included in an employee's
final compensation for the purpose of determining a
retirement allowance, and requires that no compensation
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determined to have been paid expressly to enhance a
member's retirement allowance may be included,
c) requires that increases to compensation paid during the
final compensation period must be consistent with publicly
published pay scales and the increases paid to other
employees in the same or similar working groups or classes,
and prohibits classes of one individual only,
d) allows the CalPERS and CalSTRS Boards to assess fees on
employers who fail to accurately provide required
information, including the costs of auditing, adjusting, or
correcting inaccurate reporting, and prohibits an employer
from passing those costs on to employees,
e) further clarifies in the Education Code which forms of
compensation for CalSTRS members may be used to determine
final compensation for a defined retirement benefit and
which forms of compensation must be contributed to the
Defined Benefit Supplement Program,
f) requires that any CalPERS member who retires on or
after January 1, 2013, may not return to public employment
as a part-time worker, a private contractor, or employee of
a third party contractor for 180 days following the date of
retirement. Any employee who works in violation of this
provision will be required to cease employment and wait
another 180 days before returning to work. In addition,
either the employer or employee will be liable for related
administrative costs of enforcement, depending on whether
the violation was due to employee or employer error,
g) requires that any CalSTRS member who retires on or
after January 1, 2013, may not earn any compensation as a
retired part-time worker, a private contractor, or employee
of a third party contractor for 180 days following the date
of retirement. If the retiree does earn compensation in
violation of this requirement, his or her retirement
allowance will be reduced by the amount of compensation
earned in the prohibited period, and
h) requires that the 180 day limit on working after
retirement be applicable to individuals retiring on and
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after January 1, 2013 and that other provisions of the bill
related to final compensation shall be effective for
current and future members of the retirement systems on and
after July 1, 2012.
6) This bill does not prohibit the employment of retirees
already retired prior to January 1, 2013.
COMMENTS :
1) Arguments in support
The author states the following:
"Recent news reports have highlighted the actions by a
small percentage of public employees who have
intentionally, but legally, manipulated their final
compensation for purposes of gaining a larger pension
benefit. This bill institutes uniform laws for the state's
two largest retirement systems, CalPERS and CalSTRS, that
will help to curtail an individual from taking
extraordinary steps to enhance their retirement benefits
(i.e., "spiking").
"In addition, the bill requires that employees have a bona
fide separation in service of six months before taking
another position in public service to prevent "double
dipping." The provision will eliminate "revolving door"
practices in which some public employees retire on a Friday
and return to the same job on Monday as a retired worker.
"Senate Bill 27 is designed to correct abuses that impose
an undue burden on both the taxpayers and employees in the
system, as well as erode public support for reasonable
public employee pensions."
The State Controller states that pension abuses "must be
dealt with immediately and comprehensively in order to
restore taxpayers' confidence in our public pension system."
2) Arguments in opposition
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Arguments in opposition are focused on the 180 day
prohibition on returning to work as a retiree. Police and
sheriffs note that after a six-month break in service, an
officer must re-undergo background checks that are costly and
time-consuming.
The Humboldt County Superintendent of Schools expresses
concerns relative to the requirement for retirees to wait 180
days before returning to employment with the public employer
and recommends allowing emergency reemployment in rural
school districts: "The waiting period can place a specially
qualified person in a rural setting into the untenable
position of retiring and leaving the students without their
services, or forsaking retirement."
Similarly, the California Faculty Association would remove
its opposition if the bill were amended to exempt its Faculty
Early Retirement Program, which has been included in the
memorandum of understanding between the California State
University and CFA for "nearly two decades," from the 180 day
prohibition on working after retirement.
3) SUPPORT :
State Controller, John Chiang
California Association of Highway Patrolmen (CAHP)
Glendale City Employees Association (GCEA)
Organization of SMUD Employees (OSE)
Retired Public Employees Association (RPEA)
San Bernardino Public Employees Association (SBPEA)
San Luis Obispo County Employees Association (SLOCEA)
Santa Rosa City Employees Association (SRCEA)
Service Employees International Union, Local 1000 (SEIU)
California School Boards Association (CSBA), Support if
amended
4) OPPOSITION :
Association of California School Administrators (ACSA)
California Police Chiefs Association
California State Sheriffs' Association (CSSA)
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Small School Districts' Association (SSDA)
California Association of Joint Powers Authorities
(CAJPA), Oppose unless amended
California Faculty Association (CFA), Oppose unless
amended
California State Association of Counties (CSAC), Oppose
unless amended
Humboldt County Superintendent of Schools, Oppose unless
amended
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