BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 27|
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THIRD READING
Bill No: SB 27
Author: Simitian (D), et al
Amended: 3/3/11
Vote: 21
SEN. PUB. EMPLOY. & RETIRE. COMMITTEE : 5-0, 3/21/11
AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas
SENATE APPROPRIATIONS COMMITTEE : 8-0, 5/26/11
AYES: Kehoe, Walters, Alquist, Lieu, Pavley, Price,
Runner, Steinberg
NO VOTE RECORDED: Emmerson
SUBJECT : Public retirement: final compensation:
computation:
retirees
SOURCE : Author
DIGEST : This bill (1) provides that any salary
enhancement for the principal purpose of increasing a
members retirement benefit will not be included in the
calculation of a members final compensation for determining
that benefit, (2) requires the boards of each state public
retirement system to establish regulations that include an
ongoing audit process, and (3) prohibits a retiree from
returning to work as a retired annuitant or contract
employee for a period of 180 days after retirement.
ANALYSIS :
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Existing State Law
1.Authorizes the California Public Employees' Retirement
System (PERS) and the State Teachers' Retirement System
(STRS) to provide defined benefit retirement allowances
based on employees' years of service, age at retirement,
and final compensation (highest paid 12 of 36 months of
employment).
2.Provides for the administration and oversight of the PERS
and STRS retirement systems by their respective boards.
3.Defines final compensation, in general, as compensation
earned during an employee's highest-paid 36 month or 12
month period of service, depending in membership type,
and defines which additional types of pay may be combined
with base pay to make up final compensation.
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 requires
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.
Existing laws governing STRS creates 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 a tax-deferred savings account.
Existing Laws Regarding Working After Retirement
1.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
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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.
2.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.
This bill:
1.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.
2.Clarifies and defines in PERS and STRS 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 determined
to have been paid expressly to enhance a member's
retirement allowance may be included.
3.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.
4.Allows the PERS and STRS Boards to assess fees on
employers who fail to accurately provide required
information, including the option of auditing, adjusting,
or correcting inaccurate reporting, and prohibits an
employer from passing those costs on to employees.
5.Further clarifies in the Education Code which forms of
compensation for STRS 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.
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6.Requires that any PERS 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.
7.Requires that any STRS member who retired 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.
8.Requires that the 180 day limit on working after
retirement be applicable to individuals retiring on or
after January 1, 2013, and that the other provisions of
the bill related to final compensation shall be effective
for current and future members of the retirement system
on or after July 1, 2012.
9.This bill does not prohibit the employment of retirees
already retired prior to January 1, 2012.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13
2013-14 Fund
IT costs $5,000
Special*
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Reduced pension --approximately $10,000 annual
savings-- Special* costs
--unknown savings to CalPERS-- Special**
Admin expenses $700 $600
$600 Special*
*Teachers Retirement Fund
**Public Employees Retirement Fund
SUPPORT : (Verified 5/27/11)
John Chiang, State Controller
California Association of Highway Patrolmen
Glendale City Employees Association
Organization of SMUD Employees
Retired Public Employees Association
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Service Employees International Union, Local 1000
California School Boards Association (support, if amended)
OPPOSITION : (Verified 5/27/11)
Association of California School Administrators
California Police Chiefs Association
California State Sheriffs' Association
Small School Districts' Association
California Association of Joint Powers Authorities (oppose
unless amended)
California Faculty Association (oppose unless amended)
California State Association of Counties (oppose unless
amended)
Humboldt County Superintendent of Schools (oppose unless
amended)
ARGUMENTS IN SUPPORT : According to the author's office,
"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
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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."
ARGUMENTS IN OPPOSITION : 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 (CFA) 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," form the 180 day prohibition on working after
retirement.
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CPM:cm 5/27/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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