BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
SB 27 (Simitian)
Hearing Date: 05/26/2011 Amended: 03/03/2011
Consultant: Maureen Ortiz Policy Vote: PE&R: 5-0
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BILL SUMMARY: SB 27 provides that any salary enhancement for
the principal purpose of increasing a member's retirement
benefit will not be included in the calculation of a member's
final compensation for determining that benefit. The bill
requires the board of each state public retirement system to
establish regulations that include an ongoing audit process. SB
27 also prohibits a retiree from returning to work as a retired
annuitant or contract employee for a period of 180 days after
retirement, effective for persons who retire on or after January
1, 2013.
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Fiscal Impact (in thousands)
Major Provisions 2011-12 2012-13 2013-14 Fund
IT costs $5,000
Special*
Reduced pension costs --approximately $10,000 annual
savings--- Special*
---unknown
savings to CalPERS-- Special**
Admin expenses $700 $600
$600 Special*
*Teachers Retirement Fund **Public Employees
Retirement Fund
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STAFF COMMENTS: SUSPENSE FILE.
Although the overall intent of SB 27 is to prevent compensation
increases for the sole purpose of enhancing retirement benefits
which will ultimately result in a savings to the two state
public pension systems, there will be upfront costs associated
with reprogramming computer systems to calculate the new
definitions of creditable compensation. CalSTRS anticipates
first year expenses of up to $5 million in Information
Technology costs necessitated by changes in the definition of
SB 27 (Simitian)
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"creditable compensation" which will result in fewer types of
pay being credited to the Defined Benefit Program. These
changes, however, are expected to save about $10 million each
year in pension costs. Under the current Teachers Retirement
Law, most compensation is creditable and, therefore, included in
final compensation. Under the provisions of SB 27, certain
types of compensation will not be included in final compensation
such as 1) compensation for service credit in excess of one
year, and 2) payments made for a limited number of times. In
addition, CalSTRS anticipates the
need for 12 PYs to implement and administer the provisions of SB
27, including $100,000 in training. Six positions for
implementation efforts and six ongoing positions
for customer service issues, communication, manual interaction
with accounts and data, and maintenance once the process is
fully automated. CalSTRS indicates that a July 1, 2012
effective date will require the diversion of substantial
resources, while in the midst of a new pension system platform
for tracking members and their contributions and benefits.
CalPERS indicates there will be some increases in workload
associated with processing employer requests to review special
compensation or other negotiated MOU language, and programming
costs which will be absorbed in the regularly scheduled coding
updates. Additionally, any other changes required of CalPERS
can be
accommodated in the new integrated information technology system
that is scheduled to be activated next year.
Specifically, SB 27 does the following:
1) Requires each state public retirement system to establish
accountability provisions to include the development of an 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 benefit.
Additionally, the bill authorizes a board to assess a reasonable
amount to cover the cost of an audit, adjustment, or correction
on an employer where it determines that an employer knowingly
failed to comply with the reporting requirements. SB 27
prohibits the employer from passing on any of these costs to the
employees.
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2) Revises the definition of "creditable compensation" to
include compensation paid by an employer to all persons in the
same class of employees during the final compensation period and
the two preceding years; and, prohibits a class of one.
3) Prohibits a person who retires from a pension system on and
after January 1, 2013, from returning to work for any employer
covered by a state or local retirement system for a period of
180 days. Any retired member who violates this provision will
be required to cease employment immediately and shall not be
eligible to again perform services for a period of 180 days.
The member will be liable for contributing toward reimbursement
for administrative expenses incurred by the pension system
because of the violation if he or she is determined to be at
fault. The employer, if determined to be at fault, will also be
required to contribute toward reimbursing the system.
4) Provides that any salary or compensation that is deemed by
the board to enhance a retirement benefit will not be calculated
in the member's final compensation; but provides for a rebuttal
and potential reversal process.
5) Allows an employer to submit a written request to the
CalPERS Board for a determination on whether specific
compensation items meet the definition of special compensation
and requires a determination within 90 calendar days.
6) Defines a final compensation period for members of CalSTRS
who are not under a bargaining agreement as the one year final
compensation period plus an additional four
years, and prohibits a salary increase of more than 125% during
that time, with the exception of specified circumstances.
Additionally, SB 27 prohibits a member who retires on or after
January 1, 2013 who elects to receive his or her retirement
benefit
under the Defined Benefit Supplement Program or the Cash Balance
Benefit Program as a lump-sum payment from receiving that sum
for 180 days after retirement.
7) Authorizes the retirement boards to assess a reasonable fee
on employers for untimely or inaccurate submissions of any
information required to determine the appropriateness of the
compensation increase.
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8) Clarifies 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.
9) Requires school districts, as specified, to advise newly
hired retired participants of the earnings limitations that
apply to retired annuitants, and to maintain accurate records of
the retired participant's earnings and report those earnings
monthly to the system and the retired participant.
10) Contains Legislative Findings and Declarations that
consistent administration of state and local public retirement
systems is a matter of statewide concern, and that the
provisions of SB 27 will provide the appropriate method for
resolving the inequitable application of compensation rules.
This bill is similar to SB 1425 (Simitian) which was vetoed by
the Governor in 2010. SB 1425 was double-jointed with AB 1987
(Ma), and the Governor vetoed AB 1987 indicating that the bill
did not provide real pension reform.