BILL ANALYSIS Ó
SB 27
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Date of Hearing: July 6, 2011
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Warren T. Furutani, Chair
SB 27 (Simitian) - As Amended: June 28, 2011
SENATE VOTE : 39-0
SUBJECT : Public retirement: final compensation: computation:
retirees.
SUMMARY : 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, requires the boards
of each state public retirement system to establish regulations
that include an ongoing audit process, and prohibits a retiree
from returning to work as a retired annuitant or contract
employee for a period of 180 days after retirement.
Specifically, 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 the laws governing the California
Public Employees' Retirement System (CalPERS) and the
California State Teachers' Retirement System (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 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 CalPERS and CalSTRS boards to assess fees on
employers who fail to accurately provide required information,
including the option of auditing, adjusting, or correcting
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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 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.
6)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.
7)Requires that any CalSTRS 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)Excludes from the postretirement compensation limitation,
beginning June 30, 2013, and until June 30, 2014, up to $2,500
of compensation earned by a CalSTRS member who retired for
service and returned to work during the first 180 days after
retirement as a substitute employee, as specified.
9)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.
EXISTING LAW :
Authorizes CalPERS and CalSTRS to provide defined benefit
retirement allowances based on employees' years of service, age
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at retirement, and final compensation (highest paid 12 or 36
months of employment.
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 require that
participating 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 factors that impact compensation.
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.
Establishes in CalSTRS 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.
FISCAL EFFECT : Unknown.
COMMENTS : 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 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
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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 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," from the 180 day
prohibition on working after retirement.
The Committee is informed the author will be offering amendments
in Committee that make technical corrections to the bill and add
co-authors.
REGISTERED SUPPORT / OPPOSITION :
Support
Bill Lockyer, State Treasurer
California Association of Highway Patrolmen
California Public Employees' Retirement System
California School Boards Association (if amended)
California State Employees Association
Glendale City Employees Association
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John Chiang, State Controller
League of California Cities
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
Opposition
Association of California School Administrators
California Association of Joint Powers Authorities
California Association of School Business Officials
California District Attorneys Association
California Faculty Association
California Police Chiefs Association Inc.
California State Association of Counties
California State Sheriffs' Association
California Teachers Association (unless amendead)
City of Benicia
City of Santa Rosa
Community College League of California
Humboldt County Superintendent of Schools
Orange County Superintendents' Association
Orange County Superintendent of Schools
Regional Council of Rural Counties
Riverside County School Superintendents' Association
Small School Districts' Association
Numerous Educators
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957