BILL ANALYSIS                                                                                                                                                                                                    

                                                                  SB 27
                                                                  Page  1

          Date of Hearing:   July 6, 2011

                              Warren T. Furutani, Chair
                    SB 27 (Simitian) - As Amended:  June 28, 2011

           SENATE VOTE  :   39-0
          SUBJECT  :   Public retirement: final compensation: computation: 

           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., 

          "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 

          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 


          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


                                                                  SB 27
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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

          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)