BILL ANALYSIS
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1425
Lou Correa, Chair Hearing date: April 12, 2010
SB 1425 (Simitian and Correa) as amended 4/5/10
FISCAL: 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
AB 1987 (Hernandez) 2010
Assembly PER&SS Committee
(contains provisions consistent with this
bill)
SUMMARY :
SB 1425 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 1425 adds requirements to laws governing the Public
Employees' Retirement System (CalPERS), the State Teachers'
Retirement System (CalSTRS), and independent public
retirement systems 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,
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3) require the boards of retirement systems to audit
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,
2011, 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) authorizes over 40 public retirement systems for the
State's public employees, including CalPERS; CalSTRS; the
1937 Act County Retirement System, which includes 20
independent county retirement systems; and independent
public retirement systems, mostly for cities and special
districts. These systems 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, local ordinances, and collective
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bargaining agreements allow public employers 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.
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) requires that all public retirement systems adopt,
either through statute or regulation, rules and laws
consistent with the requirements of the bill, including
requirements defining what may be used in determining an
employee's final compensation, requirements to audit
compliance with accurate reporting of final compensation,
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and a prohibition against returning to public employment as
a part-time or contracted employee for a minimum of 180
days following the date of retirement,
b) 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,
c) 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
determined to have been paid expressly to enhance a
member's retirement allowance may be included,
d) 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,
e) 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,
f) 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,
g) requires that any CalPERS member who retires on or
after January 1, 2010, 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
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administrative costs of enforcement, depending on whether
the violation was due to employee or employer error,
h) requires that any CalSTRS member who retires on or
after January 1, 2010, 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
i) requires that the 180 day limit on working after
retirement be applicable to individuals retiring on and
after January 1, 2011 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, 2011.
6) This bill does not prohibit the employment of retirees
already retired prior to January 1, 2011, and it does not
prohibit new retirees from returning to public employment
after a six month break.
COMMENTS :
1) Arguments in support :
The author notes 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 all
public retirement systems 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
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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 1425 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."
2) Arguments in opposition :
Some have raised objections to requiring a 180 day break in
service between the date a person retires and the date he or
she may return to work as a paid retiree. The Judicial
Council of California states that this prohibition would
"disrupt court calendars and increase the existing backlog in
criminal and civil cases." The California State Association
of Counties states that "a six-month wait for every retiree
is overly broad and is an inappropriate interference on a
local public employer's ability to choose the best candidate
for a job and to efficiently and effectively manage
resources."
The California School Board Association would support the
bill if it were amended to remove the prohibition on
returning to work for 180 days following retirement if such a
return would result in no additional cost to the retirement
system.
3) SUPPORT :
Glendale City Employees Association (GCEA)
Organization of SMUD Employees (OSE)
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 Board Association (CSBA), Support if
amended
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4) OPPOSITION :
California State Association of Counties, Oppose unless
amended
Judicial Council of California, Administrative Office
of the Courts, Oppose unless amended
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