BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1425 (Simitian)
Hearing Date: 05/27/10 Amended: 05/04/10
Consultant: Maureen Ortiz Policy Vote: PE&R: 6-0
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BILL SUMMARY: SB 1425 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
further requires the board of each state and local public
retirement system to establish regulations that include an
ongoing audit process. SB 1425 also prohibits a retiree from
returning to work as a retired annuitant or contract employee
for a period of 180 days after retirement.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
IT costs $3,400
Special*
Reduced pension costs --approximately $15,000 -
$25,000
annual savings---- Special*
---unknown
savings to CalPERS-- Special**
*Teachers Retirement Fund **Public Employees
Retirement Fund
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STAFF COMMENTS: SUSPENSE FILE.
Although the overall intent of SB 1425 is to prevent
compensation increases for the sole purpose of enhancing
retirement benefits which will ultimately result in a savings to
the various 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 costs of approximately $3.4 million in Information
Technology costs necessitated by changes in the definition of
"creditable compensation" which will result in fewer types of
pay being credited to the Defined Benefit Program. These
changes, however, are expected to save between $15 million and
$25 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 1425, 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.
CalPERS indicates there will be some unknown 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
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SB 1425 (Simitian)
accommodated in the new integrated information technology system
that is scheduled to be activated next year.
Specifically, SB 1425 does the following:
1) Requires each state and local 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.
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, 2011, from returning to work for any employer
covered by the state or local retirement system from which he or
she retired for a period of 180 days. Any retired member who
violates this provision will 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 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) Defines a compensation that is presumed to have been paid to
enhance a member's benefit as an increase from one year to the
next during the final compensation period or in either of the
two years prior to the final compensation period that is either:
a) in excess of either 10%,
b) twice the percentage increase in the average compensation
earnable by active members of the Defined Benefit Program,
c) or any other salary or remuneration determined by the board
to have been paid to enhance a member's salary.
6) 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.
7) Becomes operative on July 1, 2011, and only if AB 1987 (Ma),
a similar bill, is also enacted. AB 1987 is currently pending
in the Assembly Appropriations Committee.
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SB 1425 (Simitian)
8) 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 1425 will provide the appropriate method for
resolving the inequitable application of compensation rules.
The Judicial Council has expressed concerns that the180 day
return to work prohibition will create a significant burden on
court operations by prohibiting retired judicial officers from
service for a period of at least six months after their
retirement date. According to the Judicial Council, when a
judicial vacancy occurs due to the retirement of a judge or the
conversion of a subordinate judicial officer position, the court
has no ability to control the length of time it takes to fill
that position since the authority rests solely with the
Governor. To bridge the gap of time between the vacancy and the
new appointment, many courts rely on the retired judge or
subordinate judicial officer. The provisions of SB 1425
prohibit any member who retires on or after January 1, 2011 from
returning to work for 180 days, but does not prohibit any member
that is currently retired from temporarily filling a vacancy
when needed.