BILL ANALYSIS
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|SENATE RULES COMMITTEE | SB 1425|
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THIRD READING
Bill No: SB 1425
Author: Simitian (D)
Amended: 5/4/10
Vote: 21
SEN. PUBLIC EMPLOYMENT & RETIREMENT COMM. : 6-0, 4/12/10
AYES: Correa, Ashburn, Corbett, Cox, Ducheny, Liu
SENATE APPROPRIATIONS COMMITTEE : 10-0, 5/27/10
AYES: Kehoe, Alquist, Corbett, Denham, Leno, Price,
Walters, Wolk, Wyland, Yee
NO VOTE RECORDED: Cox
SUBJECT : Public retirement: final compensation:
computation:
retirees
SOURCE : Author
DIGEST : This bill (1) 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, (2) requires the board of each state and
local public retirement system to establish regulations
that include an ongoing audit process, (3) revises the
definition of "creditable compensation" and limits the
calculation of a member's final compensation, (4) prohibits
a retiree from returning to work as a retired annuitant or
contract employee for a period of 180 days after
CONTINUED
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retirement, (5) includes Legislative findings expressing
the public purpose that would be served by the enactment of
this bill; and (6) provides that the provisions of this
bill are contingent upon the passage of AB 1987 (Ma).
ANALYSIS :
Existing State Law
1.Authorizes over 40 public retirement systems for the
State's public employees, including the Public Employees'
Retirement System (PERS), the State Teachers' Retirement
System (STRS), and 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).
2.Provides for the administration and oversight of the PERS
and STRS retirement system by their respective Boards.
3.Defines 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 defines which additional types of pay may be combined
with base pay to make up final compensation.
Existing laws, rules, local ordinances, and collective
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 requires that participating employers accurately
and timely report to the retirement boards the amount of
compensation paid to employees, including forms of pay,
changes in employment status, leaves, and other factors
that impact compensation.
Existing law governing STRS 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
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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 account.
Existing Laws Regarding Working After Retirement
1.Allows a retired public employee or teacher to return to
public employment as a part-time worker 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.
2.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.
This bill:
1.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, 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.
2.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.
3.Clarifies and defines in PERS and STRS which forms of
compensation may be included in an employee's final
compensation for the purpose of determining a retirement
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allowance, and requires that no compensation determined
to have been paid expressly to enhance a member's
retirement allowance may be included.
4.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.
5.Allows the PERS and STRS 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.
6.Revises the definition of "creditable compensation" as
either of the following:
A. Salary or wages paid in accordance with a salary
schedule or employment agreement for services
performed or the use of an employer-approved leave
during a specified period of time, the right of which
accrues in proportion to the service performed or the
leave used.
B. Renumeration that is paid in addition to salary,
providing it is payable to all persons who are in the
same class of employees, if applicable, in the same
dollar amount, the same percentage of salary, or the
same percentage of the amount being distributed.
6.Further clarifies in the Education Code which forms of
compensation for STRS members that 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.
7.Requires that any PERS member who retires on or after
January 1, 2011, 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
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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.
8.Requires that any STRS member who retires on or after
January 1, 2011, 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.
9.Requires that the 180 day limit on working after
retirement may 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.
10.Provides that the provisions of this bill will become
operative on July 1, 2011, and will only become
operative if AB 1987 (Ma) of the 2009-10 Regular Session
is also enacted and takes effect on or before January 1,
2011.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12
2012-13 Fund
IT costs $3,400
Special*
Reduced pension -- Approximately $15,000 -
$25,000 -- Special**
costs
annual savings
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-- Unknown savings
to PERS -- Special*
*Teachers Retirement Fund
**Public Employees Retirement Fund
SUPPORT : (Verified 5/28/10)
California Public Employees' Retirement System
California School Boards Association (if amended)
Glendale City Employees Association
League of California Cities (if amended)
Organization of SMUD Employees
San Bernardino Public Employees Association
San Luis Obispo County Employees Association
Santa Rosa City Employees Association
Service Employees International Union, Local 1000
OPPOSITION : (Verified 5/28/10)
California State Association of Counties (unless amended)
Judicial Council of California, Administrative Office of
the Courts (unless amended)
ARGUMENTS IN SUPPORT : According to the author's office,
"Recent news reports have highlighted the action 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 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 designated to correct abuses that
impose an undue burden on both the taxpayers and employees
in that system, as well as erode public support for
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reasonable public employee pensions."
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 manage resources."
CPM:cm 5/28/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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