BILL ANALYSIS
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UNFINISHED BUSINESS
Bill No: SB 1425
Author: Simitian (D)
Amended: 8/19/10
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
SENATE FLOOR : 35-0, 6/1/10
AYES: Aanestad, Alquist, Ashburn, Calderon, Cedillo,
Cogdill, Corbett, Correa, Cox, Denham, DeSaulnier,
Ducheny, Dutton, Florez, Hancock, Harman, Hollingsworth,
Huff, Kehoe, Leno, Liu, Lowenthal, Negrete McLeod,
Padilla, Pavley, Price, Romero, Runner, Simitian,
Steinberg, Strickland, Wolk, Wright, Wyland, Yee
NO VOTE RECORDED: Oropeza, Walters, Wiggins, Vacancy,
Vacancy
ASSEMBLY FLOOR : 78-0, 8/30/10 - See last page for vote
SUBJECT : Public retirement: final compensation:
computation:
retirees
SOURCE : Author
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DIGEST : This bill establishes minimum standards and
requirements for all public retirement systems in
California with respect to final compensation, ongoing
audits with penalties for noncompliance, and prohibitions
against a retiree from immediately returning to employment
with the public employer on a part-time or contract basis.
Assembly Amendments (1) prohibit a STRS member, who retires
on or after January l, 2012, from earning for 180 days
following the date of retirement, (2) specify that if the
STRS 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 (3) make nonsubstantive technical
changes.
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
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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
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.Makes various 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.Requires each retirement system to establish
accountability provisions for participating employers
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that include ongoing audit processes and penalty
provisions for noncompliance.
3.Authorizes a retirement system to not include in
retirement calculations any compensation they determine
was paid for the principal purpose of enhancing a
member's retirement benefit.
4.Limits ash conversions of accrued employee benefits, as
specified, and prohibits final settlement pay from being
included in retirement calculations.
5.Prohibits a retiree from returning to work as a retired
annuitant or as a contract employee for a period of 180
days after retirement. Specifies that this requirement
will apply to anyone retiring on and after January 1,
2012.
6.Limits the compensation used in retirement calculations
for members who are not in a group or class to the
average increase in compensation received during final
compensation period and the proceeding two years by
employees in the same or related group as the member.
7.Makes the specific statutory changes to bring the
provisions of the Teachers' Retirement Law (TRL) and the
Public Employees' Retirement Law (PERL) into compliance
with the new requirements imposed on all public
retirement systems by this bill.
8.Clarifies and defines in the TRL and the PERL 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.
9.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.
10.Allows the Public Employees' Retirement system (PERS)
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and the State Teachers' Retirement System (STRS) 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.
11.Further clarifies in the TRL 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.
12.Requires that any PERS member who retires on or after
January 1, 2012, 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.
13.Requires that any STRS member who retires on or after
January l, 2012, 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.
14.Provides, except as otherwise specified, that the
provisions of this bill become operative for all active
and future members of the retirement systems beginning
July 1, 2011.
15.Specifies that this bill will not become operative
unless AB 1987 (Ma) of this year is also enacted and
takes effect on or before January 1, 2011.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
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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
-- Unknown savings
to PERS -- Special*
*Teachers Retirement Fund
**Public Employees Retirement Fund
SUPPORT : (Verified 8/30/10)
California Public Employees' Retirement System
California School Boards Association (if amended)
California State Teachers' Retirement System (if amended)
City of Fountain Valley (if amended)
Glendale City Employees Association
Los Angeles County Employees Retirement 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
State Treasurer Bill Lockyer
OPPOSITION : (Verified 8/30/10)
California Association of School Business Officials
California Peace Offices Association
California State Association of Counties (unless amended)
California Special Districts
County of Los Angeles
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Humboldt County Superintendent of Schools
San Mateo County Board of Supervisors
State Sheriffs' Association
Visalia Unified School Districts
Western Municipal Water Districts
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
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."
ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Bass, Beall,
Bill Berryhill, Tom Berryhill, Block, Blumenfield,
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Bradford, Brownley, Buchanan, Caballero, Charles
Calderon, Carter, Chesbro, Conway, Cook, Coto, Davis, De
La Torre, De Leon, DeVore, Eng, Evans, Feuer, Fletcher,
Fong, Fuentes, Fuller, Furutani, Gaines, Galgiani,
Garrick, Gatto, Gilmore, Hagman, Hall, Harkey, Hayashi,
Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight,
Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller,
Monning, Nava, Nestande, Niello, Nielsen, Norby, V.
Manuel Perez, Portantino, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, John
A. Perez
NO VOTE RECORDED: Vacancy, Vacancy
CPM:cm 8/31/10 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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