BILL ANALYSIS                                                                                                                                                                                                    �



                                                                  AB 89
                                                                  Page  1

          Date of Hearing:   May 18, 2011

                        ASSEMBLY COMMITTEE ON APPROPRIATIONS
                                Felipe Fuentes, Chair

                       AB 89 (Hill) - As Amended:  May 9, 2011 

          Policy Committee:                              PERS Vote:6-0

          Urgency:     No                   State Mandated Local 
          Program:NoReimbursable:           

           SUMMARY  

          Requires all public retirement systems in California to adhere 
          to the federal compensation limit under Internal Revenue Code 
          (IRC) Section 401(a) (17) when calculating retirement benefits 
          for members who first join the retirement system on or after 
          January 1, 2012, and prohibits a public employer from making 
          contributions to any qualified public retirement plan based on 
          any portion of compensation that exceeds that amount. 

           FISCAL EFFECT 

          CalPERS has not identified any program or administrative costs 
          associated with this change.

           COMMENTS  

           1)Purpose .  According to the author, "Preventing public agencies 
            from making contributions based on any portion of a salary 
            above $245,000/year is necessary to ensure that taxpayer money 
            is used to fund services, not to provide exorbitant retirement 
            benefits for already highly compensated executives."

           2)Support  .  The California Public Employees' Retirement System 
            has taken a "support if amended" position on the bill.  They 
            asked for amendments to ensure that the state law incorporates 
            the whole body of 401(a) (17), including regulations, IRS 
            guidance and private letter rulings.  Also, according to 
            CalPERS, with these amendments, if federal law is amended this 
            provision would not need to be amended.  These amendments are 
            in this version of the bill.
           
          3)IRS Code.   Section 401(a) (17) of the Internal Revenue Code 








                                                                  AB 89
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            limits the amount of annual compensation that can be taken 
            into account under qualified retirement plans.  The 
            compensation limit for the 2011 calendar year is $245,000.  
            The compensation limit is only applicable to persons who first 
            became members or participants in a qualified retirement 
            system on or after July 1, 1996.  The compensation limit does 
            not limit the salary an employer can pay an employee, but 
            rather limits the amount of compensation taken into account 
            under the retirement plan.
                
             Under federal law, public institutions can be exempted from 
            the compensation limits.  According to recent media reports, 
            in 1999, the University of California Retirement System (UCRS) 
            sought an exemption from the 401(a) (17) limits from the 
            Internal Revenue Service.  The exemption was granted in 2007 
            thus allowing UCRS to calculate pensions on the employees' 
            total salaries.  The university, however, never implemented 
            the change.
                
          4)There is no registered opposition to this bill.  




           Analysis Prepared by  :    Roger Dunstan / APPR. / (916) 319-2081