BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 89|
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THIRD READING
Bill No: AB 89
Author: Hill (D)
Amended: 8/22/11 in Senate
Vote: 27 - Urgency
SENATE PUBLIC EMPLOYMENT & RETIRE. COMM. : 5-0, 6/27/11
AYES: Negrete McLeod, Walters, Gaines, Padilla, Vargas
SENATE APPROPRIATIONS COMMITTEE : 8-0, 8/15/11
AYES: Kehoe, Walters, Alquist, Emmerson, Lieu, Pavley,
Price, Steinberg
NO VOTE RECORDED: Runner
ASSEMBLY FLOOR : 75-0, 5/26/11 (Consent) - See last page
for vote
SUBJECT : Retirement: public employees
SOURCE : Author
DIGEST : This bill (1) requires all public retirement
systems to adhere to federal compensation limits in
determining retirement benefits for members who first join
the retirement systems on or after January 1, 2012,
(2) prohibits public employers from making contributions to
qualified public retirement plans on any compensation
exceeding the limited amount, and (3)
allows the County of San Mateo to implement lower
retirement tiers for safety employees represented by the
Probation and Detention Association.
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Senate Floor Amendments of 8/22/11 clarify that any changes
to the employee contribution payment requirement agreed to
in the memorandum of understanding (MOU) may not be
effective until approved in an MOU between the county board
of supervisors and the employee organization, and make a
technical correction.
ANALYSIS :
Existing state law:
1. Creates California's public retirement systems, which,
in general, provide retirement benefits based on
members' ages at retirement, years of service, and
average amount of compensation earned over a specified
period of time - usually a consecutive 12 or 36-month
period (referred to as "final compensation").
2. Establishes the 1937 Act County Retirement System, which
covers 20 independent county retirement associations,
including the San Mateo County Employees Retirement
Association (SMCERA).
Existing federal law:
1. Limits the amount of final compensation that may be
included in calculating a retirement benefit for all
individuals who become members of public retirement
systems after July 1, 1996 (current limit is $245,000).
2. Allows employers to request exemptions from the federal
limits, which may be granted by the Internal Revenue
Service (IRS).
This bill:
1. In addition to any other benefit limitations prescribed
by law, prohibits a retirement benefit calculation based
on final compensation higher than the federal
compensation limit defined in Internal Revenue Code
(IRC) Section 401(a)(17). The limit for calendar year
2011 is $245,000.
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2. Prohibits a public employer from making employer
contributions to a public retirement system based on any
portion of compensation exceeding the federal limit.
3. Specifies that these limitations are applicable to
individuals who first become retirement system members
on and after January 1, 2012.
4. Allows San Mateo County to implement an MOU providing
lower pension tiers for new safety members represented
by the Probation and Detention Association (PDA).
5. Specifies that any changes to the employee payment
requirement for represented employees must be approved
in an MOU between the county board of supervisors and
the employee organization.
Comments
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.
Recently, 26 high-level University of California (UC)
executives sent a letter to the Board of Regents demanding
the UC calculate their retirement benefits on their entire
salaries. Currently, UCRS recognizes only the first
$245,000 of the income of UCRS members subject to the IRC
Section 401(a)(17) limits. According to the UC, the
retirement benefits the executives are seeking would add
$5.5 million a year to the pension liability and an
additional $51 million to make the changes retroactive to
2007, as the executives are demanding.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
Fiscal Impact (in thousands)
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Major Provisions 2011-12 2012-13
2013-14 Fund
Retirement benefits unknown future
savingsSpecials*
San Mateo pension potentially millions in
future savings Local
formula
* Public Employees' Retirement System and State
Teachers' Retirement System
* Judges Retirement System and Legislators'
Retirement System
SUPPORT : (Verified 8/15/11)
California Federation of Teachers
California Public Employees' Retirement System
County of San Mateo
Peace Officers Research Association of California
ARGUMENTS IN SUPPORT : 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."
In addition, according to information provided by the
author's office and the County of San Mateo, a recently
negotiated MOU with the PDA will require new hires to
choose reduced retirement formulas of either two percent at
age 50, or three percent at age 55 (the formula for current
employees is the three percent at age 50 formula).
Employees who choose the three percent at age 55 formula
will also pay a larger share of the cost in employee
contributions.
ASSEMBLY FLOOR : 75-0, 5/26/11 (Consent)
AYES: Achadjian, Alejo, Allen, Ammiano, Atkins, Beall,
Bill Berryhill, Block, Blumenfield, Bonilla, Bradford,
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Brownley, Buchanan, Butler, Charles Calderon, Carter,
Chesbro, Conway, Cook, Dickinson, Donnelly, Eng, Feuer,
Fletcher, Fong, Fuentes, Furutani, Beth Gaines, Galgiani,
Garrick, Gatto, Gordon, Grove, Hagman, Halderman, Hall,
Harkey, Hayashi, Roger Hern�ndez, Hill, Huber, Hueso,
Huffman, Jeffries, Knight, Lara, Logue, Bonnie Lowenthal,
Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell,
Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel
P�rez, Portantino, Silva, Skinner, Smyth, Solorio,
Swanson, Torres, Valadao, Wagner, Wieckowski, Williams,
Yamada, John A. P�rez
NO VOTE RECORDED: Campos, Cedillo, Davis, Gorell, Jones
CPM:mw 8/23/11 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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