BILL ANALYSIS �
AB 89
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 89 (Hill)
As Amended August 22, 2011
2/3 vote. Urgency
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|ASSEMBLY: |75-0 |(May 26, 2011) |SENATE: |37-0 |(August 30, |
| | | | | |2011) |
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Original Committee Reference: P.E.,R. & S.S.
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. This bill also allows the County of San
Mateo to implement lower retirement tiers for safety employees
represented by the Deputy Sheriffs Association.
The Senate amendments allow San Mateo County to implement
recently negotiated lower pension tiers for safety members
represented by the Deputy Sheriffs Association.
EXISTING FEDERAL LAW : Section 401(a)(17) of the Internal
Revenue Code 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.
AS PASSED BY THE ASSEMBLY , this bill required all public
retirement systems in California to adhere to the federal
compensation limit under IRC Section 401(a)(17) when calculating
retirement benefits for members who first join the retirement
system on or after January 1, 2012, and prohibited a public
employer from making contributions to any qualified public
retirement plan based on any portion of compensation that
AB 89
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exceeds that amount.
FISCAL EFFECT : According to the Senate Appropriations
Committee, the provisions of the bill affecting San Mateo County
could potentially result in millions of dollars in future
savings to the county.
COMMENTS : Under federal law, public institutions can be exempt
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.
Recently, 26 high-level 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.
According to the author, "Preventing public agencies from making
contribution 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."
The County of San Mateo has recently negotiated a new six yea
Memorandum of Understanding with the Deputy Sheriffs Association
that will require new hires to choose reduced retirement
formulas of either 2% at age 50, or 3% at age 55 (the formula
for current employees is 3% at age 50). AB 89 provides the
statutory authority for the county to implement this new
retirement formulas. Employees will be able to choose between
the two new formulas. It is expected that the County of San
Mateo will save nearly $23 million in pension costs over the
next ten years.
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
AB 89
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