BILL ANALYSIS �
AB 1184
Page 1
Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON PUBLIC EMPLOYEES, RETIREMENT AND SOCIAL
SECURITY
Warren T. Furutani, Chair
AB 1184 (Gatto) - As Amended: April 25, 2011
SUBJECT : Public employees' retirement benefits.
SUMMARY : Requires a local public agency that contracts with
the California Public Employees' Retirement System (CalPERS) to
pay for any increase in liability that accrues to a previous
employer as a result of excessive compensation paid to a
non-represented employee by the current public agency.
Specifically, this bill :
1)Provides that the obligations for retirement benefits that are
attributable to excess compensation earned by a
non-represented employee who was employed by one or more
public agencies is the sole obligation of the subsequent
contracting agency that paid the excess compensation.
2)Defines "excess compensation" as the final compensation of an
employee of a contracting agency who previously worked for
another contracting agency to the extent the final
compensation received from the current contracting agency is
in excess of 15% of the salary paid by the prior contracting
agency, as adjusted for actuarial increases in that salary.
3)Prohibits CalPERS from administering an Internal Revenue Code
(IRC) Section 415(b) replacement benefit plan for a person who
first becomes a member of CalPERS on or after January 1, 2013.
EXISTING STATE LAW :
1)Allows public employees who change public employers to, upon
retirement and having met specified criteria, have all their
years of service calculated at their highest compensation for
the purpose of determining their retirement benefits earned
with each employer.
2)Requires CalPERS to actuarially determine the employer rates
annually, which are based on various factors, including
employee and retiree demographics, experience (e.g., numbers
of deaths and retirements, amounts of salary increases, etc.),
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and the level of investment returns on the retirement fund.
The rates are charged as a percentage of the employer's total
payroll for active employees and are paid over the course of
an employee's career.
3)Requires that if a CalPERS local agency employs 100 or fewer
employees, its assets and liabilities are pooled with other
small agencies having the same benefit structures and that the
employers in the pool share the same employer rate, as
specified.
EXISTING FEDERAL LAW :
IRC Section 415(b) places a dollar limit on the annual benefit
that can be received from a tax-qualified pension plan such as
CalPERS. Under Section 415(b), the maximum annual retirement
benefit payable at the Social Security "normal retirement age"
is $195,000 for calendar year 2010. This annual benefit limit
may be adjusted by the Internal Revenue Service (IRS) annually
for Cost-of-Living Adjustments. Determination of whether a
retirement benefit is subject to this limit is made at
retirement.
A provision within IRC section 415 allows some members to avoid
limitation and to receive their full "grandfathered" benefits.
These members are:
1)Persons who were members of CalPERS prior to January 1, 1990;
and
2)Persons for whom the employer has provided no new or enhanced
benefits since October 14, 1987 (e.g. one year instead of
three-year final compensation).
However, if the employer has made a change in benefits since
October 14, 1987, any increase in the allowance due to the
enhanced benefit is not included in the "grandfathered" benefit,
and is subject to the dollar limits.
FISCAL EFFECT : Unknown.
COMMENTS : According to the author, "This bill would save the
taxpayers of well-run cities from having to pay the pension
costs associated with exorbitant salaries in other cities.
Additionally this bill would prohibit California's public
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employee retirement systems from participating in any program
offering pension benefits in excess of the federal cap ($195,000
for 2010)."
According to information provided to the Committee by CalPERS,
"The Replacement Benefit Plan (RBP) is a plan that allows for
'replacement' of the annual benefit allowance amount that
exceeds the Section 415(b) limit with wages. Its purpose is to
'make whole' the retirement allowances. The RBP is funded by
the employer. CalPERS invoices and collects the replacement
benefit amount from the affected employer and then disburses it
to affected retirees as wages in quarterly payments."
Opponents state, "AB 1184 is too broad and casts too wide a net.
Reciprocity exists to allow labor mobility among employees and
to pool the liabilities of the government employers involved in
the retirement system. Doing away with the policy of
reciprocity as we know it could have many unintended
consequences. One such consequence could be that older workers
with decades of experience would be punished and forced to stay
at their current place of employment lest they violate the 15%
rule. Additionally, an older worker who holds a trade's
position and decides to return to school in order to receive a
higher degree in hopes of landing a better position could also
be punished for their experience. Essentially, AB 1184 could
have the unintended consequence of enacting a form of age
discrimination."
REGISTERED SUPPORT / OPPOSITION :
Support
American Federation of State, County and Municipal Employees
California Professional Firefighters
Service Employees International Union
Opposition
AB 1184
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Association of California Water Agencies
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957