BILL ANALYSIS �
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ASSEMBLY THIRD READING
AB 1184 (Gatto)
As Amended April 25, 2011
Majority vote
PUBLIC EMPLOYEES 5-0 APPROPRIATIONS 12-5
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|Ayes:|Furutani, Mansoor, Allen, |Ayes:|Fuentes, Blumenfield, |
| |Ma, Wieckowski | |Bradford, Charles |
| | | |Calderon, Campos, Davis, |
| | | |Gatto, Hall, Hill, Lara, |
| | | |Mitchell, Solorio |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Harkey, Donnelly, |
| | | |Nielsen, Norby, Wagner |
| | | | |
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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.
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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.), 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 :
Internal Revenue Code 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,
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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 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 Assembly Public Employees
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."
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Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN: 0000916