BILL ANALYSIS �
AB 1184
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 1184 (Gatto)
As Amended August 22, 2011
Majority vote
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|ASSEMBLY: |54-23|(June 1, 2011) |SENATE: |37-0 |(August 30, |
| | | | | |2011) |
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Original Committee Reference: P.E.,R & S.S.
SUMMARY : Requires the California Public Employees' Retirement
System (CalPERS) to determine what constitutes excessive
compensation paid by a local contracting agency that creates a
significant liability for a former employer and directs CalPERS
to develop a plan to assess that excess liability to the
employer who paid the excessive compensation. Additionally,
this bill prohibits CalPERS from administering a benefit
replacement plan for members hired on or after January 1, 2013.
Specifically, this bill :
1)States legislative intent that a contracting agency will not
experience a significant increase in actuarial liability due
to increased compensation paid by another contracting agency.
2)Requires CalPERS to develop and implement program changes to
ensure that a contacting agency that creates a significant
increase in actuarial liability due to increased compensation
paid to a nonrepresented employee bears the costs of the
associated liability.
3)Requires the CalPERS actuary to assess an increase in
liability to the employer that created it at the time the
increase is determined and to make adjustments to that
employer's rates as needed to comply with the requirements.
4)Exempts from these provisions any compensation paid to an
employee for service performed while covered by a memorandum
of understanding, as specified.
5)Requires CalPERS to report to the Legislature on the
implementation of these provisions by June 30, 2012.
6)Prohibits CalPERS from administering an Internal Revenue Code
AB 1184
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(IRC) Section 415(b) replacement benefit plan for a person who
first becomes a member of CalPERS on or after January 1, 2013.
The Senate amendments :
1)Delete the provisions establishing a program requiring a local
contracting agency 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 and instead gives CalPERS the responsibility and
authority to implement a program to ensure that a contracting
agency that pays excessive compensation to a non-represented
employee be responsible for any increase in liability that
accrues to a previous employer as a result of excessive
compensation.
2)Require CalPERS to report to the Legislature on the
implementation of these provisions by June 30, 2012.
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 :
AB 1184
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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 IRC 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.
AS PASSED BY THE ASSEMBLY , this bill required a local public
agency that contracts with 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 and prohibited CalPERS from administering
an IRC Section 415(b) replacement benefit plan for a person who
first becomes a member of CalPERS on or after January 1, 2013.
FISCAL EFFECT : According to the Senate Appropriations
Committee, CalPERS indicates the need for at least one personnel
year (PY) at the Actuarial Assistant level at a total cost of
about $89,000. AB 1184 will result in an unknown shift in
pension liability costs from one local employer to another.
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
AB 1184
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offering pension benefits in excess of the federal cap ($195,000
for 2010)."
According to information provided to the Assembly Public
Employees, Retirement, and Social Security 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."
Analysis Prepared by : Karon Green / P.E., R. & S.S. / (916)
319-3957
FN:
0002070