BILL ANALYSIS �
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: SB 1232
Gloria Negrete McLeod, Chair Hearing date: May 7, 2012
SB 1232 (Walters) as amended 5/01/12 FISCAL: NO
ORANGE COUNTY EMPLOYEES RETIREMENT ASSOCIATION: RETIREE COLA
HISTORY :
Sponsor: County of Orange
Other legislation: SB 1231 (Walters), 2012
Currently in Senate PE&R Committee
AB 1542 (Mansoor), 2012
Currently in Assembly PER&SS Committee
SUMMARY :
SB 1232 would allow the Orange County Board of Supervisors to
pass a resolution requiring that cost of living adjustments
(COLA) applied to retirees of the Orange County Employees
Retirement Association be adjusted annually, beginning on
April 1st in the second calendar year following retirement.
The new rule would apply to any employee retiring after the
date of the resolution.
BACKGROUND AND ANALYSIS :
1) Existing law :
a) establishes the 1937 Act County Retirement Law, which
covers 20 independent county retirement systems,
including the Orange County Employees Retirement
Association (OCERA).
b) provides, for members of OCERA, a defined benefit based
on years of service, age factor at retirement, and
highest average final compensation, and provides that the
benefit may also be paid to a beneficiary or survivor of
the member, as actuarially determined.
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Date: 5/02/12 Page 1
c) establishes various levels of COLA that a county
employer may provide for retirees, including annual COLAs
of up to 2, 3, or 5 percent, pursuant to county
resolution.
d) requires that the annual COLA be determined based on
cost of living increases or decreases as determined by
the Bureau of Labor Statistics Consumer Price Index for
all Urban Consumers in the area in which the county seat
is located and be applied effective April 1st each year.
e) generally requires that when pension benefits are
reduced, the reduced benefits apply only to employees
hired on or after the date the reduced benefits become
applicable.
2) This bill :
a) requires that a retiree's first COLA shall be applied
on April 1st in the second year following retirement.
b) requires the Orange County Board of Supervisors to pass
a resolution in order to make the statute operative.
c) applies to any member of OCERA who retires on or after
the effective date of the resolution.
d) only applies to employees or officials of Orange County
with respect to the portion of their allowance
attributable to that service.
COMMENTS :
1) Arguments in Support :
According to the author:
"Because COLAs are universally increased on April 1st of
each year, retirees under the Orange County Employees
Retirement System (OCERS) are automatically eligible for a
cost-of-living adjustment on April 1 of each
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Date: 5/02/12 Page 2
year--regardless of their date of retirement.
Consequently, many employees can retire on dates
immediately before the April 1 adjustment and receive an
immediate 3% boost to their retirement plan. Under the
OCERS system, retirees can retire on March 31st and receive
their first post-retirement 3% COLA increase to their
retirement the next day, April 1st.
"COLAs are designed to protect the worth of a pension plan,
not to artificially boost salaries. The initial purpose
for a cost of living adjustment was to offset the
"corrosive effects of inflation on fixed income over
decades during retirement." COLAs recognize that the
purchasing power of a salary may not be worth as much in 5
years, 10 years, or 15 years later. The calculation of a
COLA takes into account the change in consumer prices
throughout a year-long period, in order to supplement a
base year with additional income. When retirees receive a
COLA increase within a 24 hour period from when they
initially retire, it abuses the intended purpose of a cost
of living adjustment.
"The California Public Retirement System (PERS)-the
statewide retirement system-currently requires a delay of
at least 12 months before a retiree is eligible for a cost
of living adjustment."
2) Arguments in Opposition :
According to the Orange County Employees Association
(OCEA), "SB 1232 raises vested rights issues." OCEA
further believes that the issue raised in the bill is
subject to collective bargaining, but states that the
County has not raised this issue at the bargaining table.
SEIU states: "SB 1232 would eliminate a benefit without
having bargained the change. Elimination of collective
bargaining rights is a direct attack on public employees,
unfair and akin to the attacks on workers happening in
Wisconsin. It is unacceptable there, and it is
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unacceptable here."
3) SUPPORT :
County of Orange, Sponsor
4) OPPOSITION :
American Federation of State, County and Municipal
Employees (AFSCME), AFL-CIO
Orange County Employees Association (OCEA)
Orange County Professional Firefighters Association, IAFF
Local 3631
Service Employees International Union (SEIU), California
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Date: 5/02/12 Page 4