BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 340
                                                                  Page  1


          ASSEMBLY THIRD READING
          AB 340 (Furutani)
          As Amended  April 25, 2011
          Majority vote 

           PUBLIC EMPLOYEES    5-0                                         
           
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          |Ayes:|Furutani, Mansoor, Allen, |     |                          |
          |     |Harkey, Ma                |     |                          |
          |     |                          |     |                          |
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           SUMMARY  :  Prohibits certain cash payments from being counted as 
          compensation earnable for retirement purposes in counties 
          operating retirement systems pursuant to the County Employees' 
          Retirement Law of 1937 ('37 Act) and prohibits a retiree in 
          those counties from immediately returning to employment with the 
          public employer on a part-time or contract basis.  Specifically, 
           this bill  :  

          1)Excludes from the definition of "compensation earnable" 
            payments for unused vacation time, annual leave, personal 
            leave, sick leave, or compensatory time off that exceeds what 
            is earned and payable in a 12-month period, payments for 
            service rendered outside of normal working hours, bonus 
            payments, housing allowances, severance pay, unscheduled 
            overtime, and vehicle allowances.

          2)Authorizes a '37 Act retirement board to deny compensation 
            items that are provided to an employee for the principal 
            purpose of enhancing a member's retirement benefit.

          3)Specifies that compensation paid to a retiring member to 
            restore compensation the member would have been entitled to 
            receive pursuant to a collective bargaining agreement that was 
            subsequently deferred or modified, as specified, will be 
            considered compensation earnable and not considered to have 
            been paid for the purpose of enhancing a member's retirement 
            benefits.

          4)Establishes compensation reporting requirements for counties 
            and districts and authorizes a '37 Act retirement board to 
            audit to determine the correctness of specified information 
            and assess a county or district a reasonable cost to cover the 








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            cost of the audit and any necessary adjustment or correction 
            if the board determines the county or district knowingly 
            failed to comply with the compensation reporting requirements.

          5)Requires a county or district to enroll an eligible employee 
            into membership with the retirement system within 90 days.  
            Employers who fail to meet this requirement are required to 
            pay all costs in arrears for member contributions and 
            administrative costs of $500 per member.  

          6)Prohibits a person who retires on or after January 1, 2012, 
            from returning to work as a retired annuitant or as a contract 
            employee for a period of 180 days after retirement.

          7)Specifies that a retiree hired in violation of the 180 day 
            rule is required to reimburse the retirement system for any 
            retirement allowance received during that period and any 
            administrative expenses incurred.

          8)Specifies that a county or district that hires someone in 
            violation of the 180 day rule is required to reimburse the 
            retirement system for any administrative expenses incurred if 
            the county or district is determined to be at fault by the 
            executive officer of the retirement system. 

           EXISTING LAW  :

          1)Establishes the '37 Act which provides for retirement systems 
            for county and district employees in those counties adopting 
            its provisions.  Currently 20 counties operate retirement 
            systems under the '37 Act.  These systems provide defined 
            benefit retirement allowances based on employees' years of 
            service, age at retirement, and final compensation (highest 
            paid 12 or 36 months of employment).

          2)Defines "compensation earnable" in the '37 Act as the average 
            compensation for the period under consideration with respect 
            to the average number of days ordinarily worked by persons in 
            the same grade or class of positions during the period, and at 
            the same rate of pay.

          3)Allows a retired public employee to return to public 
            employment with an employer covered by the retirement system 
            he or she retired from on a part-time basis, as specified.  An 








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            employee who exceeds the limited time base or earnings, as 
            specified, may be subject to reinstatement into the retirement 
            system and reduction or cessation of his or her retirement 
            allowance or earnings.

           FISCAL EFFECT  :  Unknown

           COMMENTS  :  According to the author, "California's public pension 
          systems were established to provide retirement security for 
          those who give their lives to public service.  Recently, the 
          benefits provided by those systems have been tainted by a few 
          individuals who have taken advantage of the system.  This is in 
          part due to the '37 Act's very broad and general definition of 
          "compensation earnable" (the amount on which a member's pension 
          is calculated).  In these counties some public employees, most 
          of them in upper level positions, have taken advantage of this 
          situation to include items in their compensation that  "spike" 
          their final compensation to create vastly increased pension 
          checks for themselves. 

          "The abusive practices engaged in by a few individual have put 
          retirement benefits at risk for the vast majority of honest, 
          hard-working public servants.  Additionally, the practice of 
          having someone retire on Friday and come back to work on Monday 
          and being able to collect a full retirement benefit along with a 
          full paycheck, is something the public simply will not tolerate 
          any longer.  Allowing this "double-dipping" to continue only 
          adds to the growing public concern over the pensions being 
          received by public employees."

          The author concludes, "This measure will address these abusive 
          practices by giving the '37 Act retirement boards the authority 
          and the obligation to deny compensation items that are provided 
          to an employee for the principal purpose of enhancing a member's 
          retirement, specifically excluding certain payments from the 
          definition of 'compensation earnable', and requiring an employee 
          to 'sit out' for 180 days after retirement before returning to 
          service."

          Supporters state, "AB 340 would eliminate the current law 
          ability for employees to manipulate their final compensation 
          calculations to enhance their retirement benefits.  
          Additionally, AB 340 restricts the ability of members to retire 
          immediately and return to employment as a retired annuitant and 








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          begin collecting a salary and pension simultaneously...AB 340 
          ends the 'double-dipping' employed by many of the managers and 
          highly compensated employees."

          Those opposed to the bill are concerned about the provision 
          prohibiting a retiree from returning to work for their previous 
          employer until 180 days have elapsed from the day of retirement. 
           They state, "The use of recent retirees allows public agencies 
          to save public dollars during the recruitment period and until 
          the position is filled with a competent person.  Many of the 
          positions for which retirees are re-hired temporarily are highly 
          skilled trade's positions which are difficult to fill."

          The 180 day provision in this bill is similar to provisions 
          contained in SB 27 (Simitian) of this year.  SB 27 (Simitian) 
          prohibits, for 180 days after the date of retirement, any member 
          of the California Public Employees' Retirement System (CalPERS) 
          or the California State Teachers' Retirement System (CalSTRS) 
          who retires on or after January 1, 2013, from returning to work 
          as a part-time, paid employee; contracting employee; or, 
          employee of a third party contractor.

          These provisions were also contained in AB 1987 (Ma) of 2010 and 
          SB 1425 (Simitian) of 2010, which were vetoed by Governor 
          Schwarzenegger.  Governor Schwarzenegger did not mention the 180 
          day provisions in his veto messages on the bills.  Other 
          concerns with the measures were cited.


           Analysis Prepared by  :    Karon Green / P.E., R. & S.S. / (916) 
          319-3957 


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