BILL ANALYSIS Ó
SENATE PUBLIC EMPLOYMENT & RETIREMENT BILL NO: AB 340
Gloria Negrete McLeod, Chair Hearing date: June 27, 2011
AB 340 (Furutani) as amended 6/22/11 FISCAL: NO
1937 ACT COUNTY RETIREMENT SYSTEMS: PROHIBITS PENSION
SPIKING AND REQUIRES 180 DAY BREAK IN EMPLOYMENT FOLLOWING
RETIREMENT
HISTORY :
Sponsor: Author
Prior legislation: SB 27 (Simitian), 2011
in Assembly PER&SS Committee
SB 1425 (Simitian), 2010
Vetoed
AB 1987 (Ma), 2010
Vetoed
ASSEMBLY VOTES :
PER & SS 5-0 5/04/11
Assembly Floor 73-0 5/12/11
SUMMARY :
Prohibits certain cash payments from being included in
compensation for the purpose of determining a retirement
benefit in county retirement systems subject to the 1937 Act
County Retirement Law ('37 Act), and prohibits retirees in
those retirement systems from immediately returning to
employment with the public employer on a part-time or
contract basis.
BACKGROUND AND ANALYSIS :
1) Existing law :
a) establishes the 20 county retirement systems operating
under the '37 Act, which provide defined benefit
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retirement allowances based on employees' years of
service, age at retirement, and final compensation (most
commonly, the highest paid 12 or 36 months of
employment).
b) allows public employers, through laws, rules, local
ordinances, and collective bargaining agreements, to pay
differentials, bonuses, overtime, separation pay,
holiday pay, and other forms of compensation in addition
to base pay and requires that employers accurately and
timely report to the retirement boards the amount of
compensation paid to employees, including special forms
of pay, changes in employment status, leaves, and other
factors that impact compensation.
c) defines "compensation earnable" in the '37 Act system
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.
d) allows a retired public employee or teacher 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 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.
2) This bill :
a) makes findings and declarations that the act achieves
pension reforms, including giving retirement boards the
authority and responsibility to audit and deny
compensation that is paid to spike a pension and assess
penalties to employers for non-compliance; prohibiting
final settlement pay and various types of leave pay from
being included in retirement calculations; and
prohibiting the practice of "double-dipping," defined as
immediately (within 180 days) returning to public
employment after retirement.
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b) 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, as specified.
c) authorizes a '37 Act retirement board to establish a
procedure for determining whether an element of
compensation as paid for the principal purpose of
pension spiking, and requires the board to provide
notice to the employer and member when such a
termination has been made.
d) 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.
e) establishes compensation reporting requirements for
counties and districts and authorizes a '37 Act
retirement board to audit and determine the correctness
of specified information and assess a county or district
a reasonable cost to cover the 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.
f) 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.
g) prohibits a person who retires on or after January 1,
2012, from returning to work as a retired annuitant or
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as a contract employee for a period of 180 days after
retirement.
h) 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.
i) 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.
j) clarifies that this act shall not be applied to reduce
the pension of any individual who has retired prior to
January 1, 2012.
3) Similarity to SB 27 and previously vetoed bills:
The 180 day provision in this bill is similar to provisions
contained in SB 27 (Simitian) of this year. SB 27 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 for a period of 180 days
following retirement.
The provisions relative to working after retirement were also
contained in AB 1987 (Ma) and SB 1425 (Simitian) from 2010,
which were vetoed by the Governor. The Governor did not
mention the 180 day provisions in his veto messages on the
bills. Other concerns with the measures were cited.
FISCAL
Unknown.
COMMENTS :
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1) Arguments in Support
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
ability for employees to manipulate their final
compensation calculations to enhance their retirement
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benefits. Additionally, AB 340 restricts the ability of
members to retire immediately and return to employment
as a retired annuitant and begin collecting a salary and
pension simultaneously...AB 340 ends the
'double-dipping' employed by many of the managers and
highly compensated employees."
2) Arguments in Opposition
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."
3) SUPPORT :
American Federation of State, County, and Municipal
Employees (AFSCME), AFL-CIO
Association for Los Angeles Deputy Sheriffs (ALADS)
California Association of Psychiatric Technicians (CAPT)
California School Employees Association (CSEA)
Glendale City Employees Association (GCEA)
Los Angeles County Probation Officers Union
Organization of SMUD Employees (OSE)
Retired Public Employees Association (RPEA)
San Bernardino Public Employees Association (SBPEA)
San Luis Obispo County Employees Association (SLOCEA)
Santa Rosa City Employees Association (SRCEA)
Service Employees International Union (SEIU)
4) OPPOSITION :
Association of California Water Agencies (ACWA)
California District Attorneys Association (CDAA)
California State Association of Counties (CSAC), Oppose
unless amended
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