BILL ANALYSIS                                                                                                                                                                                                    






          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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          Pamela Schneider
          Date:  6/23/11                                         Page 7