BILL ANALYSIS                                                                                                                                                                                                    Ó


          |SENATE RULES COMMITTEE            |                   AB 340|
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                                 THIRD READING

          Bill No:  AB 340
          Author:   Furutani (D)
          Amended:  6/22/11 in Senate
          Vote:     21

           SEN.PUBLIC EMPLOY. & RETIRE. COMMITTEE :  5-0, 6/27/11
          AYES:  Negrete McLeod, Walters, Gaines, Padilla, Vargas

           ASSEMBLY FLOOR  :  73-0, 5/12/11 - See last page for vote

           SUBJECT  :    County employees retirement

           SOURCE  :     Author

           DIGEST  :    This bill 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, and 
          prohibits retirees in those retirement systems from 
          immediately returning to employment with the public 
          employer on a part-time or contract basis.

           ANALYSIS  :    

          Existing law:

          1.Establishes the 20 county retirement systems operating 
            under the 1937 Act County Retirement Law ('37 Act), which 
            provide defined benefit retirement allowances based on 
            employees' years of service, age at retirement, and final 


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            compensation (most commonly, the highest paid 12 or 36 
            months of employment).

          2.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 
            facts that impact compensation.

          3.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 

          4.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.

          This bill:

           1.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.

           2.Excludes from the definition of "compensation earnable" 
             payments for unused vacation time, annual leave, 
             personal leave, sick leave, or compensatory time off 



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             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.
           3.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.

           4.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 the member's retirement benefits.

           5.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.

           6.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.

           7.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 

           8.Specifies that a retiree hired in violation of the 180 
             days rule is required to reimburse the retirement system 



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             for any retirement allowance received during that period 
             and any administrative expenses incurred.

           9.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.

          10.Clarifies that this act shall not be applied to reduce 
             the pension of any individual who has retired prior to 
             January 1, 2012.


          Similarity to SB 27 (Simitian) 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 

          The provisions relative to working after retirement were 
          also contained in AB 1987 (Ma), 2009-10 Session, and SB 
          1425 (Simitian), 2009-10 Session, 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 bills were cited.

           Related and Prior Legislation
          SB 27 (Simitian), 2011-12 Session, among other things, 
          prohibits a retiree from returning to work as a retired 
          annuitant or contract employee for a period of 180 days 
          after retirement.  (In Assembly Public Employees, 
          Retirement and Social Security Committee)

          SB 1425 (Simitian), 2009-10 Session, would have established 



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          minimum standards and requirements for all public 
          retirement systems in California with respect to final 
          compensation, ongoing audits with penalties for 
          noncompliance, and prohibitions against a retiree from 
          immediately returning to employment with the public 
          employer on a part-time or contract basis.  Passed the 
          Senate with a vote of 37-0 on August 31, 2010.  The bill 
          was subsequently vetoed by Governor Schwarzenegger, whose 
          veto message read:

            "The enactment of this bill is contingent upon the 
            enactment of AB 1987 (Ma).  I am vetoing AB 1987 
            because it does not provide real pension reform.  I am 
            still hopeful that the Legislature will pass an 
            acceptable bill that really addressed California's 
            pension problem."

          AB 1987 (Ma), 2009-10 Session, would have established 
          minimum standards and requirements for all public 
          retirement systems in California with respect to final 
          compensation, ongoing audits with penalties for 
          noncompliance, and prohibitions against a retiree from 
          immediately returning to employment with the public 
          employer on a part-time or contract basis.  Passed the 
          Senate with a vote of 28-1 on August 30, 2010.  The bill 
          was subsequently vetoed by Governor Schwarzenegger, whose 
          veto message read:

            "The practice of pension-spiking is a serious one that 
            deserves significant attention by the Legislature in 
            curbing the unacceptable manner in which individual 
            workers are able to artificially boost their retirement 
            payouts.  There are numerous examples of public 
            employees taking home larger pension checks in 
            retirement than what they earned in base salary when 
            they were actually working.

            "California does need a consistent standard that is 
            transparent, understandable, and implementable 
            throughout the state.  While this bill purports to 
            address this issue by segregating out some of the 
            factors that have allowed pension spiking, in some 
            instances it still allows local pension boards to 
            determine what is ultimately counted in an employee's 



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            pension calculation.  This does not provide a 
            consistent treatment of all employees.  The taxpayers 
            of California deserve better.  I am still hopeful that 
            the Legislature can send me acceptable pension reform 

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   
          Local:  No

           SUPPORT  :   (Verified  6/29/11)

          American Federation of State, County and Municipal 
          Employees, AFL-CIO
          Association for Los Angeles Deputy Sheriffs
          California Association of Psychiatric Technicians
          California School Employees Association
          Glendale City Employees Association
          Los Angeles County Probation Officers Union
          Organization of SMUD Employees
          Redondo Beach Chamber of Commerce
          Retired Public Employees Association
          San Bernardino Public Employees Association
          San Luis Obispo County Employees Association
          Santa Rosa City Employees Association
          Service Employees International Union
          South Bay Association of Chambers of Commerce

           OPPOSITION  :    (Verified  6/29/11)

          Association of California Water Agencies
          California District Attorneys Association
          California State Association of Counties (oppose unless 

           ARGUMENTS IN SUPPORT  :    According to the author's office, 
          "California's public pension systems were established to 
          provide retirement security for those who give their lives 
          in 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 of which a member's 
          pension is calculated).  In these counties some public 
          employees, most of them in upper level positions, have 



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          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 pension being received by public 

          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 
          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 'double-dipping' employed by 
          many of the managers and highly compensated employees."

           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 



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           ASSEMBLY FLOOR  :  73-0, 5/12/11
          AYES:  Achadjian, Alejo, Allen, Ammiano, Atkins, Beall, 
            Bill Berryhill, Block, Blumenfield, Bonilla, Bradford, 
            Brownley, Buchanan, Butler, Charles Calderon, Campos, 
            Carter, Chesbro, Cook, Davis, Dickinson, Donnelly, Eng, 
            Feuer, Fletcher, Fong, Fuentes, Furutani, Beth Gaines, 
            Gatto, Gordon, Grove, Hagman, Halderman, Hall, Harkey, 
            Hayashi, Roger Hernández, Hill, Huber, Hueso, Huffman, 
            Jeffries, Jones, Knight, Lara, Logue, Bonnie Lowenthal, 
            Ma, Mansoor, Mendoza, Miller, Mitchell, Monning, Morrell, 
            Nestande, Nielsen, Norby, Olsen, Pan, Perea, V. Manuel 
            Pérez, Silva, Skinner, Smyth, Solorio, Swanson, Valadao, 
            Wagner, Wieckowski, Williams, Yamada, John A. Pérez
          NO VOTE RECORDED:  Cedillo, Conway, Galgiani, Garrick, 
            Gorell, Portantino, Torres

          CPM:cm  6/29/11   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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