BILL ANALYSIS                                                                                                                                                                                                    



                                                                AB 340
                                                                Page  1

        CONCURRENCE IN SENATE AMENDMENTS
        AB 340 (Furutani)
        As Amended June 22, 2011
        Majority vote
         
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        |ASSEMBLY:  |73-0 |(May 12, 2011)  |SENATE: |35-0 |(July 11,      |
        |           |     |                |        |     |2011)          |
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         Original Committee Reference:   P.E.,R.& S.S.  

         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" any 
          compensation determined by the retirement board to have been paid 
          for the principal purpose of enhancing a member's retirement 
          benefit which may include specified payments or cash conversions 
          made at the termination of employment or during the final average 
          salary period.

        2)Excludes, further, 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 each 12-month period during the final average 
          salary period, payments for service rendered outside of normal 
          working hours, unscheduled overtime, and payments made at the 
          termination of employment, as specified.

        3)Excludes, additionally, from the definition of "compensation 
          earnable," for members first hired on or after January 1, 2012, 
          employer provided housing and vehicle allowances.

        4)Requires 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 
          determination has been made.

        5)Specifies that compensation paid to a retiring member to restore 








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          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.

        6)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 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.

        7)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.  

        8)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.

        9)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.

        10)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. 
         
        The Senate amendments  :

        1)Specify that certain payments or cash conversions made at the 
          termination of employment or during the final average salary 
          period may be excluded from the definition of "compensation 
          earnable" if a retirement board determines that those amounts were 
          paid for the principal purpose of enhancing a member's retirement 
          benefit.
         
         2)Specify that employer provided housing and vehicle allowances are 
          only excluded from the definition of "compensation earnable," for 








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          members first hired on or after January 1, 2012.
         
         3)Require 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 require the boards to 
          provide notice to the employer and member when such a 
          determination has been made.  

        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 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.

         AS PASSED BY THE ASSEMBLY  , this bill was substantially similar to 
        the version approved by the Senate.

         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 








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        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 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 2011.  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, 








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        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 


        FN: 
        0001440