ACSA members have many questions regarding pension reform legislation moving in the Capitol. EdCal published California State Teachers Retirement System answers to some of those questions last week, and now presents the California Public Employees Retirement System response:
Q. There is retirement legislation pending, including Senate Bill 1425, Assembly Bill 1987 and SB 919, that would change public employee retirement benefits. What are the key concerns with these bills?
A. The CalPERS Board of Administration has adopted a support position on SB 1425, and does not have significant issues with the bill. The major provisions of the proposed Government Code 7500.5 in SB 1425 that would apply to all state and local retirement systems will generally not have a substantive impact on CalPERS members because SB 53 (Russell) previously added most of these requirements to the Public Employees Retirement Law in 1993.
Further, some requirements were subsequently implemented by regulations identifying allowable items of special compensation and communicated by CalPERS Employer Circular Letters. Since most of the amendments required by SB 1425 to the PERL either serve to clarify or provide statutory recognition of current practice, its impact on CalPERS and CalPERS members should be limited.
Only one code section (GC 7500.5) of AB 1987 would apply to CalPERS – the portion that would impose new requirements on all state and local retirement systems and mirrors the language in SB 1425. As stated above, CalPERS does not have significant issues with that portion of the bill.
Among other things, SB 919 changes the retirement benefit formula for CalPERS school members first hired on or after the bill becomes effective from 2 percent at age 55 to 2 percent at age 65. It also authorizes public agency employers to negotiate a lower level of employer health care contribution for new employees and would, for the first time, allow the state to contract for health care providers that are usually selected by the CalPERS Board of Administration to participate in the pool of providers under PEMHCA, the Public Employees’ Medical and Hospital Care Act.
Q. How does the calculation of retirement earnings change under these bills, particularly SB 1425?
A. No change for CalPERS members under SB 1425 and AB 1987, as CalPERS’ definition of compensation earnable already meets the requirements of these bills.
Q. If CalPERS thinks someone may have “spiked” last year’s earnings, how would they go about demonstrating their final compensation did not include spiking?
A. CalPERS has a Compensation Review Unit that identifies a small percentage of member benefit applications through an automated process, and then reviews the employer’s reporting of pay-rate and special compensation for that member for compliance with state law and CalPERS regulations, and reports their findings to the employer.
Q. What if you change jobs within a district and receive a much higher salary before retiring? What if you go to another district and negotiate a higher salary?
A. While these situations may trigger a review by CalPERS staff to confirm a legitimate change in position and/or duties, SB 1425 does not limit the recognition and use of higher salaries in member’s retirement benefit calculations when these types of job changes occur.
Q. If a pension member is over 60 years of age and retires after Jan. 1, 2011, does that mean that he or she is prohibited from working within the STRS or PERS systems for 180 days? What if he or she is under 60 years of age when they retire? Is there a waiver or exemption process for this requirement?
A. Yes, for CalPERS. The prohibition applies to retired CalPERS members regardless of their age at the time of retirement, if they return to work for their former employer or another CalPERS-covered employer. There is no waiver or exemption process.
Q. STRS has an annual earnings limit for retirees. What is that amount? Is that calculated on the fiscal year or on a calendar year? What happens if someone exceeds the earnings limit? Does PERS have this limit?
A. Currently, CalPERS places a limit on the number of hours a retired annuitant can work after retirement to 960 per plan year (from July 1 to June 30), with a few exemptions in statute that are granted by the system on a limited-term basis. If a retired annuitant exceeds the limit, they are automatically reinstated to active membership status. SB 1425 does not impact these return to work rules.
Q. If my school district offered a PARS (Public Agency Retirement Services) Retirement Incentive this year, how do these bills impact that program?
A. Retirement Incentives are not impacted by SB 1425 or AB 1987.
Q. What would the long-term fiscal effect on the state be if these bills pass?
A. The main purpose of SB 1425 is to prevent any change in salary, compensation or remuneration principally for the purpose of enhancing a retirement benefit from counting toward final compensation. It also gives retirement systems greater ability to ensure that these types of compensation are not included.
Eliminating or reducing the ability to count these types of pay increases toward final compensation will have a positive fiscal impact on retirement systems. However, given the restrictions already in place at CalPERS as a result of SB 53 of 1993, it will have a relatively smaller impact on CalPERS.
Q. We understand there are a lot of issues still in flux as these bills make their way through the legislative process. What do you hope to see mitigated in the proposals?
A. The CalPERS Board of Administration has adopted a support position on SB 1425; it has not yet considered AB 1987 or SB 919, or taken a position on either bill. The CalPERS Board of Administration may consider taking a position on the bills if they move forward in the legislative process.
For more PERS information visit, www.calpers.ca.gov.