Pending Legislation

AB 1987/ SB 1425�Public Retirement: final compensation: computation: Retirees

UPDATE: July 30, 2010 - There are many sections to AB1987. The last sentence in the bill states that it shall become operative and take effect on or before January 1, 2011 if it passes. However, the portion regarding calculation of final average salary for the purpose of calculating retirement allowance states that the provisions do not become operable until July 1, 2011. Therefore, it is ACERA's understanding that IF any changes to the calculation of compensation take place, they would only affect those who retire on or after July 1, 2011.

There are other sections that limit a retiree from performing services for any employer covered by a state or local retirement system for 6 months after retirement. These sections state an effective date of January 1, 2011. Also, there are some changes in employer reporting procedures and retirement board auditing that become effective January 1.

This bill is still pending in the legislature and has not yet passed.

July 1, 2010 - In California counties operating a public retirement system such as Alameda County, the amount of a member�s lifetime monthly retirement allowance is calculated using a formula. One of the factors in that formula is the retiring member�s highest average monthly salary based on one year or three years� compensation. In general, the higher the average salary, the higher the member�s monthly retirement allowance.

Currently, under ACERA�s Ventura Agreement, ACERA includes compensation for a member�s unused, earned vacation leave (and sick leave for Deputy Sheriffs) in the final average salary calculation if that compensation is paid during the member�s highest compensation period of one year (Tiers I and III) or three years (Tier II). This can be done by �selling back� vacation during employment or when one receives their �vacation cash out� upon termination. The cash payments included in final average salary cannot exceed what one can earn during the final compensation period.

Assembly Bill 1987 and Senate Bill 1425, related bills that are currently pending in California�s legislature, would seek to redefine what types of compensation could be included in the final average salary calculation for computing a member�s retirement allowance. If one of these bills passes, it would provide that any change in salary, compensation, or remuneration that is principally for the purpose of enhancing a member�s benefits would not be included in the calculation of a member�s highest average salary for purposes of determining that member�s retirement allowance.

This means that payment for any unused, earned vacation that is paid to an ACERA member as part of �final settlement pay� at the time of retirement may be excluded from the salary calculation. However, the bill provides that inclusion of this type of �special compensation� could be negotiated with labor groups. ACERA�s Ventura Agreement may meet the criteria for this negotiation. Under this agreement, ACERA includes payment made at the time of retirement for unused, earned vacation in the salary calculation, up to the limit of the employee�s maximum vacation accrual earned during that period. Interpretation of this section of the bill is still pending.

Still included in the salary calculation would be payment made for unused vacation during the final compensation period while the employee is still actively working, up to the limit of the employee�s maximum vacation accrual earned during that period (i.e. vacation sell-back).

This bill would also limit the calculation of a member�s final compensation to an amount not to exceed the average increase in compensation received by employees in the same or a related group as that member. This average increase would be calculated using the final compensation period and the 2 preceding years.

The bill would additionally require public retirement systems to establish accountability provisions that would include an ongoing audit process to ensure that a change in a member�s salary, compensation, or remuneration is not made principally for the purpose of enhancing a member�s retirement benefits.

The bill would also establish regulations that prohibit a retiree from performing services for any employer covered by a state or local retirement system until that person has been separated from service for a period of at least 180 days.

If Assembly Bill 1987 is enacted, it may take effect on January 1, 2011. It is still unclear whether the bill would affect ACERA members retiring after January 1, 2011 or July 1, 2011.

To read the complete text of the bill, go to www.leginfo.ca.gov/bilinfo.html and type in 1987 in the search blank.