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SB-1124 Public Employees’ Retirement System: collective bargaining agreements: disallowed compensation.(2017-2018)

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Date Published: 05/25/2018 09:00 PM
SB1124:v97#DOCUMENT

Amended  IN  Senate  May 25, 2018
Amended  IN  Senate  March 22, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Senate Bill No. 1124


Introduced by Senator Leyva

February 13, 2018


An act to add Section 20164.5 to the Government Code, relating to public employees’ retirement.


LEGISLATIVE COUNSEL'S DIGEST


SB 1124, as amended, Leyva. Public Employees’ Retirement System: collective bargaining agreements: disallowed compensation.
Existing law, the Public Employees’ Retirement Law (PERL), establishes the Public Employees’ Retirement System (PERS), which provides a defined benefit to members of the system, based on final compensation, credited service, and age at retirement, subject to certain variations. PERL authorizes a public agency to contract to make its employees members of PERS and prescribes a process for this. PERS is administered by its board of administration, which is responsible for correcting errors and omissions in the administration of the system and the payment of benefits. Existing law requires the board to correct all actions taken as a result of errors or omissions of the state or a contracting agency, in accordance with certain procedures.
The California Public Employees’Pension Employees’ Pension Reform Act of 2013 (PEPRA) generally requires a public retirement system, as defined defined, to modify its plan or plans to comply with the act. PEPRA, among other things, establishes new defined benefit formulas and caps on pensionable compensation.
This bill would establish new procedures under PERL for cases in which a member’s benefits are erroneously calculated by the state or a contracting agency. The bill, with respect to a memorandum of understanding (MOU) entered into before January 1, 2019, would require the system, upon determining that compensation for an employee member covered by that MOU reported by the state or a contracting agency conflicts with specified law, to discontinue the reporting of the disallowed compensation and not to pay benefits based on the disallowed compensation, except as provided. The bill would require the contributions made on the disallowed compensation, for active members, to be credited against future contributions on behalf of the member. The bill would require PERS, with respect to retired members or beneficiaries whose final compensation at retirement was predicated upon disallowed compensation, to permanently adjust the benefit to reflect the inclusion of the disallowed compensation. The bill would also require that the retired member or beneficiary to be permitted to retain the benefit level and not be required to repay that benefit, if, among other things, the member was unaware the compensation was disallowed when reported. The bill would require the applicable state or contracting agency to pay the cost associated with the new entitlement, as specified.
The bill would also require authorize the state or a contracting agency, for any MOU entered into on or after January 1, 2019, to submit any compensation proposal intended to form the basis of a pension benefit calculation to the system to determine compliance with specified provisions governing compensation and, upon approval by the system, would make those benefits earned subject to the above provisions of the bill governing benefit adjustments. compensation. The bill would make related legislative findings and declarations.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares as follows:
(a) The California Public Employees’ Retirement System (CalPERS) administers defined benefit retirement plans for California’s public employees, including state and local government firefighters.
(b) California firefighters selflessly endure physically, mentally, and emotionally grueling careers, responding to everything from structure fires, automobile accidents, airplane crashes, earthquakes, mudslides, and more, in anticipation of a reasonably secure retirement.
(c) A firefighter’s pension is based on collectively bargained compensation that takes the form of base pay and special compensation for additional skills, extraordinary assignments, or education.
(d) CalPERS has indicated that it is the employer’s responsibility to ensure that employee information is reported accurately and on a timely basis in order for CalPERS to correctly calculate an employee’s service credit and final compensation for retirement purposes.
(e) In 2012, after serving the public for nearly 30 years, a firefighter employed by a contracting agency of CalPERS made the decision to retire. Before retiring, the firefighter requested an official retirement estimate from CalPERS, which provided a projection of retirement benefits as of the firefighter’s estimated retirement date. The firefighter made the decision to retire based on that estimate.
(f) In 2017, five years after officially retiring, CalPERS notified the firefighter retiree that the retiree’s former employer had erroneously reported and remitted contributions on certain compensation, which CalPERS later determined in an audit was not pensionable compensation. CalPERS sought repayment of the purported overpayment directly from the retired firefighter totaling thousands of dollars, as well as imposing a substantial future reduction to the retiree’s monthly allowance. Unfortunately, this scenario is not isolated to just this one retiree. A handful of firefighter retirees have reported similar stories across multiple CalPERS contracting employers.
(g) For over eight decades, CalPERS has proven its ability to fairly administer the retirement system to uphold the promises made by its contracting employers for those members who invest their life’s work in public service. However, this kind of clawback has the potential to take a major toll on the finances of retirees, including firefighters who, unlike private sector employees, do not receive social security benefits and instead rely on their fixed monthly pension as their sole source of retirement income.
(h) In enacting this bill, it is the intent of the Legislature to ensure that a retired member is protected when alleged misapplication or calculation of compensation occurs as a result of an employer’s error. It is further the intent of the Legislature that errors made on the part of the employer, with respect to a promise to a retiree, be borne by the employer rather than through a retroactive clawback and permanent reduction in the retired member’s pension.

SEC. 2.

 Section 20164.5 is added to the Government Code, to read:

20164.5.
 (a) In the case of an employee covered by a memorandum of understanding entered into before January 1, 2019, if the system determines that the compensation reported for that employee member by the state or a contracting agency conflicts with the California Public Employees’ Pension Reform Act of 2013 (Article 4 (commencing with Section 7522) of Chapter 21 of Division 7 of Title 1), Section 20636, or the administrative regulations of the system, the system shall require the state or contracting agency to discontinue reporting the disallowed compensation. Benefits shall not be paid based upon that disallowed compensation except as provided in this section.
(1) In the case of an active member, the contributions made on the disallowed compensation shall be credited to the benefit of the state or contracting agency against future contributions, and any contribution paid by or on behalf of the member, including contributions under Section 20691, shall be credited to the member.
(2) In the case of a retired member or beneficiary whose final compensation at the time of retirement was predicated upon the disallowed compensation, the system shall permanently adjust the benefit to reflect the inclusion of the disallowed compensation and the retired member or beneficiary shall be permitted to retain the benefit level and shall not be required to repay that benefit, subject to all of the following conditions:
(A) The compensation was reported to the system and contributions were made on that compensation while the member was actively employed.
(B) The compensation was provided for in a memorandum of understanding as compensation for pension purposes.
(C) The determination by the system that compensation was disallowed was made after the date of retirement.
(D) The member was not aware that the compensation was disallowed at the time it was reported.
(3) The applicable state or contracting agency shall pay to the system the full actuarial cost of the prior paid benefit as a direct payment and pay to the system the projected future benefit payments calculated using the disallowed compensation permanently adjusted benefit for the affected retired member and beneficiaries as determined by the system. system consistent with paragraph (2).
(b) In the case of any memorandum of understanding entered into on or after January 1, 2019, the state or the contracting agency, as applicable, shall may submit any compensation proposal, intended to form the basis of a pension benefit calculation, to the system to determine compliance with the California Public Employees’ Pension Reform Act of 2013 (Article 4 (commencing with Section 7522) of Chapter 21 of Division 7 of Title 1), Section 20636, and the administrative regulations of the system. Upon approval by the system, any benefits earned shall be subject to subdivision (a).
(c) This section does not alter or abrogate any responsibility of the state or a contracting agency to meet and confer in good faith with the employee organization regarding the impact of the disallowed compensation or the effect of any disallowed compensation on the rights of the employees and the obligations of the employer to its employees, including any employees who, due to the passage of time and promotion, may have become exempt from inclusion in a bargaining unit but whose benefit was the product of collective bargaining.