Bill Text

Bill Information

PDF |Add To My Favorites |Track Bill | print page

SB-266 Public Employees’ Retirement System: disallowed compensation: benefit adjustments. (2019-2020)

SHARE THIS:share this bill in Facebookshare this bill in Twitter
Date Published: 02/12/2019 09:00 PM
SB266:v99#DOCUMENT


CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill No. 266


Introduced by Senator Leyva

February 12, 2019


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


LEGISLATIVE COUNSEL'S DIGEST


SB 266, as introduced, Leyva. Public Employees’ Retirement System: disallowed compensation: benefit adjustments.
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 Reform Act of 2013 (PEPRA) generally requires a public retirement system, as 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 PERS determines that the benefits of a member or annuitant are, or would be, based on compensation that conflicts with PEPRA and other specified laws and thus impermissible under PERL. The bill would also apply these procedures retroactively to determinations made on or after January 1, 2017, if an appeal has been filed and the employee member, survivor, or beneficiary has not exhausted their administrative or legal remedies. At the threshold, after determining that compensation for an employee member reported by the state, school employer, or a contracting agency is disallowed, the bill would require the applicable employer to discontinue the reporting of the disallowed compensation. The bill would require that contributions made on the disallowed compensation, for active members, be credited against future contributions on behalf of the state, school employer, or contracting agency that reported the disallowed compensation and would require that the state school employer, or contracting agency to return to the member any contributions paid by the member or on the member’s behalf.
With respect to retired members, survivors, or beneficiaries whose benefits are based on disallowed final compensation, the bill would require PERS to adjust the benefit to reflect the exclusion of the disallowed compensation, and provide that contributions made on the disallowed compensation be credited against future contributions on behalf of the employer entity that reported the disallowed compensation. Additionally, if specified conditions are met, the bill would require the employing entity to refund overpayment costs to the system and to pay members, survivors, and beneficiaries whose benefits have been reduced a lump sum or an annuity reflecting the difference between the monthly allowance that was based on the disallowed compensation and the adjusted monthly allowance calculated without the disallowed compensation, as provided. The bill would require the system to provide certain notices in this regard.
The bill would require the state, a school employer, or a contracting agency, as applicable, to submit to the system a compensation proposal intended to form the basis of a pension benefit calculation for determination of compliance with PEPRA and other laws, as specified, and would require PERS to respond within 60 days. If the system determines that the proposal is in compliance with PEPRA and other laws, then the payment obligations, as described above, would be imposed on PERS, if compensation was subsequently disallowed. The bill would grant authority for PERS to publish notices identifying items of allowable 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.

 (a) The California Public Employees’ Retirement System (CalPERS) is the largest public pension fund in the United States, administering defined benefit retirement plans for California’s public employees, including state and local government firefighters, law enforcement personnel, and school employees.
(b) Of the numerous positions maintained by the state, schools, and local governments, each is unique and each is vital to ensuring quality public services that help keep our state strong, a critical component to promoting our state’s continued economic recovery and future growth.
(c) Fire service, law enforcement, school personnel, and other public employees exhibit varying demographic features and career patterns. Each requires a different skill set and knowledge base, as well as unique requirements for recruitment, training, retention, and compensation.
(d) Generations of hard-working members of California’s middle class have dedicated their careers to public service, often earning less over the course of their careers when compared to their private industry counterparts, to earn and pay for the promise of a secure retirement.
(e) A public employee’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.
(f) For CalPERS, it is the employer’s responsibility to ensure that employee information is reported to CalPERS accurately and on a timely basis in order to correctly calculate an employee’s service credit and final compensation for retirement purposes.
(g) In 2012, after serving the public for nearly 30 years, a firefighter employed by a CalPERS contracting agency, which provided an official projection of retirement benefits based on the firefighter’s estimated retirement date, made the decision to retire based on that projection.
(h) 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 imposed a substantial future reduction to the retiree’s monthly allowance. Unfortunately, this scenario is not isolated to just this one retiree. A handful of other firefighter, law enforcement, and school retirees have reported similar stories across multiple CalPERS employers.
(i) For over eight decades, CalPERS has proven its ability to fairly administer the retirement system to uphold the promises made by its 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 and law enforcement officers 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.
(j) In enacting this bill, it is the intent of the Legislature to ensure that a retired CalPERS member is protected when alleged misapplication or calculation of compensation occurs as a result of an employer’s error, and that this protection be provided to retirees whose appeal of CalPERS’ determination, and subsequent reduction of the retiree’s allowance, is not final. 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) If the system determines that the compensation reported for a member by the state, school employer, 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, school employer, or contracting agency to discontinue reporting the disallowed compensation. This section shall also apply to determinations made on or after January 1, 2017, if an appeal has been filed and the member, survivor, or beneficiary has not exhausted their administrative or legal remedies.
(1) In the case of an active member, all contributions made on the disallowed compensation shall be credited against future contributions to the benefit of the state, school employer, or contracting agency that reported the disallowed compensation, and any contribution paid by, or on behalf of, the member, including contributions under Section 20691, shall be returned to the member by the state, school employer, or contracting agency that reported the disallowed compensation.
(2) In the case of a retired member, survivor, or beneficiary whose final compensation at the time of retirement was predicated upon the disallowed compensation, the contributions made on the disallowed compensation shall be credited against future contributions, to the benefit of the state, school employer, or contracting agency that reported the disallowed compensation and the system shall permanently adjust the benefit of the effected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation.
(3) (A) In the case of a retired member, survivor, or beneficiary whose final compensation at the time of retirement was predicated upon the disallowed compensation as described in paragraph (2), the repayment and notice requirements described in this paragraph and paragraph (4) shall apply only if all of the following conditions are met:
(i) The compensation was reported to the system and contributions were made on that compensation while the member was actively employed.
(ii) The compensation was provided for in a memorandum of understanding as compensation for pension purposes.
(iii) The determination by the system that compensation was disallowed was made after the date of retirement.
(iv) The member was not aware that the compensation was disallowed at the time it was reported.
(v) For any disallowed compensation subject to a memorandum of understanding entered into on or after January 1, 2020, the state, school employer, or contracting agency failed to secure an affirmative determination of the compensation proposal as described in subdivision (b).
(B) If the conditions of subparagraph (A) are met, the state, school employer, or contracting agency that reported contributions on the disallowed compensation shall do both of the following:
(i) Pay to the system, as a direct payment, the full cost of any overpayment of the prior paid benefit made to an effected retired member, survivor, or beneficiary resulting from the disallowed compensation.
(ii) Pay to the retired member, survivor, or beneficiary, as a lump sum or as an annuity based on that amount, the actuarial equivalent present value representing the difference between the monthly allowance that was based on the disallowed compensation and the adjusted monthly allowance calculated pursuant to paragraph (2) for the duration that allowance is projected to be paid by the system to the retired member, survivor, or beneficiary. The payment, or payments, shall be made by the state, school employer, or contracting agency that reported contributions on the disallowed compensation in the option selected by the retired member, survivor, or beneficiary pursuant to a settlement or agreement between the parties.
(4) The system shall provide a notice to the state, school employer, or contracting agency that reported contributions on the disallowed compensation and to the effected retired member, survivor, or beneficiary, including, at a minimum, all of the following:
(A) The amount of the overpayment to be paid by the state, school employer, or contracting agency to the system as described in subparagraph (B) of paragraph (3).
(B) The actuarial equivalent present value owed to the retired member, survivor, or beneficiary as described in subparagraph (B) of paragraph (3), if applicable.
(C) Written disclosure of the state, school employer, or contracting agency’s obligations to the retired member pursuant to this section.
(b) The state, a school employer, or a contracting agency, as applicable, shall submit to the system for review any compensation proposal intended to form the basis of a pension benefit calculation, in order for 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. The system shall respond to the submission within 60 days.
(c) If the system determines the compensation proposal is in 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, then the obligations described in subparagraph (B) of paragraph (3) of subdivision (a) belong to the system rather than the state, school employer, or contracting agency, and that duty is owed by the system to the retired member, survivor, or beneficiary.
(d) For ease of administration, if the system determines a compensation proposal is allowable under 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, the system may periodically publish a notice identifying items of compensation that are allowable and are be reported to the system when they are contained in a written labor policy or agreement.
(e) This section does not alter or abrogate any responsibility of the state, a school employer, 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.