(1)Existing law, 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.

The County Employees Retirement Law of 1937 (CERL) authorizes counties to establish retirement systems pursuant to its provisions in order to provide pension benefits to their employees. CERL generally vests management of each retirement system in a board of retirement. CERL authorizes a board of retirement to correct errors in the calculation of a retired members monthly allowances or other benefits under CERL in certain circumstances, including if the member caused their final compensation to be improperly increased or otherwise overstated at the time of retirement, and the system applied that overstated amount as the basis for calculating the members monthly retirement allowance or benefits under CERL, subject to certain limitations.

The Public Employees Retirement Law (PERL) also authorizes its board of administration to adjust retirement payments due to errors or omissions, including for cases in which the retirement systems that the benefits of a member or annuitant are, or would be, based on disallowed compensation that conflicts with PEPRA and other specified laws and is thus impermissible.

This bill would require a retirement system established under CERL, upon determining that the compensation reported for a member is disallowed compensation, to require the employer, as defined, to discontinue reporting the disallowed compensation. The bill would require, for an active member, the retirement system to credit all employer contributions made on the disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and return any member contribution paid by, or on behalf of, that member, to the member directly or indirectly through the employer that reported the disallowed compensation, except in certain circumstances in which a system has already initiated a process, as defined, to recalculate compensation. The bill would require the system, for a retired member, survivor, or beneficiary whose final compensation was predicated upon the disallowed compensation, to credit the employer contributions made on the disallowed compensation against future contributions, to the benefit of the employer that reported the disallowed compensation, to return any member contributions paid by, or on behalf of, that member, to the member directly, and to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation. The bill would establish other conditions required to be satisfied with respect to a retired member, survivor, or beneficiary when final compensation was predicated upon disallowed compensation, including, among others, requiring a specified payment to be made by the employer that reported contributions on the disallowed compensation to the retired member, survivor, or beneficiary, as appropriate. The bill would authorize a retirement system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to use that system in lieu of specified provisions that the bill would enact. The bill would also require certain information regarding the relevant retired member, survivor, or beneficiary needed for purposes of these provisions to be kept confidential by the recipient.

This bill would authorize an employer to submit to a retirement system for review a compensation item proposed to be included in an agreement, as specified, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation and would require the system to provide guidance on the matter. The bill would prescribe a process in this regard. The bill would specify that it does not affect or otherwise alter a partys right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.

(2)Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

(1)Existing law, 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.

The County Employees Retirement Law of 1937 (CERL) authorizes counties to establish retirement systems pursuant to its provisions in order to provide pension benefits to their employees. CERL generally vests management of each retirement system in a board of retirement. CERL authorizes a board of retirement to correct errors in the calculation of a retired members monthly allowances or other benefits under CERL in certain circumstances, including if the member caused their final compensation to be improperly increased or otherwise overstated at the time of retirement, and the system applied that overstated amount as the basis for calculating the members monthly retirement allowance or benefits under CERL, subject to certain limitations.

The Public Employees Retirement Law (PERL) also authorizes its board of administration to adjust retirement payments due to errors or omissions, including for cases in which the retirement systems that the benefits of a member or annuitant are, or would be, based on disallowed compensation that conflicts with PEPRA and other specified laws and is thus impermissible.

This bill would require a retirement system established under CERL, upon determining that the compensation reported for a member is disallowed compensation, to require the employer, as defined, to discontinue reporting the disallowed compensation. The bill would require, for an active member, the retirement system to credit all employer contributions made on the disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and return any member contribution paid by, or on behalf of, that member, to the member directly or indirectly through the employer that reported the disallowed compensation, except in certain circumstances in which a system has already initiated a process, as defined, to recalculate compensation. The bill would require the system, for a retired member, survivor, or beneficiary whose final compensation was predicated upon the disallowed compensation, to credit the employer contributions made on the disallowed compensation against future contributions, to the benefit of the employer that reported the disallowed compensation, to return any member contributions paid by, or on behalf of, that member, to the member directly, and to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation. The bill would establish other conditions required to be satisfied with respect to a retired member, survivor, or beneficiary when final compensation was predicated upon disallowed compensation, including, among others, requiring a specified payment to be made by the employer that reported contributions on the disallowed compensation to the retired member, survivor, or beneficiary, as appropriate. The bill would authorize a retirement system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to use that system in lieu of specified provisions that the bill would enact. The bill would also require certain information regarding the relevant retired member, survivor, or beneficiary needed for purposes of these provisions to be kept confidential by the recipient.

This bill would authorize an employer to submit to a retirement system for review a compensation item proposed to be included in an agreement, as specified, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation and would require the system to provide guidance on the matter. The bill would prescribe a process in this regard. The bill would specify that it does not affect or otherwise alter a partys right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.

(2)Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

(1)Existing law, 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.

The County Employees Retirement Law of 1937 (CERL) authorizes counties to establish retirement systems pursuant to its provisions in order to provide pension benefits to their employees. CERL generally vests management of each retirement system in a board of retirement. CERL authorizes a board of retirement to correct errors in the calculation of a retired members monthly allowances or other benefits under CERL in certain circumstances, including if the member caused their final compensation to be improperly increased or otherwise overstated at the time of retirement, and the system applied that overstated amount as the basis for calculating the members monthly retirement allowance or benefits under CERL, subject to certain limitations.

The Public Employees Retirement Law (PERL) also authorizes its board of administration to adjust retirement payments due to errors or omissions, including for cases in which the retirement systems that the benefits of a member or annuitant are, or would be, based on disallowed compensation that conflicts with PEPRA and other specified laws and is thus impermissible.

This bill would require a retirement system established under CERL, upon determining that the compensation reported for a member is disallowed compensation, to require the employer, as defined, to discontinue reporting the disallowed compensation. The bill would require, for an active member, the retirement system to credit all employer contributions made on the disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and return any member contribution paid by, or on behalf of, that member, to the member directly or indirectly through the employer that reported the disallowed compensation, except in certain circumstances in which a system has already initiated a process, as defined, to recalculate compensation. The bill would require the system, for a retired member, survivor, or beneficiary whose final compensation was predicated upon the disallowed compensation, to credit the employer contributions made on the disallowed compensation against future contributions, to the benefit of the employer that reported the disallowed compensation, to return any member contributions paid by, or on behalf of, that member, to the member directly, and to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation. The bill would establish other conditions required to be satisfied with respect to a retired member, survivor, or beneficiary when final compensation was predicated upon disallowed compensation, including, among others, requiring a specified payment to be made by the employer that reported contributions on the disallowed compensation to the retired member, survivor, or beneficiary, as appropriate. The bill would authorize a retirement system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to use that system in lieu of specified provisions that the bill would enact. The bill would also require certain information regarding the relevant retired member, survivor, or beneficiary needed for purposes of these provisions to be kept confidential by the recipient.

This bill would authorize an employer to submit to a retirement system for review a compensation item proposed to be included in an agreement, as specified, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation and would require the system to provide guidance on the matter. The bill would prescribe a process in this regard. The bill would specify that it does not affect or otherwise alter a partys right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.

(2)Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

(1)Existing law, 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.

The County Employees Retirement Law of 1937 (CERL) authorizes counties to establish retirement systems pursuant to its provisions in order to provide pension benefits to their employees. CERL generally vests management of each retirement system in a board of retirement. CERL authorizes a board of retirement to correct errors in the calculation of a retired members monthly allowances or other benefits under CERL in certain circumstances, including if the member caused their final compensation to be improperly increased or otherwise overstated at the time of retirement, and the system applied that overstated amount as the basis for calculating the members monthly retirement allowance or benefits under CERL, subject to certain limitations.

The Public Employees Retirement Law (PERL) also authorizes its board of administration to adjust retirement payments due to errors or omissions, including for cases in which the retirement systems that the benefits of a member or annuitant are, or would be, based on disallowed compensation that conflicts with PEPRA and other specified laws and is thus impermissible.

This bill would require a retirement system established under CERL, upon determining that the compensation reported for a member is disallowed compensation, to require the employer, as defined, to discontinue reporting the disallowed compensation. The bill would require, for an active member, the retirement system to credit all employer contributions made on the disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and return any member contribution paid by, or on behalf of, that member, to the member directly or indirectly through the employer that reported the disallowed compensation, except in certain circumstances in which a system has already initiated a process, as defined, to recalculate compensation. The bill would require the system, for a retired member, survivor, or beneficiary whose final compensation was predicated upon the disallowed compensation, to credit the employer contributions made on the disallowed compensation against future contributions, to the benefit of the employer that reported the disallowed compensation, to return any member contributions paid by, or on behalf of, that member, to the member directly, and to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation. The bill would establish other conditions required to be satisfied with respect to a retired member, survivor, or beneficiary when final compensation was predicated upon disallowed compensation, including, among others, requiring a specified payment to be made by the employer that reported contributions on the disallowed compensation to the retired member, survivor, or beneficiary, as appropriate. The bill would authorize a retirement system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to use that system in lieu of specified provisions that the bill would enact. The bill would also require certain information regarding the relevant retired member, survivor, or beneficiary needed for purposes of these provisions to be kept confidential by the recipient.

This bill would authorize an employer to submit to a retirement system for review a compensation item proposed to be included in an agreement, as specified, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation and would require the system to provide guidance on the matter. The bill would prescribe a process in this regard. The bill would specify that it does not affect or otherwise alter a partys right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.

(2)Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

(1)Existing law, 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.

The County Employees Retirement Law of 1937 (CERL) authorizes counties to establish retirement systems pursuant to its provisions in order to provide pension benefits to their employees. CERL generally vests management of each retirement system in a board of retirement. CERL authorizes a board of retirement to correct errors in the calculation of a retired members monthly allowances or other benefits under CERL in certain circumstances, including if the member caused their final compensation to be improperly increased or otherwise overstated at the time of retirement, and the system applied that overstated amount as the basis for calculating the members monthly retirement allowance or benefits under CERL, subject to certain limitations.

The Public Employees Retirement Law (PERL) also authorizes its board of administration to adjust retirement payments due to errors or omissions, including for cases in which the retirement systems that the benefits of a member or annuitant are, or would be, based on disallowed compensation that conflicts with PEPRA and other specified laws and is thus impermissible.

This bill would require a retirement system established under CERL, upon determining that the compensation reported for a member is disallowed compensation, to require the employer, as defined, to discontinue reporting the disallowed compensation. The bill would require, for an active member, the retirement system to credit all employer contributions made on the disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and return any member contribution paid by, or on behalf of, that member, to the member by directly or indirectly through the employer that reported the disallowed compensation, except in certain circumstances in which a system has already initiated a process, as defined, to recalculate compensation. The bill would require the system, for a retired member, survivor, or beneficiary whose final compensation was predicated upon the disallowed compensation, to credit the employer contributions made on the disallowed compensation against future contributions, to the benefit of the employer that reported the disallowed compensation, to return any member contributions paid by, or on behalf of, that member, to the member directly, and to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation. The bill would establish other conditions required to be satisfied with respect to a retired member, survivor, or beneficiary when final compensation was predicated upon disallowed compensation, including, among others, requiring a specified payment to be made by the employer that reported contributions on the disallowed compensation to the retired member, survivor, or beneficiary, as appropriate. The bill would authorize a retirement system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to use that system in lieu of specified provisions that the bill would enact. The bill would also require certain information regarding the relevant retired member, survivor, or beneficiary needed for purposes of these provisions to be kept confidential by the recipient.

This bill would authorize an employer to submit to a retirement system for review a compensation item proposed to be included in an agreement, as specified, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation and would require the system to provide guidance on the matter. The bill would prescribe a process in this regard. The bill would specify that it does not affect or otherwise alter a partys right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.

(2)Existing constitutional provisions require that a statute that limits the right of access to the meetings of public bodies or the writings of public officials and agencies be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest.

This bill would make legislative findings to that effect.

Existing law, 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.

The County Employees Retirement Law of 1937 (CERL) authorizes counties to establish retirement systems pursuant to its provisions in order to provide pension benefits to their employees. CERL generally vests management of each retirement system in a board of retirement.

CERL defines compensation earnable by a member, for the purpose of calculating benefits, to mean the average compensation, as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and the same rate of pay. CERL establishes certain exceptions from that definition, including payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off, however denominated, whether paid in a lump sum or otherwise, in an amount that exceeds that which may be earned and payable in each 12-month period during the final average salary period, regardless of when the payments are reported or paid.

This bill would make a nonsubstantive change to that exception.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 3025

Author:(Valencia)

As Amended Ver:August 13, 2024

Majority vote

SUMMARY

Establishes certain processes and procedures in the County Employees' Retirement Law (CERL), administered by CERL systems, relating to compensation earnable, disallowed compensation, and the recovery of overpayments, among other provisions.

Senate Amendments

1. Clarify that certain information provided by a CERL system to an employer must not be disclosable under the California Public Records Act, among other nonsubstantive and associated technical changes.
2. Add "or made an administrative determination" to the definition of "initiated a process" for added clarity relating to the overpayment correction process.

COMMENTS

Background Regarding Administration of the CERL

Where the Public Employees' Retirement Law and the Teachers' Retirement Law for statewide public employee retirement systems establish uniform standards that commonly apply to members, participating agencies and school districts governed by those laws, respectively, the CERL generally provides uniform standards in the administration of retirement benefits by county employee retirement system, and also recognizes and allows for a modicum of difference in the administration of retirement benefits since each CERL jurisdiction is separate and unique.

Each CERL system operates pursuant to the CERL and, on occasion, an issue might arise related to the administration of retirement benefits. However, the issue may only be applicable to an individual system due to its interpretation of a provision in the CERL, or interpretation of a CERL provision that is specific to that jurisdiction.

The practical and operational mechanics of the CERL permit such variation. However, this variation has resulted in concerning substantial challenges that, in one particular instance, required subsequent actions by some, not all, CERL systems to align their administration of retirement to the requirements of the Public Employees' Pension Reform Act of 2013 (PEPRA) following a decision by the California Supreme Court, commonly referred to as the "Alameda decision." (Alameda County Deputy Sheriff's Association v. Alameda County Employees' Retirement Association (2020) 9 Cal.5th 1032.)

What is the PEPRA, and Why Does it Exist and Matter?

Enactment of the PEPRA by the Legislature and its effectuation on January 1, 2013, resulted from substantial negative legislative and public experiences that required a statutory response through prudent public policy reforms to public employee retirement.

The enactment of Chapter 555, Statutes of 1999 (Senate Bill 400, Ortiz) that generally increased pension benefit formulas, and coupled with the granting of pension contribution holidays (i.e.., reduced or eliminated employer and employee contributions) under a soon-to-be-realized mistaken belief that the superfunded (i.e., more than 100% funded) status of particular retirement systems would remain for some time following a strong period of national economic growth and pension system positive investment gains/returns, was shortly thereafter met by economic and financial crises due to the dot-com downturn in the early- to mid-2000s followed by the 2008 economic crisis that caused financial market instability. Both events negatively affected California's public employee pension systems' investment returns and their funded status which took nearly a decade for them to come close to recovering. With both the enactment of SB 400 (Ortiz) followed by economic crises affecting pension fund investment returns, this resulted in increased unfunded or underfunded actuarial liabilities (UAL) or obligations (UAO).

The public outcry following enactment of that statute coupled with successive economic crises and increases in UAL/UAO was then followed by regular and increased attention by the media that highlighted the growing liabilities as being shouldered by taxpayers. Concerns were further amplified by regular media and public attention to pension abuse and manipulation schemes such as pension spiking, double-dipping, and other questionable and concerning pension-related activities by public employers and their employees. This included regular attention by various media outlets as to public employees whose pensions annually exceeded $100,000, e.g., "The $100,000 Club", among others.

Following concerns regarding those cumulative actions and events, the threat of statewide ballot measures by attentive, informed, and well-resourced taxpayer interests (referred to by some as "pension critics," "pension-envy critics", or "anti-pension proponents") that proposed drastic austerity measures, up to and including, the elimination of public employee defined benefit plans (i.e., pensions) in favor of defined contribution plans (i.e., 401(k)-style plans) or draconian reductions to pension benefit formulas, was ever-present.

In response, as a long term solution to address these concerns and others, the Legislature enacted the PEPRA as a means to address questionable pension-related activities, restore public confidence in public employee retirement, and to address long-terms costs relating to UAL/UAO. After enactment of the PEPRA, another crisis in the form of the global COVID-19 health pandemic and its ensuing uncertainty negatively affected all facets of society, including financial markets, which again, resulted in well over $100 billion in California's pensions systems' investment losses, followed by recent and ongoing federal inflationary measures that affect the economy and financial markets, investments returns, and short- and long-term assumptions where these systems continue to rigorously assess risks and seek opportunities in an effort to recover and maintain their ability to meet their statutory and constitutional mandates. Today, these systems continue their efforts to recover from those losses.

Since its enactment over a decade ago, two decisions by the California Supreme Court regarding the PEPRA have affirmed the Legislature's intent and enactment of this public policy and today, the PEPRA continues to exist as a prudent measure and means to maintain public confidence in public employee retirement and achieve its other objectives despite numerous legislative proposals, and attempted federal interference with respect to public transit agency employees, that would attempt to undermine the act and that could result in a return of past negative practices or experiences. Since the effectuation of the PEPRA, the prior ever-present and discernable drumbeat of threats to California's public employee pensions by concerned taxpayer interests largely remains, to a certain extent, somewhat muted; albeit, guarded, including by the media.

It is equally important to note that, while various MOUs or CBAs may contain a plethora of items collectively bargained, California's contract clause jurisprudence is designed, at least in part, to protect the reasonable expectation of contractual performance by both parties to the agreement. Those reasonable expectations, which include performance of the terms of a MOU or CBA by both parties, are defined not only by statutes themselves, but also by judicial interpretation of those statutes. (Alameda (id.).)

What was the Alameda Ruling? Important Aspects and Effects of the California Supreme Court's Decision in Alameda Regarding the CERL, Compensation Earnable/Disallowed Compensation, and the PEPRA Relating to this Bill

In the Alameda ruling, which addressed matters involving a Section of the Gov. Code (among others), the California Supreme Court upheld the Legislature's amendments to the CERL via the PEPRA that affected compensation earnable directly relating to the retirement benefit calculation for CERL legacy members (again, "pre-PEPRA" members), and rejected the state's arguments to abolish the "California Rule" relating to vested rights in retirement benefits.

Here, the court found that CERL legacy members (i.e., pre-PEPRA members) did not have a contractual right to the calculation of compensation earnable under the CERL that was inconsistent with the amendments made to Section 31461 of the Gov. Code (re: compensation earnable) by the PEPRA. Although the PEPRA changed the law regarding items that can be included in compensation earnable from what was in effect based on its prior ruling in Ventura, this did not constitute an impairment of CERL legacy members' vested rights because: (i) the changes made by the PEPRA were made for the constitutionally permissible purpose of eliminating "pension spiking;" and, (ii) no "comparable offsetting advantage" [criteria relating to vested rights under the California Rule] was required because providing such an advantage would undermine, or otherwise be inconsistent with, that constitutionally permissible purpose. (Ventura County Deputy Sheriff's Assn. v. Ventura County Employees' Retirement Assn. (1997) 16 Cal.4th 483; Case No. S055682.)

The court also reaffirmed the California Rule in rejecting the state's arguments that the amendments were prospective only; however, the court created an exception to "comparable advantages" as part of the California Rule when such advantages would undermine, or otherwise be inconsistent with, the permissible purpose of a modification to a pension plan. The court also emphasized that its decision in Alameda was limited to the specific matter before it, and its ruling did not go beyond that matter.

Following the court's holding in Alameda, because a number of CERL systems misinterpreted or misapplied and erroneously included disallowed compensation (also commonly referred to as, "nonpensionable compensation") reported by employers towards calculating a retirement allowance or benefit for CERL legacy members that was inconsistent with the PEPRA, those systems have the tedious task of reconciling the inclusion of disallowed compensation and the calculation of affected CERL legacy members' retirement benefits, and accordingly recalculating and adjusting their benefits. Through no fault of their own, CERL retired legacy members, et al., are required to financially shoulder the mistake of another by repaying amounts overpaid to them, and generally, these repayments are made by reducing the fixed monthly retirement benefit until the overpaid amount has fully been repaid, or, for those CERL legacy retired members, et al., who are fortunate to have at least saved the sum owed, they may opt to repay the overpayment through a lump-sum payment. Although these CERL systems are required to take these actions following the Alameda ruling to become compliant, some affected CERL legacy members, et al. who disagreed with those actions, filed subsequent legal claims against some of those systems.

Meanwhile, the CERL systems that correctly interpreted and applied the PEPRA amendment to the CERL as intended by the Legislature's enactment of that act, were not required to take those actions and their legacy retired members, et al., were not adversely affected.

According to the Author

"Reported disallowed compensation to CERL retirement systems significantly impacts retirees and active members. Retirees often rely on a fixed monthly pension which can be their only source of retirement income. When compensation is disallowed, retirees have to take a significant reduction in their monthly retirement distribution and pay the system back. This puts a massive burden on employees who dedicate their careers to public service with the promise of a secure retirement. This bill looks to create parity with CalPERS practices which balance the burden of disallowed compensation items between the employer and the employees."

Arguments in Support

Generally, among other things, numerous supporters express that after years of dedicated public service, public employees who retire expect that the promise of a pension will exist, and that public employees must make important life decisions when considering retirement, and more importantly, at the time of retirement. Further, they generally express that, these individuals expect pension promises to be maintained, and question the fairness of retirees or family members having to repay hundreds or thousands of dollars – while on a limited and fixed income, as a result of a mistake that was not of their making, but the mistake of another in which the retiree or family member(s) had/has no control. Finally, they generally express that this bill, like others before it relating to CalPERS and the California State Teachers' Retirement System (CalSTRS), address an injustice imposed by judicial decision.

Arguments in Opposition

Among other things, the California State Association of Counties express that, "[following] the passage of the PEPRA, county retirement systems took varying approaches to comply with the provisions of PEPRA related to which types of compensation may be included in retirement benefit calculations. On July 30, 2020, the California Supreme Court issued a decision in the case Alameda County Deputy Sheriff's Assn. v Alameda County Employees' Retirement Assn., otherwise known as the "Alameda decision," in which the Court upheld provisions [of] PEPRA related to disallowed forms of compensation for retirement calculations. Over the last four years, the impacted [CERL systems] have been working to comply with Alameda and recalculate retirement benefits for members who retired after January 1, 2013. [This bill] unfairly places the financial consequences of the Court's decision on counties and other agencies by requiring [ CERL system employers to pay a "penalty" equal to 20 percent of the current actuarial value of retiree benefits deemed unlawful. The penalty, which will result in affected agencies owing millions of unbudgeted dollars to retirees for what the Court found to be an illegal benefit, implies those agencies made the decision to misapply the law. In reality, they simply complied with the pension agreements.

FISCAL COMMENTS

None. This bill is keyed nonfiscal by Legislative Counsel.

VOTES:

ASM PUBLIC EMPLOYMENT AND RETIREMENT: 6-0-1

YES: McKinnor, Lackey, Boerner, Hart, Stephanie Nguyen, Luz Rivas

ABS, ABST OR NV: Vince Fong

ASSEMBLY FLOOR: 72-0-8

YES: Addis, Aguiar-Curry, Alanis, Alvarez, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

ABS, ABST OR NV: Arambula, Cervantes, Megan Dahle, Essayli, Gabriel, Mathis, Stephanie Nguyen, Luz Rivas

SENATE FLOOR: 40-0-0

YES: Allen, Alvarado-Gil, Archuleta, Ashby, Atkins, Becker, Blakespear, Bradford, Caballero, Cortese, Dahle, Dodd, Durazo, Eggman, Glazer, Gonzalez, Grove, Hurtado, Jones, Laird, Limón, McGuire, Menjivar, Min, Newman, Nguyen, Niello, Ochoa Bogh, Padilla, Portantino, Roth, Rubio, Seyarto, Skinner, Smallwood-Cuevas, Stern, Umberg, Wahab, Wiener, Wilk

UPDATED

VERSION: August 13, 2024

CONSULTANT: Michael Bolden / P. E. & R. / (916) 319-3957 FN: 0004270

 THIRD READING  

Bill No: AB 3025

Author: Valencia (D), et al.

Amended: 8/13/24 in Senate

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 5-0, 6/12/24

AYES: Cortese, Wilk, Durazo, Gonzalez, Laird

SENATE JUDICIARY COMMITTEE: 10-0, 6/25/24

AYES: Umberg, Wilk, Ashby, Caballero, Durazo, Laird, Niello, Roth, Stern, Wahab

NO VOTE RECORDED: Allen

ASSEMBLY FLOOR: 72-0, 5/20/24 - See last page for vote

SUBJECT: County employees’ retirement: disallowed compensation: benefit adjustments

SOURCE: California Fraternal Order of Police

California Professional Firefighters

DIGEST:

This bill requires counties operating employee retirement systems under the County Employees Retirement Law (CERL) to reimburse those systems for pension overpayments made to employees and also pay those retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the benefit recalculation. This bill stops the reporting of disallowed compensation for active members, as specified, and requires CERL retirement systems to credit employer contributions and return member contributions on the disallowed compensation. This bill requires an employer that receives information about a member, survivor, or beneficiary to keep that information confidential and only use it to carry out its duties under this bill.

Senate Floor Amendments of 8/13/24 clarify which county retirement systems may use a process to recover pension overpayments and corresponding pension benefit adjustments other than the process provided for by the bill.

ANALYSIS:

Existing law:

1. Provides, among other things under the California Constitution that, "the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system.” (Section 17, Art. XVI, Cal. Const.)
2. Establishes the County Employees Retirement Law (CERL) that governs 20 independent county retirement associations and provides for retirement systems for county and district employees in those counties adopting its provisions. The CERL is also commonly referred to as the 1937 Act or the 37 Act. Currently, 20 counties operate retirement systems under the CERL and these systems are commonly referred to as CERL, 1937 Act, or 37 Act systems or associations. (Government Code (GC) § 31450 et seq.)
3. Establishes that the purpose of the CERL is to recognize a public obligation to county and district employees who become incapacitated by age or long service in public employment and its accompanying physical disabilities by making provision for retirement compensation and death benefit as additional elements of compensation for future services and to provide a means by which public employees who become incapacitated may be replaced by more capable employees to the betterment of public service without prejudice and without inflicting a hardship upon the employees removed. (GC § 31451)
4. Establishes the Public Employees’ Pension Reform Act of 2013 (PEPRA) – a comprehensive reform of public employee retirement that, among other things, increased contributions towards retirement, decreased benefit formulas, and increased the age of retirement that apply to new members of the system first hired on or after January 1, 2013, and made changes that apply to all members towards resolving unfunded liabilities, the manipulation of compensation for purposes of calculating a retirement allowance (i.e., pensions spiking), double-dipping, and other prescribed best practice measures. (GC § 7522.02 et seq.)
5. Defines, under the CERL, “compensation” to mean the remuneration paid in cash out of county or district funds, plus any amount deducted from a member’s wages for participation in a deferred compensation plan, as provided, but does not include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to the member. (GC § 31460)
6. Defines, pursuant to the CERL, “compensation earnable” by a member to mean the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and the same rate of pay. Among other things, “compensation earnable” expressly does not include certain types or forms of compensation paid to enhance a member’s retirement benefit under the system. (GC § 31461)
7. Establishes that when a county or district reports compensation to the system, it must identify the pay period in which the compensation was earned regardless of when it was reported or paid, and prescribes the reporting requirements and limitations on compensation earnable. (GC § 31542.5)
8. Establishes that “compensation earnable” must not include overtime premium pay other than premium pay for hours worked within the normally scheduled or regular working hours that are in excess of the statutory maximum workweek or work period applicable to the employee under federal law, as specified, and provides that the definition of “compensation earnable” must not apply to a PEPRA member. (GC § 31461.6)
9. Defines “final compensation” to mean the average annual compensation earnable by a member during any three years elected by a member at or before the time they file an application for retirement, or, if they fail to elect, during the three years immediately preceding their retirement. If a member has less than three years of service, their final compensation must be determined by dividing their total compensation by the number of months of service credited to them and multiplying by 12. In addition, for these purposes, the definition of final compensation here does not apply to a PEPRA member. (GC § 31462)
10. Prescribes how a ’37 Act system determines final compensation, including final compensation based on compensation for one year (if adopted by a county), and in relation to intermittent members, subject to certain conditions where applicable. (GC §§ 31462.05, 31462.1, and 13462.2)

This bill:

1. Defines the following terms for purposes of the bill’s provisions:
   1. “Agreement” means a memorandum of understanding or collective bargaining agreement between the employer and an exclusive representative pursuant to the Meyers-Milias-Brown Act.
   2. “Alameda” means the Supreme Court case of Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association (2020) 9 Cal.5th 1032 and its holding.
   3. “Disallowed compensation” means non-pensionable compensation reported for a member of the retirement system that the system subsequently determines is not in compliance with PEPRA, the holding in Alameda, other provisions of this part, or the system’s administrative regulations or policies, through no fault of the member.
   4. “Employer” means the appropriate applicable county, county agency, or special district standing in relationship between the employee and the system.
   5. “Initiated a process” means a system has formally adopted a resolution or made an administrative determination for a correction process on identified disallowed compensation that has required or will require collecting any portion of an overpayment  from, or refunding member contributions to, any affected active member, retired member, survivor, or beneficiary, or adjusting the retirement allowance of any affected retired member, survivor, or beneficiary due to the determination of disallowed compensation by the system, including a determination by the system that is consistent with PEPRA, the holding in Alameda, and other provisions of this part.
   6. “PEPRA” means the California Public Employees’ Pension Reform Act of 2013 (Article 4 (commencing with Section 7522) of Chapter 21 of Division 7 of Title 1).
   7. “System” means a retirement association or system established pursuant to the County Employees Retirement Law of 1937. (commencing with Section 31450) 
2. Mandates a CERL retirement system require a system-participating employer to discontinue reporting disallowed compensation if the system determines that the compensation the employer reported for a member is disallowed compensation.
3. Requires, in the case of an active member, that the system to credit all employer contributions made on disallowed compensation against future contributions to the benefit of the employer or agency that reported the disallowed compensation, and to return any member contribution paid by, or on behalf of, that member to the member directly or indirectly through the employer or agency that reported the disallowed compensation, except as specified.
4. Allows a system that has initiated a process prior to January 1, 2024, to recalculate an active member’s compensation earnable to exclude disallowed compensation and return contributions, either directly to the member, or indirectly through the employer, to continue to use that process to ensure compliance with PEPRA, and that is consistent with, and pursuant to, the holding in Alameda, in lieu of the process provided by this bill.
5. Requires that, in the case of a retired member, survivor, beneficiary, whose final compensation at the time of retirement was predicated upon the disallowed compensation, the system to credit the employer contributions made on the compensation against future contributions, to the benefit of the employer that reported the disallowed compensation; return any member contributions paid by, or on behalf of, that member, to the member directly; and permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation.
6. Applies this bill’s repayment and notice requirements, as specified below, only if the following conditions are met:
   1. The employer reported the compensation to the system and made contributions on that compensation while the member was actively employed.
   2. The system determined after the date of retirement that the compensation was disallowed.
   3. The member was not aware that the compensation was disallowed at the time the employer reported it.
7. Requires, if the disallowed compensation meets the above conditions, that the employer that reported the disallowed compensation to do the following:
   1. Pay to the system, as a direct payment, or through recognition in the actuarial accrued liability, as determined by the system, the full cost of any overpayment of the prior paid benefit made to an affected retired member, survivor, or beneficiary resulting from the disallowed compensation.
   2. Pay to the affected retired member, survivor, or beneficiary, as appropriate, an amount that is 20 percent of the amount calculated by the system, representing the actuarial equivalent present value of the difference between the monthly allowance that was predicated on the disallowed compensation and the adjusted monthly allowance calculated excluding the disallowed compensation for the duration the system projects to pay that allowance to the retired member, survivor, or beneficiary.
   3. Begin payment within six months of notice from the system; however, the bill permits the employer up to four years to complete the payment and allows the system to charge the employer the actual costs of actuarial services provided.
8. Requires the system to provide a written notice to the employer that reported contributions on the disallowed compensation and to the affected retired member, survivor, or beneficiary, including, at a minimum, all of the following:
   1. The overpayment amount that the employer shall pay to the system.
   2. The actuarial equivalent present value that the employer owes to the retired member, survivor, or beneficiary.
   3. Written disclosure of the employer’s obligations to the retired member, survivor, or beneficiary pursuant to this section.
9. Allows a system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to continue to use that process provided that it is consistent with PEPRA, and with the holding in Alameda, in lieu of the process provided by this bill.
10. Requires the system to provide the employer, upon the employer’s request, with contact information data in its possession of a relevant retired member, survivor, or beneficiary, so that the employer or agency can fulfill its obligations to those individuals; additionally requires the recipient of this contact information data to keep the data confidential, use the data only to the extent necessary to carry out its duties as prescribed.
11. Provides that the contact information data that the system provides to the employer shall not be disclosable under the California Public Records Act. (Division 10 (commencing with Section 7920.000) of Title 1)
12. Allows an employer or authorized employee representative to submit to the system for review an additional compensation item that a party to a proposed agreement requests be included, contained, adopted, or a entered into that agreement, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation, in order for the system to review consistency of the proposal with PEPRA; the holding in Alameda; Section 31461; other CERL and related county retirement provisions; and the system’s administrative regulations or policies.
13. Requires the submitting parties to include with the submission all supporting documents or requirements the system deems necessary to complete its review.
14. Requires the system to provide guidance regarding the submission within 90 days of the receipt of all information required to make a review.
15. Authorizes, but does not require, the system to periodically publish a notice of the proposed compensation language submitted to the system pursuant to this section for review and the guidance it provided.
16. Clarifies that this bill does not alter or abrogate an employer’s responsibility 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.
17. Provides that this bill does not affect or otherwise alter a party’s right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.
18. Permits the board of retirement or board of supervisors, as authorized pursuant to CERL, to enter into any contracts for administrative purposes or as may be necessary and appropriate to carry out this bill’s provisions.
19. States the Legislature’s intent in enacting this bill’s provisions, to comply with federal tax law and federal compliance systems to maintain and ensure the federal income tax exempt status of the county employees’ retirement systems.
20. Authorizes systems that have initiated a process that was or is intended to comply with federal tax law and federal compliance systems to revise the process as necessary to the extent required to comply with federal tax law and federal compliance systems to maintain the system’s tax-exempt status.
21. Makes legislative findings and declarations relating to the necessity of limiting public access to information shared among public agencies in order to maintain the current confidentiality of personal contact information held by a county retirement system regarding retired members of the system, and their survivors and beneficiaries.

Comments

1. Additional information. See Senate Labor, Public Employment and Retirement Policy Analysis for Background information and Need for the Bill.
2. Dual Referral. The Senate Rules Committee referred this bill to the Senate Public Employment and Retirement Committee and to the Senate Judiciary Committee.

Related/Prior Legislation

AB 1997 (McKinnor, 2024) makes changes to the Teachers’ Retirement Law (TRL), administered by CalSTRS, relating to creditable compensation, creditable service, and the reporting of compensation to the system by CalSTRS employers for purposes of retirement, among other provisions. The bill is currently in the Senate Labor, Public Employment and Retirement Committee.

AB 2284 (Grayson, 2024) authorizes a CERL retirement system to define “grade,” as specified, for purposes of compensation and calculating a retirement benefit. The bill is currently in the Senate Labor, Public Employment and Retirement Committee.

SB 432 (Cortese, Chapter 215, Statutes of 2023) clarified certain Education Code provisions as amended by AB 1667 (Cooper, Chapter 754, Statutes of 2022) relating to the recovery of pension overpayments from retired teachers by CalSTRS due to errors in reported compensation.

AB 2493 (Chen, 2022) was substantially similar to this bill. The bill would have made several changes to CERL provisions regarding pension calculation adjustments arising from erroneous inclusion of disallowed compensation. The bill would have required CERL county employers to: (a) reimburse their respective retirement system for pension overpayments made to peace officer and firefighter retirees arising from erroneous employer reporting of disallowed compensation, and (b) pay affected retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the system’s recalculation of the retiree’s benefit to exclude the disallowed compensation, among other provisions. The bill died on the Assembly Inactive File.

AB 1667 (Cooper, Chapter 754, Statutes of 2022) prescribed (a) various requirements in connection with audits by CalSTRS; (b) CalSTRS' interpretation and clarification of rules relating to creditable compensation; (c) CalSTRS' review of compensation items included in a memorandum of understanding or collective bargaining agreement; (d) errors relating employer reporting of compensation to the system; and (e) the recovery of payments, among other provisions.

SB 278 (Leyva, Chapter 331, Statutes of 2021) required that when a retiree’s CalPERS pension is reduced post-retirement, due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be non-pensionable, the public employer must cover the difference between the pension as originally calculated and as reduced by CalPERS.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/13/24)

California Fraternal Order of Police (co-source)

California Professional Firefighters (co-source)

American Federation of State, County and Municipal Employees
Association of Orange County Deputy Sheriffs
California Labor Federation
California Teachers Association
Contra Costa County Professional Firefighters Local 1230
Elderly Care Everywhere
Kern County Firefighters Local 1301 Union
Long Beach Police Officers Association
Los Angeles County Firefighters Local 1014
Marin Professional Firefighters Local 1775
Orange County Employees Association
Orange County Professional Firefighters Association, Local 3631
Sacramento Area Firefighters Local 522
Sacramento County Deputy Sheriff's Association
San Bernardino County Firefighters Local 935
San Bernardino County Sheriff's Employees' Benefit Association
Ventura County Professional Firefighters Association Local 1364

OPPOSITION: (Verified 8/13/24)

California Special Districts Association
California State Association of Counties
County of Kern
League of California Cities
Rural County Representatives of California
Urban Counties of California

ARGUMENTS IN SUPPORT: According to the California Professional Firefighters, “AB 3025 would protect the promised and paid for pensions of our retirees through a number of mechanisms, as well as putting in place steps to ensure that similar issues do not happen again in the future. This bill would require that the employer to immediately stop reporting the disallowed compensation to the system. For active employees, the retirement system must credit the contributions made on the disallowed compensation to the employer against future contributions and the employer is required to refund the employee contributions made on the disallowed compensation to the active employee.”

ARGUMENTS IN OPPOSITION: According to the California State Association of Counties, “Following the passage of the Public Employees’ Pension Reform Act of 2013 (PEPRA), county retirement systems took varying approaches to comply with the provisions of PEPRA related to which types of compensation may be included in retirement benefit calculations. On July 30, 2020, the California Supreme Court issued a decision in the case Alameda County Deputy Sheriff’s Assn. v Alameda County Employees’ Retirement Assn., otherwise known as the “Alameda decision,” in which the Court upheld provisions [of] PEPRA related to disallowed forms of compensation for retirement calculations. Over the last four years, the impacted ’37 Act systems have been working to comply with Alameda and recalculate retirement benefits for members who retired after January 1, 2013.”

“AB 3025 unfairly places the financial consequences of the Court’s decision on counties and other agencies by requiring ’37 Act system employers to pay a “penalty” equal to 20 percent of the current actuarial value of retiree benefits deemed unlawful. The penalty, which will result in affected agencies owing millions of unbudgeted dollars to retirees for what the Court found to be an illegal benefit, implies those agencies made the decision to misapply the law. In reality, they simply complied with the pension agreements established between employees, employers, and retirement systems.”

ASSEMBLY FLOOR: 72-0, 5/20/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Arambula, Cervantes, Megan Dahle, Essayli, Gabriel, Mathis, Stephanie Nguyen, Luz Rivas

Prepared by: Glenn Miles / L., P.E. & R. / (916) 651-1556

8/14/24 15:50:40

**** END ****

 THIRD READING  

Bill No: AB 3025

Author: Valencia (D), et al.

Amended: 8/13/24 in Senate

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 5-0, 6/12/24

AYES: Cortese, Wilk, Durazo, Gonzalez, Laird

SENATE JUDICIARY COMMITTEE: 10-0, 6/25/24

AYES: Umberg, Wilk, Ashby, Caballero, Durazo, Laird, Niello, Roth, Stern, Wahab

NO VOTE RECORDED: Allen

ASSEMBLY FLOOR: 72-0, 5/20/24 - See last page for vote

SUBJECT: County employees’ retirement: disallowed compensation: benefit adjustments

SOURCE: California Fraternal Order of Police

California Professional Firefighters

DIGEST:

This bill requires counties operating employee retirement systems under the County Employees Retirement Law (CERL) to reimburse those systems for pension overpayments made to employees and also pay those retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the benefit recalculation. This bill stops the reporting of disallowed compensation for active members, as specified, and requires CERL retirement systems to credit employer contributions and return member contributions on the disallowed compensation. This bill requires an employer that receives information about a member, survivor, or beneficiary to keep that information confidential and only use it to carry out its duties under this bill.

ANALYSIS:

Existing law:

1. Provides, among other things under the California Constitution that, "the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system.” (Section 17, Art. XVI, Cal. Const.)
2. Establishes the County Employees Retirement Law (CERL) that governs 20 independent county retirement associations and provides for retirement systems for county and district employees in those counties adopting its provisions. The CERL is also commonly referred to as the 1937 Act or the 37 Act. Currently, 20 counties operate retirement systems under the CERL and these systems are commonly referred to as CERL, 1937 Act, or 37 Act systems or associations. (Government Code (GC) § 31450 et seq.)
3. Establishes that the purpose of the CERL is to recognize a public obligation to county and district employees who become incapacitated by age or long service in public employment and its accompanying physical disabilities by making provision for retirement compensation and death benefit as additional elements of compensation for future services and to provide a means by which public employees who become incapacitated may be replaced by more capable employees to the betterment of public service without prejudice and without inflicting a hardship upon the employees removed. (GC § 31451)
4. Establishes the Public Employees’ Pension Reform Act of 2013 (PEPRA) – a comprehensive reform of public employee retirement that, among other things, increased contributions towards retirement, decreased benefit formulas, and increased the age of retirement that apply to new members of the system first hired on or after January 1, 2013, and made changes that apply to all members towards resolving unfunded liabilities, the manipulation of compensation for purposes of calculating a retirement allowance (i.e., pensions spiking), double-dipping, and other prescribed best practice measures. (GC § 7522.02 et seq.)
5. Defines, under the CERL, “compensation” to mean the remuneration paid in cash out of county or district funds, plus any amount deducted from a member’s wages for participation in a deferred compensation plan, as provided, but does not include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to the member. (GC § 31460)
6. Defines, pursuant to the CERL, “compensation earnable” by a member to mean the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and the same rate of pay. Among other things, “compensation earnable” expressly does not include certain types or forms of compensation paid to enhance a member’s retirement benefit under the system. (GC § 31461)
7. Establishes that when a county or district reports compensation to the system, it must identify the pay period in which the compensation was earned regardless of when it was reported or paid, and prescribes the reporting requirements and limitations on compensation earnable. (GC § 31542.5)
8. Establishes that “compensation earnable” must not include overtime premium pay other than premium pay for hours worked within the normally scheduled or regular working hours that are in excess of the statutory maximum workweek or work period applicable to the employee under federal law, as specified, and provides that the definition of “compensation earnable” must not apply to a PEPRA member. (GC § 31461.6)
9. Defines “final compensation” to mean the average annual compensation earnable by a member during any three years elected by a member at or before the time they file an application for retirement, or, if they fail to elect, during the three years immediately preceding their retirement. If a member has less than three years of service, their final compensation must be determined by dividing their total compensation by the number of months of service credited to them and multiplying by 12. In addition, for these purposes, the definition of final compensation here does not apply to a PEPRA member. (GC § 31462)
10. Prescribes how a ’37 Act system determines final compensation, including final compensation based on compensation for one year (if adopted by a county), and in relation to intermittent members, subject to certain conditions where applicable. (GC §§ 31462.05, 31462.1, and 13462.2)

This bill:

1. Defines the following terms for purposes of the bill’s provisions:
   1. “Agreement” means a memorandum of understanding or collective bargaining agreement between the employer and an exclusive representative pursuant to the Meyers-Milias-Brown Act.
   2. “Alameda” means the Supreme Court case of Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association (2020) 9 Cal.5th 1032 and its holding.
   3. “Disallowed compensation” means non-pensionable compensation reported for a member of the retirement system that the system subsequently determines is not in compliance with PEPRA, the holding in Alameda, other provisions of this part, or the system’s administrative regulations or policies, through no fault of the member.
   4. “Employer” means the appropriate applicable county, county agency, or special district standing in relationship between the employee and the system.
   5. “Initiated a process” means a system has formally adopted a resolution or made an administrative determination for a correction process on identified disallowed compensation that has required or will require collecting any portion of an overpayment  from, or refunding member contributions to, any affected active member, retired member, survivor, or beneficiary, or adjusting the retirement allowance of any affected retired member, survivor, or beneficiary due to the determination of disallowed compensation by the system, including a determination by the system that is consistent with PEPRA, the holding in Alameda, and other provisions of this part.
   6. “PEPRA” means the California Public Employees’ Pension Reform Act of 2013 (Article 4 (commencing with Section 7522) of Chapter 21 of Division 7 of Title 1).
   7. “System” means a retirement association or system established pursuant to the County Employees Retirement Law of 1937. (commencing with Section 31450) 
2. Mandates a CERL retirement system require a system-participating employer to discontinue reporting disallowed compensation if the system determines that the compensation the employer reported for a member is disallowed compensation.
3. Requires, in the case of an active member, that the system to credit all employer contributions made on disallowed compensation against future contributions to the benefit of the employer or agency that reported the disallowed compensation, and to return any member contribution paid by, or on behalf of, that member to the member directly or indirectly through the employer or agency that reported the disallowed compensation, except as specified.
4. Allows a system that has initiated a process prior to January 1, 2024, to recalculate an active member’s compensation earnable to exclude disallowed compensation and return contributions, either directly to the member, or indirectly through the employer, to continue to use that process to ensure compliance with PEPRA, and that is consistent with, and pursuant to, the holding in Alameda, in lieu of the process provided by this bill.
5. Requires that, in the case of a retired member, survivor, beneficiary, whose final compensation at the time of retirement was predicated upon the disallowed compensation, the system to credit the employer contributions made on the compensation against future contributions, to the benefit of the employer that reported the disallowed compensation; return any member contributions paid by, or on behalf of, that member, to the member directly; and permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation.
6. Applies this bill’s repayment and notice requirements, as specified below, only if the following conditions are met:
   1. The employer reported the compensation to the system and made contributions on that compensation while the member was actively employed.
   2. The system determined after the date of retirement that the compensation was disallowed.
   3. The member was not aware that the compensation was disallowed at the time the employer reported it.
7. Requires, if the disallowed compensation meets the above conditions, that the employer that reported the disallowed compensation to do the following:
   1. Pay to the system, as a direct payment, or through recognition in the actuarial accrued liability, as determined by the system, the full cost of any overpayment of the prior paid benefit made to an affected retired member, survivor, or beneficiary resulting from the disallowed compensation.
   2. Pay to the affected retired member, survivor, or beneficiary, as appropriate, an amount that is 20 percent of the amount calculated by the system, representing the actuarial equivalent present value of the difference between the monthly allowance that was predicated on the disallowed compensation and the adjusted monthly allowance calculated excluding the disallowed compensation for the duration the system projects to pay that allowance to the retired member, survivor, or beneficiary.
   3. Begin payment within six months of notice from the system; however, the bill permits the employer up to four years to complete the payment and allows the system to charge the employer the actual costs of actuarial services provided.
8. Requires the system to provide a written notice to the employer that reported contributions on the disallowed compensation and to the affected retired member, survivor, or beneficiary, including, at a minimum, all of the following:
   1. The overpayment amount that the employer shall pay to the system.
   2. The actuarial equivalent present value that the employer owes to the retired member, survivor, or beneficiary.
   3. Written disclosure of the employer’s obligations to the retired member, survivor, or beneficiary pursuant to this section.
9. Allows a system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to continue to use that process provided that it is consistent with PEPRA, and with the holding in Alameda, in lieu of the process provided by this bill.
10. Requires the system to provide the employer, upon the employer’s request, with contact information data in its possession of a relevant retired member, survivor, or beneficiary, so that the employer or agency can fulfill its obligations to those individuals; additionally requires the recipient of this contact information data to keep the data confidential, use the data only to the extent necessary to carry out its duties as prescribed.
11. Provides that the contact information data that the system provides to the employer shall not be disclosable under the California Public Records Act. (Division 10 (commencing with Section 7920.000) of Title 1)
12. Allows an employer or authorized employee representative to submit to the system for review an additional compensation item that a party to a proposed agreement requests be included, contained, adopted, or a entered into that agreement, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation, in order for the system to review consistency of the proposal with PEPRA; the holding in Alameda; Section 31461; other CERL and related county retirement provisions; and the system’s administrative regulations or policies.
13. Requires the submitting parties to include with the submission all supporting documents or requirements the system deems necessary to complete its review.
14. Requires the system to provide guidance regarding the submission within 90 days of the receipt of all information required to make a review.
15. Authorizes, but does not require, the system to periodically publish a notice of the proposed compensation language submitted to the system pursuant to this section for review and the guidance it provided.
16. Clarifies that this bill does not alter or abrogate an employer’s responsibility 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.
17. Provides that this bill does not affect or otherwise alter a party’s right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.
18. Permits the board of retirement or board of supervisors, as authorized pursuant to CERL, to enter into any contracts for administrative purposes or as may be necessary and appropriate to carry out this bill’s provisions.
19. States the Legislature’s intent in enacting this bill’s provisions, to comply with federal tax law and federal compliance systems to maintain and ensure the federal income tax exempt status of the county employees’ retirement systems.
20. Authorizes systems that have initiated a process that was or is intended to comply with federal tax law and federal compliance systems to revise the process as necessary to the extent required to comply with federal tax law and federal compliance systems to maintain the system’s tax-exempt status.
21. Makes legislative findings and declarations relating to the necessity of limiting public access to information shared among public agencies in order to maintain the current confidentiality of personal contact information held by a county retirement system regarding retired members of the system, and their survivors and beneficiaries.

Comments

1. Additional information. See Senate Labor, Public Employment and Retirement Policy Analysis for Background information and Need for the Bill.
2. Dual Referral. The Senate Rules Committee referred this bill to the Senate Public Employment and Retirement Committee and to the Senate Judiciary Committee.

Related/Prior Legislation

AB 1997 (McKinnor, 2024) makes changes to the Teachers’ Retirement Law (TRL), administered by CalSTRS, relating to creditable compensation, creditable service, and the reporting of compensation to the system by CalSTRS employers for purposes of retirement, among other provisions. The bill is currently in the Senate Labor, Public Employment and Retirement Committee.

AB 2284 (Grayson, 2024) authorizes a CERL retirement system to define “grade,” as specified, for purposes of compensation and calculating a retirement benefit. The bill is currently in the Senate Labor, Public Employment and Retirement Committee.

SB 432 (Cortese, Chapter 215, Statutes of 2023) clarified certain Education Code provisions as amended by AB 1667 (Cooper, Chapter 754, Statutes of 2022) relating to the recovery of pension overpayments from retired teachers by CalSTRS due to errors in reported compensation.

AB 2493 (Chen, 2022) was substantially similar to this bill. The bill would have made several changes to CERL provisions regarding pension calculation adjustments arising from erroneous inclusion of disallowed compensation. The bill would have required CERL county employers to: (a) reimburse their respective retirement system for pension overpayments made to peace officer and firefighter retirees arising from erroneous employer reporting of disallowed compensation, and (b) pay affected retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the system’s recalculation of the retiree’s benefit to exclude the disallowed compensation, among other provisions. The bill died on the Assembly Inactive File.

AB 1667 (Cooper, Chapter 754, Statutes of 2022) prescribed (a) various requirements in connection with audits by CalSTRS; (b) CalSTRS' interpretation and clarification of rules relating to creditable compensation; (c) CalSTRS' review of compensation items included in a memorandum of understanding or collective bargaining agreement; (d) errors relating employer reporting of compensation to the system; and (e) the recovery of payments, among other provisions.

SB 278 (Leyva, Chapter 331, Statutes of 2021) required that when a retiree’s CalPERS pension is reduced post-retirement, due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be non-pensionable, the public employer must cover the difference between the pension as originally calculated and as reduced by CalPERS.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 8/13/24)

California Fraternal Order of Police (co-source)

California Professional Firefighters (co-source)

American Federation of State, County and Municipal Employees
Association of Orange County Deputy Sheriffs
California Labor Federation
California Teachers Association
Contra Costa County Professional Firefighters Local 1230
Elderly Care Everywhere
Kern County Firefighters Local 1301 Union
Long Beach Police Officers Association
Los Angeles County Firefighters Local 1014
Marin Professional Firefighters Local 1775
Orange County Employees Association
Orange County Professional Firefighters Association, Local 3631
Sacramento Area Firefighters Local 522
Sacramento County Deputy Sheriff's Association
San Bernardino County Firefighters Local 935
San Bernardino County Sheriff's Employees' Benefit Association
Ventura County Professional Firefighters Association Local 1364

OPPOSITION: (Verified 8/13/24)

California Special Districts Association
California State Association of Counties
County of Kern
League of California Cities
Rural County Representatives of California
Urban Counties of California

ARGUMENTS IN SUPPORT: According to the California Professional Firefighters, “AB 3025 would protect the promised and paid for pensions of our retirees through a number of mechanisms, as well as putting in place steps to ensure that similar issues do not happen again in the future. This bill would require that the employer to immediately stop reporting the disallowed compensation to the system. For active employees, the retirement system must credit the contributions made on the disallowed compensation to the employer against future contributions and the employer is required to refund the employee contributions made on the disallowed compensation to the active employee.”

ARGUMENTS IN OPPOSITION: According to the California State Association of Counties, “Following the passage of the Public Employees’ Pension Reform Act of 2013 (PEPRA), county retirement systems took varying approaches to comply with the provisions of PEPRA related to which types of compensation may be included in retirement benefit calculations. On July 30, 2020, the California Supreme Court issued a decision in the case Alameda County Deputy Sheriff’s Assn. v Alameda County Employees’ Retirement Assn., otherwise known as the “Alameda decision,” in which the Court upheld provisions [of] PEPRA related to disallowed forms of compensation for retirement calculations. Over the last four years, the impacted ’37 Act systems have been working to comply with Alameda and recalculate retirement benefits for members who retired after January 1, 2013.”

“AB 3025 unfairly places the financial consequences of the Court’s decision on counties and other agencies by requiring ’37 Act system employers to pay a “penalty” equal to 20 percent of the current actuarial value of retiree benefits deemed unlawful. The penalty, which will result in affected agencies owing millions of unbudgeted dollars to retirees for what the Court found to be an illegal benefit, implies those agencies made the decision to misapply the law. In reality, they simply complied with the pension agreements established between employees, employers, and retirement systems.”

ASSEMBLY FLOOR: 72-0, 5/20/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Arambula, Cervantes, Megan Dahle, Essayli, Gabriel, Mathis, Stephanie Nguyen, Luz Rivas

Prepared by: Glenn Miles / L., P.E. & R. / (916) 651-1556

8/13/24 20:18:31

**** END ****

 THIRD READING  

Bill No: AB 3025

Author: Valencia (D), et al.

Amended: 6/27/24 in Senate

Vote: 21

SENATE LABOR, PUB. EMP. & RET. COMMITTEE: 5-0, 6/12/24

AYES: Cortese, Wilk, Durazo, Gonzalez, Laird

SENATE JUDICIARY COMMITTEE: 10-0, 6/25/24

AYES: Umberg, Wilk, Ashby, Caballero, Durazo, Laird, Niello, Roth, Stern, Wahab

NO VOTE RECORDED: Allen

ASSEMBLY FLOOR: 72-0, 5/20/24 - See last page for vote

SUBJECT: County employees’ retirement: disallowed compensation: benefit adjustments

SOURCE: California Fraternal Order of Police

California Professional Firefighters

DIGEST:

This bill (1) requires counties operating employee retirement systems under the County Employees Retirement Law (CERL) to reimburse those systems for pension overpayments made to employees and also pay those retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the benefit recalculation; (2) stops the reporting of disallowed compensation for active members, as specified, and requires CERL retirement systems to credit employer contributions and return member contributions on the disallowed compensation; and (3) requires an employer that receives information about a member, survivor, or beneficiary to keep that information confidential and only use it to carry out its duties under this bill.

ANALYSIS:

Existing law:

1. Provides, among other things under the California Constitution that, "the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system.” (Section 17, Art. XVI, Cal. Const.)
2. Establishes the County Employees Retirement Law (CERL) that governs 20 independent county retirement associations and provides for retirement systems for county and district employees in those counties adopting its provisions. The CERL is also commonly referred to as the 1937 Act or the 37 Act. Currently, 20 counties operate retirement systems under the CERL and these systems are commonly referred to as CERL, 1937 Act, or 37 Act systems or associations. (Government Code (GC) § 31450 et seq.)
3. Establishes that the purpose of the CERL is to recognize a public obligation to county and district employees who become incapacitated by age or long service in public employment and its accompanying physical disabilities by making provision for retirement compensation and death benefit as additional elements of compensation for future services and to provide a means by which public employees who become incapacitated may be replaced by more capable employees to the betterment of public service without prejudice and without inflicting a hardship upon the employees removed. (GC § 31451)
4. Establishes the Public Employees’ Pension Reform Act of 2013 (PEPRA) – a comprehensive reform of public employee retirement that, among other things, increased contributions towards retirement, decreased benefit formulas, and increased the age of retirement that apply to new members of the system first hired on or after January 1, 2013, and made changes that apply to all members towards resolving unfunded liabilities, the manipulation of compensation for purposes of calculating a retirement allowance (i.e., pensions spiking), double-dipping, and other prescribed best practice measures. (GC § 7522.02 et seq.)
5. Defines, under the CERL, “compensation” to mean the remuneration paid in cash out of county or district funds, plus any amount deducted from a member’s wages for participation in a deferred compensation plan, as provided, but does not include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to the member. (GC § 31460)
6. Defines, pursuant to the CERL, “compensation earnable” by a member to mean the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and the same rate of pay. Among other things, “compensation earnable” expressly does not include certain types or forms of compensation paid to, and when they were paid that, enhance a member’s retirement benefit under the system. (GC § 31461)
7. Establishes that when a county or district reports compensation to the system, it must identify the pay period in which the compensation was earned regardless of when it was reported or paid, and prescribes the reporting requirements and limitations on compensation earnable. (GC § 31542.5)
8. Establishes that “compensation earnable” must not include overtime premium pay other than premium pay for hours worked within the normally scheduled or regular working hours that are in excess of the statutory maximum workweek or work period applicable to the employee under federal law, as specified, and provides that the definition of “compensation earnable” must not apply to a PEPRA member. (GC § 31461.6)
9. Defines “final compensation” to mean the average annual compensation earnable by a member during any three years elected by a member at or before the time they file an application for retirement, or, if they fail to elect, during the three years immediately preceding their retirement. If a member has less than three years of service, their final compensation must be determined by dividing their total compensation by the number of months of service credited to them and multiplying by 12. In addition, for these purposes, the definition of final compensation here does not apply to a PEPRA member. (GC § 31462)
10. Prescribes how a ’37 Act system determines final compensation, including final compensation based on compensation for one year (if adopted by a county), and in relation to intermittent members, subject to certain conditions where applicable. (GC §§ 31462.05, 31462.1, and 13462.2)

This bill:

1. Defines the following terms for purposes of the bill’s provisions:
   1. “Agreement” means a memorandum of understanding or collective bargaining agreement between the employer and an exclusive representative pursuant to the Meyers-Milias-Brown Act.
   2. “Alameda” means the Supreme Court case of Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association (2020) 9 Cal.5th 1032 and its holding.
   3. “Disallowed compensation” means non-pensionable compensation reported for a member of the retirement system that the system subsequently determines is not in compliance with PEPRA, the holding in Alameda, other provisions of this part, or the system’s administrative regulations or policies, through no fault of the member.
   4. “Employer” means the appropriate applicable county, county agency, or special district standing in relationship between the employee and the system.
   5. “Initiated a process” means a system has formally adopted a resolution for a correction process on identified disallowed compensation that has required or will require collecting any portion of an overpayment  from, or refunding member contributions to, any affected active member, retired member, survivor, or beneficiary, or adjusting the retirement allowance of any affected retired member, survivor, or beneficiary due to the determination of disallowed compensation by the system, including a determination by the system that is consistent with PEPRA, the holding in Alameda, and other provisions of this part.
   6. “PEPRA” means the California Public Employees’ Pension Reform Act of 2013 (Article 4 (commencing with Section 7522) of Chapter 21 of Division 7 of Title 1).
   7. “System” means a retirement association or system established pursuant to the County Employees Retirement Law of 1937 (commencing with Section 31450). 
2. Mandates a CERL retirement system require a system-participating employer to discontinue reporting disallowed compensation if the system determines that the compensation the employer reported for a member is disallowed compensation.
3. Requires, in the case of an active member, that the system to credit all employer contributions made on disallowed compensation against future contributions to the benefit of the employer or agency that reported the disallowed compensation, and to return any member contribution paid by, or on behalf of, that member to the member directly or indirectly through the employer or agency that reported the disallowed compensation, except as specified.
4. Allows a system that has initiated a process prior to January 1, 2024, to recalculate an active member’s compensation earnable to exclude disallowed compensation and return contributions, either directly to the member, or indirectly through the employer, to continue to use that process to ensure compliance with PEPRA, and that is consistent with, and pursuant to, the holding in Alameda, in lieu of the process provided by this bill.
5. Requires that, in the case of a retired member, survivor, beneficiary, whose final compensation at the time of retirement was predicated upon the disallowed compensation, the system to credit the employer contributions made on the compensation against future contributions, to the benefit of the employer that reported the disallowed compensation; return any member contributions paid by, or on behalf of, that member, to the member directly; and permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation.
6. Applies this bill’s repayment and notice requirements, as specified below, only if the following conditions are met:
   1. The employer reported the compensation to the system and made contributions on that compensation while the member was actively employed;
   2. The system determined after the date of retirement that the compensation was disallowed; and
   3. The member was not aware that the compensation was disallowed at the time the employer reported it.
7. Requires, if the disallowed compensation meets the above conditions, that the employer that reported the disallowed compensation to do the following:
   1. Pay to the system, as a direct payment, or through recognition in the actuarial accrued liability, as determined by the system, the full cost of any overpayment of the prior paid benefit made to an affected retired member, survivor, or beneficiary resulting from the disallowed compensation.
   2. Pay to the affected retired member, survivor, or beneficiary, as appropriate, an amount that is 20 percent of the amount calculated by the system, representing the actuarial equivalent present value of the difference between the monthly allowance that was predicated on the disallowed compensation and the adjusted monthly allowance calculated excluding the disallowed compensation for the duration the system projects to pay that allowance to the retired member, survivor, or beneficiary.
   3. Begin payment within six months of notice from the system; however, the bill permits the employer up to four years to complete the payment and allows the system to charge the employer the actual costs of actuarial services provided.
8. Requires the system to provide a written notice to the employer that reported contributions on the disallowed compensation and to the affected retired member, survivor, or beneficiary, including, at a minimum, all of the following:
   1. The overpayment amount that the employer shall pay to the system;
   2. The actuarial equivalent present value that the employer owes to the retired member, survivor, or beneficiary; and
   3. Written disclosure of the employer’s obligations to the retired member, survivor, or beneficiary pursuant to this section.
9. Allows a system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to continue to use that process provided that it is consistent with PEPRA, and with the holding in Alameda, in lieu of the process provided by this bill.
10. Requires the system to provide the employer, upon the employer’s request, with contact information data in its possession of a relevant retired member, survivor, or beneficiary, so that the employer or agency can fulfill its obligations to those individuals; additionally requires the recipient of this contact information data to keep the data confidential, use the data only to the extent necessary to carry out its duties as prescribed.
11. Provides that the contact information data that the system provides to the employer shall not be disclosable under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1).
12. Allows an employer or authorized employee representative to submit to the system for review an additional compensation item that a party to a proposed agreement requests be included, contained, adopted, or a entered into that agreement, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation, in order for the system to review consistency of the proposal with PEPRA; the holding in Alameda; Section 31461; other CERL and related county retirement provisions; and the system’s administrative regulations or policies.
13. Requires the submitting parties to include with the submission all supporting documents or requirements the system deems necessary to complete its review.
14. Requires the system to provide guidance regarding the submission within 90 days of the receipt of all information required to make a review.
15. Authorizes, but does not require, the system to periodically publish a notice of the proposed compensation language submitted to the system pursuant to this section for review and the guidance it provided.
16. Clarifies that this bill does not alter or abrogate an employer’s responsibility 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.
17. Provides that this bill does not affect or otherwise alter a party’s right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.
18. Permits the board of retirement or board of supervisors, as authorized pursuant to CERL, to enter into any contracts for administrative purposes or as may be necessary and appropriate to carry out this bill’s provisions.
19. States the Legislature’s intent in enacting this bill’s provisions, to comply with federal tax law and federal compliance systems to maintain and ensure the federal income tax exempt status of the county employees’ retirement systems.
20. Authorizes systems that have initiated a process that was or is intended to comply with federal tax law and federal compliance systems to revise the process as necessary to the extent required to comply with federal tax law and federal compliance systems to maintain the system’s tax-exempt status.
21. Makes legislative findings and declarations relating to the necessity of limiting public access to information shared among public agencies in order to maintain the current confidentiality of personal contact information held by a county retirement system regarding retired members of the system, and their survivors and beneficiaries.

Comments

Need for the Bill

(NOTE: See Senate Labor, Public Employment and Retirement Policy Analysis for Background information and Need for the Bill.)_

Dual Referral.

The Senate Rules Committee referred this bill to the Senate Public Employment and Retirement Committee and to the Senate Judiciary Committee.

Related/Prior Legislation

AB 1997 (McKinnor, 2024) makes changes to the Teachers’ Retirement Law (TRL), administered by CalSTRS, relating to creditable compensation, creditable service, and the reporting of compensation to the system by CalSTRS employers for purposes of retirement, among other provisions. This bill is currently in the Senate Labor, Public Employment and Retirement Committee.

AB 2284 (Grayson, 2024) would authorize a CERL retirement system to define “grade,” as specified, for purposes of compensation and calculating a retirement benefit. This bill is currently in the Senate Labor, Public Employment and Retirement Committee.

SB 432 (Cortese, Chapter 215, Statutes of 2023) clarified certain Education Code provisions as amended by AB 1667 (Cooper, Chapter 754, Statutes of 2022) relating to the recovery of pension overpayments from retired teachers by CalSTRS due to errors in reported compensation.

AB 2493 (Chen, 2022) was substantially similar to this bill. The bill would have made several changes to CERL provisions regarding pension calculation adjustments arising from erroneous inclusion of disallowed compensation. The bill would have required CERL county employers to: (1) reimburse their respective retirement system for pension overpayments made to peace officer and firefighter retirees arising from erroneous employer reporting of disallowed compensation, and (2) pay affected retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the system’s recalculation of the retiree’s benefit to exclude the disallowed compensation, among other provisions. The bill died on the Assembly Inactive File.

AB 1667 (Cooper, Chapter 754, Statutes of 2022) prescribed (1) various requirements in connection with audits by CalSTRS; (2) CalSTRS' interpretation and clarification of rules relating to creditable compensation; (3) CalSTRS' review of compensation items included in a memorandum of understanding or collective bargaining agreement; (4) errors relating employer reporting of compensation to the system; and (5) the recovery of payments, among other provisions.

SB 278 (Leyva, Chapter 331, Statutes of 2021) required that when a retiree’s CalPERS pension is reduced post-retirement, due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be non-pensionable, the public employer must cover the difference between the pension as originally calculated and as reduced by CalPERS.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/23/24)

California Fraternal Order of Police (co-source)

California Professional Firefighters (co-source)

American Federation of State, County and Municipal Employees
Association of Orange County Deputy Sheriffs
California Labor Federation
California Teachers Association
Contra Costa County Professional Firefighters Local 1230
Elderly Care Everywhere
Kern County Firefighters Local 1301 Union
Long Beach Police Officers Association
Los Angeles County Firefighters Local 1014
Marin Professional Firefighters Local 1775
Orange County Employees Association
Orange County Professional Firefighters Association, Local 3631
Sacramento Area Firefighters Local 522
Sacramento County Deputy Sheriff's Association
San Bernardino County Firefighters Local 935
San Bernardino County Sheriff's Employees' Benefit Association
Ventura County Professional Firefighters Association Local 1364

OPPOSITION: (Verified 6/23/24)

California Special Districts Association
California State Association of Counties
County of Kern
League of California Cities
Rural County Representatives of California
Urban Counties of California

ARGUMENTS IN SUPPORT: According to the California Professional Firefighters:

“AB 3025 would protect the promised and paid for pensions of our retirees through a number of mechanisms, as well as putting in place steps to ensure that similar issues do not happen again in the future. This bill would require that the employer to immediately stop reporting the disallowed compensation to the system. For active employees, the retirement system must credit the contributions made on the disallowed compensation to the employer against future contributions and the employer is required to refund the employee contributions made on the disallowed compensation to the active employee.”

ARGUMENTS IN OPPOSITION: According to the California State Association of Counties:

Following the passage of the Public Employees’ Pension Reform Act of 2013 (PEPRA), county retirement systems took varying approaches to comply with the provisions of PEPRA related to which types of compensation may be included in retirement benefit calculations. On July 30, 2020, the California Supreme Court issued a decision in the case Alameda County Deputy Sheriff’s Assn. v Alameda County Employees’ Retirement Assn., otherwise known as the “Alameda decision,” in which the Court upheld provisions [of] PEPRA related to disallowed forms of compensation for retirement calculations. Over the last four years, the impacted ’37 Act systems have been working to comply with Alameda and recalculate retirement benefits for members who retired after January 1, 2013.”

“AB 3025 unfairly places the financial consequences of the Court’s decision on counties and other agencies by requiring ’37 Act system employers to pay a “penalty” equal to 20 percent of the current actuarial value of retiree benefits deemed unlawful. The penalty, which will result in affected agencies owing millions of unbudgeted dollars to retirees for what the Court found to be an illegal benefit, implies those agencies made the decision to misapply the law. In reality, they simply complied with the pension agreements established between employees, employers, and retirement systems.”

ASSEMBLY FLOOR: 72-0, 5/20/24

AYES: Addis, Aguiar-Curry, Alanis, Alvarez, Bains, Bauer-Kahan, Bennett, Berman, Boerner, Bonta, Bryan, Calderon, Juan Carrillo, Wendy Carrillo, Chen, Connolly, Davies, Dixon, Flora, Mike Fong, Vince Fong, Friedman, Gallagher, Garcia, Gipson, Grayson, Haney, Hart, Holden, Hoover, Irwin, Jackson, Jones-Sawyer, Kalra, Lackey, Lee, Low, Lowenthal, Maienschein, McCarty, McKinnor, Muratsuchi, Ortega, Pacheco, Papan, Jim Patterson, Joe Patterson, Pellerin, Petrie-Norris, Quirk-Silva, Ramos, Rendon, Reyes, Rodriguez, Blanca Rubio, Sanchez, Santiago, Schiavo, Soria, Ta, Ting, Valencia, Villapudua, Waldron, Wallis, Ward, Weber, Wicks, Wilson, Wood, Zbur, Robert Rivas

NO VOTE RECORDED: Arambula, Cervantes, Megan Dahle, Essayli, Gabriel, Mathis, Stephanie Nguyen, Luz Rivas

Prepared by: Glenn Miles / L., P.E. & R. / (916) 651-1556

6/28/24 13:06:24

**** END ****

SENATE JUDICIARY COMMITTEE

Senator Thomas Umberg, Chair

2023-2024 Regular Session

Bill No: AB 3025 (Author:Valencia)

Version: May 2, 2024

Hearing Date: June 25, 2024

Fiscal: No

Urgency: No

Consultant: AM

SUBJECT

County employees’ retirement: disallowed compensation: benefit adjustments

DIGEST

This bill requires counties operating employee retirement systems under the County Employees Retirement Law (CERL) to reimburse those systems for pension overpayments made to employees and also pay those retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the benefit recalculation. The bill also stops the reporting of disallowed compensation for active members, as specified, and requires CERL retirement systems to credit employer contributions and return member contributions on the disallowed compensation. The bill requires an employer that receives information about a member, survivor, or beneficiary to keep that information confidential and only use it to carry out its duties under the bill.

EXECUTIVE SUMMARY

Changes in California public employment laws and subsequent court rulings have shifted how public employers are supposed to calculate the benefits available to their employees in the case of death, disability, or retirement. As a result, some public employers have recalculated the benefits owed to their retirees and other beneficiaries. Where an overpayment is found, the public employers may seek to clawback some of the benefits that the retiree or other beneficiary has received. The principal policy matter drawing this bill into the purview of the Senate Judiciary Committee is the inclusion of a provision that restricts access to public records. California generally recognizes that public access to information concerning the conduct of the people’s business is a fundamental and necessary right, but also recognizes that this right must be balanced against the right to privacy. The bill is sponsored by the California Professional Firefighters and the Fraternal Order of Police. Support comes from various unions. Opposition comes primarily from associations representing local government entities. The bill passed out of the Senate Labor, Public Employment and Retirement Committee by a vote of 5 to 0.

PROPOSED CHANGES TO THE LAW

Existing law:

1. Provides, among other things under the California Constitution that, "the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system.” (Cal. Const., art. XVI, § 17.)
2. Establishes the County Employees Retirement Law (CERL) that governs 20 independent county retirement associations and provides for retirement systems for county and district employees in those counties adopting its provisions. Currently, 20 counties operate retirement systems under the CERL and these systems are commonly referred to as “1937 Act system” or “’37 Act systems.” These systems are regulated by, and administer the CERL, that is also commonly referred to as the “’37 Act.” (Gov. Code § 31450 et seq.)
3. Establishes that the purpose of the CERL is to recognize a public obligation to county and district employees who become incapacitated by age or long service in public employment and its accompanying physical disabilities by making a provision for retirement compensation and death benefit as additional elements of compensation for future services and to provide a means by which public employees who become incapacitated may be replaced by more capable employees to the betterment of public service without prejudice and without inflicting a hardship upon the employees removed. (Gov. Code § 31451.)
4. Establishes the Public Employees’ Pension Reform Act of 2013 (PEPRA) – a comprehensive reform of public employee retirement that, among other things, increased contributions towards retirement, decreased benefit formulas, and increased the age of retirement that applies to new members of the system first hired on or after January 1, 2013, and made changes that apply to all members towards resolving unfunded liabilities, the manipulation of compensation for purposes of calculating a retirement allowance (i.e., pensions spiking), double-dipping, and other prescribed best practice measures. (Gov. Code § 7522.02 et seq.)
5. Defines, under the CERL, “compensation” to mean the remuneration paid in cash out of county or district funds, plus any amount deducted from a member’s wages for participation in a deferred compensation plan, as provided, but does not include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to the member. (Gov. Code § 31460.)
6. Defines, pursuant to the CERL, “compensation earnable” by a member to mean the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and the same rate of pay. Among other things, “compensation earnable” expressly does not include certain types or forms of compensation paid to, and when they were paid that, enhance a member’s retirement benefit under the system. (Gov. Code § 31461.)
7. Establishes that when a county or district reports compensation to the system, it must identify the pay period in which the compensation was earned regardless of when it was reported or paid, and prescribes the reporting requirements and limitations on compensation earnable. (Gov. Code § 31542.5.)
8. Establishes that “compensation earnable” must not include overtime premium pay other than premium pay for hours worked within the normally scheduled or regular working hours that are in excess of the statutory maximum workweek or work period applicable to the employee under federal law, as specified, and provides that the definition of “compensation earnable” must not apply to a PEPRA member. (Gov. Code § 31461.6.)
9. Defines “final compensation” to mean the average annual compensation earnable by a member during any three years elected by a member at or before the time they file an application for retirement, or, if they fail to elect, during the three years immediately preceding their retirement. If a member has less than three years of service, their final compensation must be determined by dividing their total compensation by the number of months of service credited to them and multiplying by 12. In addition, for these purposes, the definition of final compensation here does not apply to a PEPRA member. (Gov. Code § 31462.)
10. Prescribes how a ’37 Act system determines final compensation, including final compensation based on compensation for one year (if adopted by a county), and in relation to intermittent members, subject to certain conditions where applicable. (Gov. Code §§ 31462.05, 31462.1, and 13462.2)
11. Provides, pursuant to the California Constitution, that the people have the right of access to information concerning the conduct of the people’s business, and, therefore, the meetings of public bodies and the writings of public officials and agencies are required to be open to public scrutiny. (Cal. const. art. I, § 3(b)(1).)
    1. Requires a statute to be broadly construed if it furthers the people’s right of access, and narrowly construed if it limits the right of access. (Cal. const. art. I, § 3(b)(1).)
    2. Requires a statute that limits the public’s right of access to be adopted with findings demonstrating the interest protected by the limitation and the need for protecting that interest. (Cal. const. art. I, § 3(b)(1).)
12. Governs the disclosure of information collected and maintained by public agencies pursuant to the CPRA. (Gov. Code §§ 792.000 et seq.)
    1. States that, the Legislature, mindful of the right of individuals to privacy, finds and declares that access to information concerning the conduct of the people’s business is a fundamental and necessary right of every person in this state. (Gov. Code § 7921.000.)
    2. Defines “public records” as any writing containing information relating to the conduct of the public’s business prepared, owned, used, or retained by any state or local agency regardless of physical form or characteristics. (Gov. Code § 7920.530.)
    3. Defines “public agency” as any state or local agency. (Gov. Code § 7920.525(a).)
13. Provides that all public records are open to inspection at all times during the office hours of a state or local agency and every person has a right to inspect any public record, unless the record is exempt from public disclosure. Any reasonably segregable portion of a record must be available for inspection by any person requesting the record after deletion of the portions that are exempted by law. (Gov. Code § 7922.525.)
    1. Some records are prohibited from being disclosed and other records are permissively exempted from being disclosed. (See e.g. Gov. Code §§ 7920.505 & 7922.200.)
    2. There are several general categories of documents or information that are permissively exempt from disclosure under the CPRA essentially due to the character of the information. The exempt information can be withheld by the public agency with custody of the information, but it also may be disclosed if it is shown that the public’s interest in disclosure outweighs the public’s interest in non-disclosure of the information. (CBS, Inc. v. Block (1986) 42 Cal.3d 646, at 652.).

This bill:

1. Defines “disallowed compensation” to mean nonpensionable compensation reported for a member of the retirement system that the system subsequently determines is not in compliance with the Public Employees’ Pension Reform Act (PEPRA) of 2013, the holding in Association v. Alameda County Employees’ Retirement Association (2020) 9 Cal.5th 1032 (hereafter Alameda), or the system’s administrative regulations or policies through no fault of the member. “Disallowed compensation” also includes nonpensionable compensation that was previously included in an agreement.
2. Provides that if the retirement system determines that the compensation reported for a member of the system is disallowed, the system must require the county employer or agency to discontinue reporting the disallowed compensation.
3. Provides that for active members, all contributions made on disallowed compensation must be credited against future contributions to the benefit of the employer or agency that reported the disallowed compensation, and any paid by, or on behalf of, that member must be returned to the member directly or indirectly through the employer or agency that reported the disallowed compensation.
4. Provides that for retired members, their survivors, or beneficiaries, whose final compensation at the time of retirement was predicated upon the disallowed compensation, the employer contributions made on the disallowed compensation must be credited against future contributions, to the benefit of the employer or agency that reported the disallowed compensation and the retirement system must permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation, return any member contributions paid by, or on behalf of, that member, to the member directly, and the system must permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation.
5. Requires the retirement system to provide notice to the employer or agency that reported contributions on disallowed compensation, if certain conditions are satisfied.
6. In lieu of the process described above, a system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation as provided may continue to use that process provided that it is consistent PEPRA, and with the holding in Alameda.
7. Requires the system to, upon request, provide the employer or agency with contact information or data in its possession of a retired member, their survivors, or beneficiaries, so that the employer or agency can fulfill its obligations to those individuals, and that the contact information remain confidential and requires the use of such contact data only to the extent necessary to carry out its duties under this section.
8. Authorizes an employer or authorized employee representative to submit an additional compensation item proposed or included in a memorandum of understanding or collective bargaining agreement entered into on, or after, January 1, 2025, that is intended to form the basis of a pension benefit calculation to the system for review for purposes of consistency of the proposal with PEPRA, the holding in Alameda, the retirement system, and administrative regulations of the system, to the system for review.
9. Establishes that these provisions do not affect or alter a party’s right to appeal any determination regarding disallowed compensation made to the system after July 30, 2020.
10. States that it is the intent of the Legislature in enacting this bill to fully comply with the provisions of the Internal Revenue Code, the Internal Revenue Service Employee Plans Compliance Resolution System, and any successor to such Internal Revenue Service program, that apply to public retirement systems in order to maintain and ensure the federal income tax exempt status of the county employees’ retirement systems.

COMMENTS

1. Stated need for the bill

The author writes:

AB 3025 safeguards eligible county employees' pensions by preventing initiated processes to collect disallowed compensation. Placing the responsibility on employees to repay non-pensionable funds, determined without their fault, undermines the commitment to a secure retirement. Those who are currently serving and those who have retired anticipate the responsible management of their retirement plans. This expectation is particularly significant, given that many individuals have devoted their careers to public service, and in some instances, have even risked their lives in the line of duty.

1. Background

This bill is an attempt to address part of the fallout from the Public Employees’ Pension Reform Act of 2013, known as PEPRA. It is substantially similar to AB 2493 (Chen, 2022), which passed this Committee on a vote of 10 to 0. The main difference between this bill and AB 2493 is that this bill applies to all employees of CERL and AB 2493 only applied to legacy peace officer and firefighter retirees. It is also similar to SB 278 (Leyva, Chapter 331, Statutes of 2021), which required the public employer to cover the difference between the pension as originally calculated and as reduced by CalPERS when a retiree’s CalPERS pension is reduced post-retirement, due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be non-pensionable. SB 278 passed this Committee on a vote of 10 to 1.

As explained by the Senate Labor, Public Employment and Retirement Committee analysis of AB 2493 (Chen, 2022):

PEPRA limited the types of compensation that public employers can include for purposes of calculating their employees’ pension allowance. PEPRA, as upheld by the California Supreme Court in its 2020 Alameda decision, excluded certain items of pay - to legacy employees as well as PEPRA employees – as part of efforts to end pension spiking (i.e., the practice of padding compensation at the end of the employee’s career to inflate the life-long pension benefit the employee would get upon retirement). PEPRA provided express examples of remuneration that are excluded per se and also examples of remuneration that a retirement board may exclude if it determined the compensation was paid to enhance a member’s pension benefit.

After PEPRA became law in 2013, some 37 Act systems, their members, unions, and employers believed that its provisions regarding the kinds of remuneration excludable from compensation earnable for legacy members were constitutionally infirm based on prior court holdings. They pursued litigation while their systems waited for the outcome of the litigation before unwinding the contested remuneration from their members’ pension benefit calculations. They argued that PEPRA’s provisions affecting legacy members violated their members’ contract rights and their settlement agreements from previous litigation. However, the Supreme Court in Alameda upheld PEPRA’s provisions. The court found, in part, that the pension systems’ past practices and settlement agreements did not prevent the Legislature from revising the law to achieve the permissible purpose of conforming pension benefits to the theory underlying the 37 Act plans by closing loopholes and proscribing potentially abusive practices.

Thus, most of the PEPRA non-conforming 37 Act systems that continued to include disallowed compensation in their legacy members’ pension calculations had to finally begin the laborious and unpopular task of reversing and recalculating those members’ pension benefits, recovering from retirees up to 8 years of pension overpayments, and refunding contributions that those retirees and active members, and their employers, paid on the contested compensation. Some systems notified their members they were required to comply with the Alameda decision and would initiate PEPRA-required adjustments but, in practice, froze their adjustment process, automatically deemed that their members had appealed the determination that their compensation was disallowed, and pursued legislative solutions to provide monetary relief to their members.

This bill would essentially forgive the 37 Act legacy retirees any pension overpayments, collect those overpayments from the retirees’ employers in the form of adjusted contribution rates, and require the counties to pay the retirees a lump sum of 20 percent of the actuarial equivalent present value of the difference between their old pension and their adjusted pension, i.e. the amount “lost” because of the required recalculation.^[1]

1. Limitation on the access to public records and privacy

The principal policy matter drawing this bill into the purview of the Senate Judiciary Committee is the inclusion of a provision that restricts access to public records.

Access to information concerning the conduct of the people’s business is a fundamental and necessary right of every person in this state. (Gov. Cod § 7921.000.) In 2004, the right of public access was enshrined in the California Constitution with the passage of Proposition 59 (Nov. 3, 2004, statewide general election),^[2] which amended the California Constitution to specifically protect the right of the public to access and obtain government records: “The people have the right of access to information concerning the conduct of the people’s business, and therefore . . . the writings of public officials and agencies shall be open to public scrutiny.” (Cal. Const., art. I, sec. 3 (b)(1).) In 2014, voters approved Proposition 42 (Jun. 3, 2014, statewide direct primary election)^[3] to further increase public access to government records by requiring local agencies to comply with the CPRA and the Ralph M. Brown Act^[4], and with any subsequent statutory enactment amending either act, as provided. (Cal. Const., art. I, sec. 3 (b)(7).)

Under the CPRA, public records are open to inspection by the public at all times during the office hours of the agency, unless exempted from disclosure. (Gov. Cod § 7922.252.) A public record is defined as any writing containing information relating to the conduct of the public’s business prepared, owned, used, or retained by any public agency regardless of physical form or characteristics. (Gov. Code § 7920.530.) There are several general categories of documents or information that are permissively exempt from disclosure under the CPRA essentially due to the character of the information. The exempt information can be withheld by the public agency with custody of the information, but it also may be disclosed if it is shown that the public’s interest in disclosure outweighs the public’s interest in non-disclosure of the information. (CBS, Inc. v. Block (1986) 42 Cal.3d 646, at 652.). Additionally some records are prohibited from disclosure or are specifically stated to not be public records. (see Gov. Code § 7924.110(a).)

California generally recognizes that public access to information concerning the conduct of the people’s business is a fundamental and necessary right.^[5] At the same time, the state recognizes that this right must be balanced against the right to privacy.^[6] The general right of access to public records may, therefore, be limited when records include personal information. In recognition of this, the bill states that in order to protect the privacy of retired members, survivors, or beneficiaries any information received by employers from the system regarding them is confidential. In light of the personal nature of the information being collected, the bill’s findings appear consistent with the state’s right to privacy and limits on the disclosure of public records.

1. Proposed amendment

The author may wish to amend the bill to expressly state that the confidential information is not subject to disclosure under the California Public Records Act. The specific amendment is as follows:

Amendment^[7]

(6) Upon the employer’s request, the system shall provide the employer with contact information data in its possession of a relevant retired member, survivor, or beneficiary in order for the employer or agency to fulfill their obligations to that retired member, survivor, or beneficiary pursuant to this section. The recipient of this contact information data shall keep it confidential and confidential, shall use such contact data only to the extent necessary to carry out its duties under this section. section, and shall not be disclosable under the California Public Records Act (Division 10 (commencing with Section 7920.000) of Title 1).

1. Statements in support

The California Professional Firefighters, a sponsor of the bill, and a coalition of various unions representing firefighters write in support, stating:

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 career when compared to their private industry counterparts – to earn and pay for the promise of a secure retirement. Like many retirees, when a firefighter or law enforcement officer retires, they rely on a fixed monthly pension to meet their day-to-day needs. Moreover, unlike private sector employees, many public employees, including a sizeable percentage of public safety personnel, do not receive Social Security benefits. For these retirees, their fixed pension is typically their only source of retirement income, which is further impacted for those who do not have access to employer-provided retiree healthcare.

Unfortunately, that promise of a secure retirement has been impacted for many firefighters through the imposition of a disallowed compensation determination. […] AB 3025 would protect the promised and paid for pensions of our retirees through a number of mechanisms, as well as putting in place steps to ensure that similar issues do not happen again in the future.

1. Statements in opposition

The California State Association of Counties, California Special Districts Association, Urban Counties of California, Rural County Representatives of California, and League of California Cities write in opposition, stating:

Following the passage of the Public Employees’ Pension Reform Act of 2013 (PEPRA), county retirement systems took varying approaches to comply with the provisions of PEPRA related to which types of compensation may be included in retirement benefit calculations. On July 30, 2020, the California Supreme Court issued a decision in the case Alameda County Deputy Sheriff’s Assn. v Alameda County Employees’ Retirement Assn., otherwise known as the “Alameda decision,” in which the Court upheld provisions PEPRA related to disallowed forms of compensation for retirement calculations. Over the last four years, the impacted ’37 Act systems have been working to comply with Alameda and recalculate retirement benefits for members who retired after January 1, 2013.

AB 3025 unfairly places the financial consequences of the Court’s decision on counties and other agencies by requiring ’37 Act system employers to pay a “penalty” equal to 20 percent of the current actuarial value of retiree benefits deemed unlawful. The penalty, which will result in affected agencies owing millions of unbudgeted dollars to retirees for what the Court found to be an illegal benefit, implies those agencies made the decision to misapply the law. In reality, they simply complied with the pension agreements established between employees, employers, and retirement systems.

SUPPORT

California Professional Firefighters (sponsor)

Fraternal Order of Police (sponsor)

American Federation of State, County and Municipal Employees, Afl-cio

Association of Orange County Deputy Sheriffs

California Fraternal Order of Police

California Labor Federation, Afl-cio

California Professional Firefighters

California Teachers Association

Contra Costa County Professional Firefighters Local 1230

Kern County Firefighters Local 1301 Union

Long Beach Police Officers Association

Los Angeles County Firefighters Local 1014

Marin Professional Firefighters Local 1775

Orange County Employees Association

Orange County Professional Firefighters Association, Local 3631

Sacramento Area Firefighters Local 522

Sacramento County Deputy Sheriffs' Association

San Bernardino County Firefighters Local 935

San Bernardino County Sheriff's Employees' Benefit Association

Ventura County Professional Firefighters Association Local 1364

OPPOSITION

California Special Districts Association

California State Association of Counties

Kern County

League of California Cities

Rural County Representatives of California

Urban Counties of California

RELATED LEGISLATION

Pending Legislation:

AB 1997 (McKinnor, 2024) makes changes to the Teachers’ Retirement Law (TRL), administered by CalSTRS, relating to creditable compensation, creditable service, and the reporting of compensation to the system by CalSTRS employers for purposes of retirement, among other provisions. This bill is currently pending in Senate Appropriations.

AB 2284 (Grayson, 2024) authorizes a CERL retirement system to define “grade,” as specified, for purposes of compensation and calculating a retirement benefit. This bill is currently in the Senate Labor, Public Employment and Retirement Committee.

Prior Legislation:

SB 432 (Cortese, Ch. 215, Stats. 2023) clarified certain Education Code provisions as amended by AB 1667 (Cooper, Ch. 754, Stats. 2022) relating to the recovery of pension overpayments from retired teachers by CalSTRS due to errors in reported compensation.

AB 2493 (Chen, 2022) was substantially similar to this bill. AB 2493 died on concurrence in the Assembly.

AB 1667 (Cooper, Ch. 754, Stats. 2022) among other provisions, prescribed various requirements in connection with audits by CalSTRS, CalSTRS' interpretation and clarification of rules relating to creditable compensation, CalSTRS' review of compensation items included in a memorandum of understanding or collective bargaining agreement, errors relating employer reporting of compensation to the system, and the recovery of payments.

SB 278 (Leyva, Ch. 331, Stats. 2021) required that when a retiree’s CalPERS pension is reduced post-retirement due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be non-pensionable, the public employer must cover the difference between the pension as originally calculated and as reduced by CalPERS.

PRIOR VOTES

Senate Labor, Public Employment and Retirement Committee (Ayes 5, Noes 0)

Assembly Floor (Ayes 72, Noes 0)

Assembly Public Employment and Retirement Committee (Ayes 6, Noes 0)

**************

1. Sen. Comm. of Lab., Pub. Empl. and Retirement analysis of AB 2493 (2021-22 reg. sess.) as amended Apr. 5, 2022 at p. 4. ↑

2. Prop. 59 was placed on the ballot by a unanimous vote of both houses of the Legislature. (SCA 1 (Burton, Ch. 1, Stats. 2004)) ↑

3. Prop. 42 was placed on the ballot by a unanimous vote of both houses of the Legislature. (SCA 3 (Leno, Ch. 123, Stats. 2013)) ↑

4. The Ralph M. Brown Act is the open meetings laws that applies to local agencies. (Gov. Code §§ 59450 et. seq.) ↑

5. Cal. Const., art. I, § 3; Gov. Code, § 7921.000. ↑

6. Cal. Const., art. I, § 1. ↑

7. The amendments may also include technical, nonsubstantive changes recommended by the Office of Legislative Counsel. ↑

SENATE COMMITTEE ON LABOR, PUBLIC EMPLOYMENT AND RETIREMENT

Senator Lola Smallwood-Cuevas, Chair

2023 - 2024 Regular

Bill No: AB 3025 Hearing Date: June 12, 2024

SUBJECT: County employees’ retirement: disallowed compensation: benefit adjustments.

KEY ISSUE

This bill would require employers subject to the County Employees Retirement Law (CERL) to do the following:

1. Reimburse their pension systems for pension overpayments made to retired members, survivors, or beneficiaries in violation of PEPRA^[1] and Alameda^[2] prohibitions on disallowed compensation;
2. Pay those retirees, survivors, or beneficiaries, an amount equal to 20 percent of the actuarial equivalent present value of their “lost” pension benefit due to recalculating the benefit without the disallowed compensation;
3. Cease reporting disallowed compensation for active members, as specified, and require CERL retirement systems to credit employer contributions and return member contributions on the disallowed compensation; and
4. Other related activities to facilitate the above objectives.

ANALYSIS

Existing law:

1. Provides, among other things under the California Constitution that, "the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system.” (Section 17, Art. XVI, Cal. Const.)
2. Establishes the County Employees Retirement Law (CERL) that governs 20 independent county retirement associations and provides for retirement systems for county and district employees in those counties adopting its provisions. The CERL is also commonly referred to as the 1937 Act or the 37 Act. Currently, 20 counties operate retirement systems under the CERL and these systems are commonly referred to as CERL, 1937 Act, or 37 Act systems or associations. (Government Code (GC) § 31450 et seq.)
3. Establishes that the purpose of the CERL is to recognize a public obligation to county and district employees who become incapacitated by age or long service in public employment and its accompanying physical disabilities by making provision for retirement compensation and death benefit as additional elements of compensation for future services and to provide a means by which public employees who become incapacitated may be replaced by more capable employees to the betterment of public service without prejudice and without inflicting a hardship upon the employees removed. (GC § 31451)
4. Establishes the Public Employees’ Pension Reform Act of 2013 (PEPRA) – a comprehensive reform of public employee retirement that, among other things, increased contributions towards retirement, decreased benefit formulas, and increased the age of retirement that apply to new members of the system first hired on or after January 1, 2013, and made changes that apply to all members towards resolving unfunded liabilities, the manipulation of compensation for purposes of calculating a retirement allowance (i.e., pensions spiking), double-dipping, and other prescribed best practice measures. (GC § 7522.02 et seq.)
5. Defines, under the CERL, “compensation” to mean the remuneration paid in cash out of county or district funds, plus any amount deducted from a member’s wages for participation in a deferred compensation plan, as provided, but does not include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to the member. (GC § 31460)
6. Defines, pursuant to the CERL, “compensation earnable” by a member to mean the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and the same rate of pay. Among other things, “compensation earnable” expressly does not include certain types or forms of compensation paid to, and when they were paid that, enhance a member’s retirement benefit under the system. (GC § 31461)
7. Establishes that when a county or district reports compensation to the system, it must identify the pay period in which the compensation was earned regardless of when it was reported or paid, and prescribes the reporting requirements and limitations on compensation earnable. (GC § 31542.5)
8. Establishes that “compensation earnable” must not include overtime premium pay other than premium pay for hours worked within the normally scheduled or regular working hours that are in excess of the statutory maximum workweek or work period applicable to the employee under federal law, as specified, and provides that the definition of “compensation earnable” must not apply to a PEPRA member. (GC § 31461.6)
9. Defines “final compensation” to mean the average annual compensation earnable by a member during any three years elected by a member at or before the time they file an application for retirement, or, if they fail to elect, during the three years immediately preceding their retirement. If a member has less than three years of service, their final compensation must be determined by dividing their total compensation by the number of months of service credited to them and multiplying by 12. In addition, for these purposes, the definition of final compensation here does not apply to a PEPRA member. (GC § 31462)
10. Prescribes how a ’37 Act system determines final compensation, including final compensation based on compensation for one year (if adopted by a county), and in relation to intermittent members, subject to certain conditions where applicable. (GC §§ 31462.05, 31462.1, and 13462.2)

This bill:

1. Defines the following terms for purposes of the bill’s provisions:
   1. “Agreement” means a memorandum of understanding or collective bargaining agreement between the employer and an exclusive representative pursuant to the Meyers-Milias-Brown Act.
   2. “Alameda” means the Supreme Court case of Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association (2020) 9 Cal.5th 1032 and its holding.
   3. “Disallowed compensation” means non-pensionable compensation reported for a member of the retirement system that the system subsequently determines is not in compliance with PEPRA, the holding in Alameda, other provisions of this part, or the system’s administrative regulations or policies, through no fault of the member.
   4. “Employer” means the appropriate applicable county, county agency, or special district standing in relationship between the employee and the system.
   5. “Initiated a process” means a system has formally adopted a resolution for a correction process on identified disallowed compensation that has required or will require collecting any portion of an overpayment  from, or refunding member contributions to, any affected active member, retired member, survivor, or beneficiary, or adjusting the retirement allowance of any affected retired member, survivor, or beneficiary due to the determination of disallowed compensation by the system, including a determination by the system that is consistent with PEPRA, the holding in Alameda, and other provisions of this part.
   6. “PEPRA” means the California Public Employees’ Pension Reform Act of 2013 (Article 4 (commencing with Section 7522) of Chapter 21 of Division 7 of Title 1).
   7. “System” means a retirement association or system established pursuant to the County Employees Retirement Law of 1937 (commencing with Section 31450). 
2. Mandates a CERL retirement system require a system-participating employer to discontinue reporting disallowed compensation if the system determines that the compensation the employer reported for a member is disallowed compensation.
3. In the case of an active member, requires the system to credit all employer contributions made on disallowed compensation against future contributions to the benefit of the employer or agency that reported the disallowed compensation, and to return any member contribution paid by, or on behalf of, that member to the member directly or indirectly through the employer or agency that reported the disallowed compensation, except as specified.
4. Allows a system that has initiated a process prior to January 1, 2024, to recalculate an active member’s compensation earnable to exclude disallowed compensation and return contributions, either directly to the member, or indirectly through the employer, to continue to use that process to ensure compliance with PEPRA, and that is consistent with, and pursuant to, the holding in Alameda, in lieu of the process provided by this bill.
5. In the case of a retired member, survivor, beneficiary, whose final compensation at the time of retirement was predicated upon the disallowed compensation, requires the system to credit the employer contributions made on the compensation against future contributions, to the benefit of the employer that reported the disallowed compensation; return any member contributions paid by, or on behalf of, that member, to the member directly; and permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation.
6. Applies the bill’s repayment and notice requirements, as specified below, only if the following conditions are met:
   • • • 1. The employer reported the compensation to the system and made contributions on that compensation while the member was actively employed;
         2. The system determined after the date of retirement that the compensation was disallowed; and
         3. The member was not aware that the compensation was disallowed at the time the employer reported it.
7. If the disallowed compensation meets the above conditions, requires the employer that reported the disallowed compensation to do the following:
   1. Pay to the system, as a direct payment, or through recognition in the actuarial accrued liability, as determined by the system, the full cost of any overpayment of the prior paid benefit made to an affected retired member, survivor, or beneficiary resulting from the disallowed compensation.
   2. Pay to the affected retired member, survivor, or beneficiary, as appropriate, an amount that is 20 percent of the amount calculated by the system, representing the actuarial equivalent present value of the difference between the monthly allowance that was predicated on the disallowed compensation and the adjusted monthly allowance calculated excluding the disallowed compensation for the duration the system projects to pay that allowance to the retired member, survivor, or beneficiary.
   3. Begin payment within six months of notice from the system; however, the bill permits the employer up to four years to complete the payment and allows the system to charge the employer the actual costs of actuarial services provided.
8. Requires the system to provide a written notice to the employer that reported contributions on the disallowed compensation and to the affected retired member, survivor, or beneficiary, including, at a minimum, all of the following:
   • • • 1. The overpayment amount that the employer shall pay to the system;
         2. The actuarial equivalent present value that the employer owes to the retired member, survivor, or beneficiary; and
         3. Written disclosure of the employer’s obligations to the retired member, survivor, or beneficiary pursuant to this section.
9. Allows a system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation to continue to use that process provided that it is consistent with PEPRA, and with the holding in Alameda, in lieu of the process provided by this bill.
10. Requires the system to provide the employer, upon the employer’s request, with contact information data in its possession of a relevant retired member, survivor, or beneficiary, so that the employer or agency can fulfill its obligations to those individuals; additionally requires the recipient of this contact information data to keep the data confidential and to use the data only to the extent necessary to carry out its duties as prescribed.
11. Allows an employer or authorized employee representative to submit to the system for review an additional compensation item that a party to a proposed agreement requests be included, contained, adopted, or a entered into that agreement, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation, in order for the system to review consistency of the proposal with PEPRA; the holding in Alameda; Section 31461; other CERL and related county retirement provisions; and the system’s administrative regulations or policies.
12. Requires the submitting parties to include with the submission all supporting documents or requirements the system deems necessary to complete its review.
13. Requires the system to provide guidance regarding the submission within 90 days of the receipt of all information required to make a review.
14. Authorizes, but does not require, the system to periodically publish a notice of the proposed compensation language submitted to the system pursuant to this section for review and the guidance it provided.
15. Clarifies that the bill does not alter or abrogate an employer’s responsibility 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.
16. Provides that the bill does not affect or otherwise alter a party’s right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.
17. Permits the board of retirement or board of supervisors, as authorized pursuant to CERL, to enter into any contracts for administrative purposes or as may be necessary and appropriate to carry out this bill’s provisions.
18. States the Legislature’s intent in enacting this bill’s provisions, to comply with federal tax law and federal compliance systems to maintain and ensure the federal income tax exempt status of the county employees’ retirement systems.
19. Authorizes systems that have initiated a process that was or is intended to comply with federal tax law and federal compliance systems to revise the process as necessary to the extent required to comply federal tax law and federal compliance systems to maintain the system’s tax-exempt status.
20. Makes legislative findings and declarations relating to the necessity of limiting public access to information shared among public agencies in order to maintain the current confidentiality of personal contact information held by a county retirement system regarding retired members of the system, and their survivors and beneficiaries.

COMMENTS

1. Background

Since this bill is substantially similar to AB 2493 (Chen, 2022) the background information and many of the concerns addressed in our committee policy analysis of AB 2493 still apply to this bill. While AB 2493 applied only to firefighters and peace officers, this bill applies more broadly to all CERL members, both safety and miscellaneous. This bill is yet another attempt to hold harmless those CERL retirees who received pension overpayments because their employers reported disallowed compensation to their retirement systems. ^[3]

The bill’s supporters are encouraged by the Legislature’s recent decisions to address similar issues for retirees of the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). Here, as in those cases, the proponents seek to place an express obligation on the employers (or the state in certain aspects related to CalSTRS retirees) to reimburse retirement systems for overpayments made to the retirees, free the retirees from having to repay those overpayments, recognize the obligation of the retirement systems to recalculate the retirees’ pensions without the disallowed compensation going forward, and require the employers to compensate the retirees for their lost expectation in an amount equal to 20 percent of the present value of that expectation.

Those two systems, unlike the CERL systems, are generally uniform in their benefits for and regulatory treatment of their respective members. CERL, on the other hand, consists of twenty different systems run by twenty different boards that have implemented diverse approaches to both the provision of benefits and the reconciliation of past practices with the regulatory reform of PEPRA and Alameda.

This bill appears to attempt to bridge those differences by allowing CERL systems that immediately complied with PEPRA or did so after the California Supreme Court’s holding in Alameda, the flexibility to continue those approaches, provided that their retirement boards adopted a resolution to do so prior to January 1, 2024. For all others, this bill’s provisions would apply.

The bill’s opposition may well view these attempts as hollow, since the bill effectively allows CERL retirees to keep a good portion of pension benefits to which the law, under PEPRA and Alameda says they simply are not entitled. Moreover, the burden for funding those overpayments may fall on counties just as the state’s economic condition deteriorates and available resources to local government begins to decrease while demands on their services begin to increase. ^[4]

Proponents counter that retirees are not getting everything their employers promised them in their Memoranda of Understanding (MOUs) because 20% of an amount today is no guarantee of 100% of a lifetime benefit (although, well-invested, it may get pretty close). They also rehash old arguments that members paid contributions on compensation, disallowed or not, which should entitle them, if not legally, than certainly morally to the promised benefit.

Lost in detail, is that PEPRA, as upheld by Alameda, sought to end practices that transferred unfunded pension liability (i.e., debt) onto future generations and damaged the long-term stability of pension systems, whose function is supposedly to collect and invest contributions that accurately correspond to the expected accruing liability from the member’s benefit during the entirety of the member’s career. In doing so, the systems “pre-fund” the pension benefit with the contributions and investment return. The member and employer pay for the benefit before the member gets the benefit. Alameda defended the rationale that a functioning pension system requires the member and the employer not pass that cost on to future generations.

Members who manage to significantly boost their compensation the year before retirement, deserve no moral accolades for paying a few months of contributions while substantially increasing their lifelong benefit and the system’s unfunded liability. Nor do employer and employee representatives always come to the table with clean hands when they focus more on overcoming immediate labor or budget negotiations than ensuring that the pension systems are healthy and sustainable.

PEPRA sought, in part, to impede the tendency for those representatives to avoid hard choices around balancing budgets, rationalizing workforces, or employing bureaucratic disciplinary processes by cutting short-term labor costs in exchange for agreeing to more costly, long-term, deferred employee compensation enhancements or encouraging problem employees to leave with enhanced retirements.

Nevertheless, most members are not deviously plotting how to cheat the system. They make life-altering decisions based on the information provided to them by their employers, their unions, and their retirement systems (if they are lucky enough to have one). Once retired, they may have limited opportunities to return to work even if they are physically able. Nor are most government officials and union representatives avidly seeking ways to push costs into the future. They are generally just trying to balance complicated, competing societal demands against current economic conditions.

Recently, the Legislature has generally approved of policies that ensure retirement systems are repaid; require employers to hold harmless or shield retirees from repaying pension overpayments; and provide retirees partial compensation for their changed circumstances. This bill follows that trend. It seeks to soften the blow to employers somewhat by allowing employers to pay for the overpayments through adjustments to their actuarial rates and by giving them up to four years to pay the retirees the 20 percent present value compensatory payments.

The employers may consider the bill a bitter pill nevertheless. One way, perhaps, to make the medicine go down, would be to provide an explicit release to the employers from any potential remaining liability arising out of their MOUs or other contracts that presumably included the disallowed compensation and expressly curtailing the aggrieved parties from pressing any further legal claims on their expected or promised pension allowances. Currently, nothing in the bill appears to prevent retirees from taking the 20 % amount and continuing to sue the employers to ensure they get 100% of their expected or promised allowance. That idea, however, seems to veer into the jurisdiction of the Judiciary Committee, where this bill will next be heard should it pass out from this Committee.

2. Need for this bill?

According to the author:

“Reported disallowed compensation to CERL retirement systems significantly impacts retirees and active members. Retirees often rely on a fixed monthly pension which can be their only source of retirement income. When compensation is disallowed, retirees have to take a significant reduction in their monthly retirement distribution and pay the system back. This puts a massive burden on employees who dedicate their careers to public service with the promise of a secure retirement. This bill looks to create parity with CalPERS practices which balance the burden of disallowed compensation items between the employer and the employees.”

3. Proponent Arguments

According to the California Professional Firefighters:

“AB 3025 would protect the promised and paid for pensions of our retirees through a number of mechanisms, as well as putting in place steps to ensure that similar issues do not happen again in the future. This bill would require that the employer to immediately stop reporting the disallowed compensation to the system. For active employees, the retirement system must credit the contributions made on the disallowed compensation to the employer against future contributions and the employer is required to refund the employee contributions made on the disallowed compensation to the active employee.”

4. Opponent Arguments:

According to the California State Association of Counties:

“Following the passage of the Public Employees’ Pension Reform Act of 2013 (PEPRA), county retirement systems took varying approaches to comply with the provisions of PEPRA related to which types of compensation may be included in retirement benefit calculations. On July 30, 2020, the California Supreme Court issued a decision in the case Alameda County Deputy Sheriff’s Assn. v Alameda County Employees’ Retirement Assn., otherwise known as the “Alameda decision,” in which the Court upheld provisions [of] PEPRA related to disallowed forms of compensation for retirement calculations. Over the last four years, the impacted ’37 Act systems have been working to comply with Alameda and recalculate retirement benefits for members who retired after January 1, 2013.”

“AB 3025 unfairly places the financial consequences of the Court’s decision on counties and other agencies by requiring ’37 Act system employers to pay a “penalty” equal to 20 percent of the current actuarial value of retiree benefits deemed unlawful. The penalty, which will result in affected agencies owing millions of unbudgeted dollars to retirees for what the Court found to be an illegal benefit, implies those agencies made the decision to misapply the law. In reality, they simply complied with the pension agreements established between employees, employers, and retirement systems.”

5. Dual Referral:

The Senate Rules Committee referred this bill to the Senate Public Employment and Retirement Committee and to the Senate Judiciary Committee.

6. Prior Legislation:

AB 1997 (McKinnor, 2024) makes changes to the Teachers’ Retirement Law (TRL), administered by CalSTRS, relating to creditable compensation, creditable service, and the reporting of compensation to the system by CalSTRS employers for purposes of retirement, among other provisions. This bill is currently in the Senate Labor, Public Employment and Retirement Committee.

AB 2284 (Grayson, 2024) would authorize a CERL retirement system to define “grade,” as specified, for purposes of compensation and calculating a retirement benefit. This bill is currently in the Senate Labor, Public Employment and Retirement Committee.

SB 432 (Cortese, Chapter 215, Statutes of 2023) clarified certain Education Code provisions as amended by AB 1667 (Cooper, Chapter 754, Statutes of 2022) relating to the recovery of pension overpayments from retired teachers by CalSTRS due to errors in reported compensation.

AB 2493 (Chen, 2022) was substantially similar to this bill. AB 2493 would have made several changes to CERL provisions regarding pension calculation adjustments arising from erroneous inclusion of disallowed compensation. The bill would have required CERL county employers to: (1) reimburse their respective retirement system for pension overpayments made to peace officer and firefighter retirees arising from erroneous employer reporting of disallowed compensation, and (2) pay affected retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the system’s recalculation of the retiree’s benefit to exclude the disallowed compensation, among other provisions. The bill died on the Assembly Inactive File.

AB 1667 (Cooper, Chapter 754, Statutes of 2022) prescribed various requirements in connection with audits by CalSTRS; CalSTRS' interpretation and clarification of rules relating to creditable compensation; CalSTRS' review of compensation items included in a memorandum of understanding or collective bargaining agreement; errors relating employer reporting of compensation to the system; and, the recovery of payments, among other provisions.

SB 278 (Leyva, Chapter 331, Statutes of 2021) required that when a retiree’s CalPERS pension is reduced post-retirement, due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be non-pensionable, the public employer must cover the difference between the pension as originally calculated and as reduced by CalPERS.

SUPPORT

California Professional Firefighters (Co-sponsor)

California Fraternal Order of Police (Co-sponsor)

American Federation of State, County and Municipal Employees
Association of Orange County Deputy Sheriffs
California Labor Federation
California Teachers Association
Contra Costa County Professional Firefighters Local 1230
Elderly Care Everywhere
Kern County Firefighters Local 1301 Union
Long Beach Police Officers Association
Los Angeles County Firefighters Local 1014
Marin Professional Firefighters Local 1775
Orange County Employees Association
Orange County Professional Firefighters Association, Local 3631
Sacramento Area Firefighters Local 522
Sacramento County Deputy Sheriff's Association
San Bernardino County Firefighters Local 935
San Bernardino County Sheriff's Employees' Benefit Association
Ventura County Professional Firefighters Association Local 1364

OPPOSITION

California Special Districts Association

California State Association of Counties

League of California Cities

Rural County Representatives of California

Urban Counties of California

-- END --

1. Public Employees’ Pension Reform Act of 2013, see Government Code § 7522 et seq. ↑

2. Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association (2020) 9 Cal.5th 1032 ↑

3. Pension overpayments occur when employers report employee compensation to the retirement systems improperly; causing the systems to calculate and pay larger pension benefits than the employee is entitled to receive upon retirement. Disallowed compensation is compensation the retirement systems have determined to be not pensionable, i.e., pension that they cannot use in calculating a pension benefit. PEPRA limited the types of compensation that public employers can include for purposes of calculating their employees’ pension allowance. PEPRA, as upheld by Alameda, excluded certain items of pay - to legacy employees as well as PEPRA employees – as part of efforts to end pension spiking (i.e., the practice of padding compensation at the end of the employee’s career to inflate the life-long pension benefit the employee would get upon retirement). ↑

4. See, BMO State Monitor, California Economic Outlook – April 2024 (https://economics.bmo.com/en/publications/detail/f89aca03-d4ef-44fa-bd4c-df105fb2b98e/); see also Public Policy Institute of California Statewide Survey: Californians and Their Economic Well-Being (https://www.ppic.org/publication/ppic-statewide-survey-californians-and-their-economic-well-being-november-2023/); but Cf. UCLA Andersen School of Management Forecast (https://www.anderson.ucla.edu/news-and-events/press-releases/ucla-anderson-forecast-sees-restrained-2024-growth-no-recession). ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 3025

Author:(Valencia)

As Amended Ver:March 18, 2024

Majority vote

SUMMARY

Establishes certain processes and procedures in the County Employees' Retirement Law (CERL), administered by CERL systems, relating to compensation earnable, disallowed compensation, and the recovery of overpayments, among other provisions.

Major Provisions

1. Require a county employer to discontinue reporting disallowed compensation, if a CERL system determines that compensation reported for a member is disallowed.
2. Provide, in the case of active members, the CERL system to credit all employer contributions made on disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and to return any contribution paid by, or on behalf of, that member directly or indirectly through the employer that reported the disallowed compensation. However, if a CERL system has initiated a process prior to January 1, 2024, to recalculate an active member's compensation earnable, as provided, to exclude disallowed compensation and return contributions, either directly to the member or indirectly through the employer, the system is authorized to continue using that process to compliance with the Public Employees' Pension Reform Act (PEPRA) of 2013, and that is consistent with, and pursuant to, the holding in Alameda County Deputy Sheriff's Assn. v. Alameda County Employees' Retirement Assn. (2020) 9 Cal.5th 1023.
3. Require, in the case of a retired member, survivor, or beneficiary (hereinafter, referred to as "retired member, et al.") whose final compensation at the time of retirement was predicated on the disallowed compensation, the CERL system to: a) credit employer contributions on such compensation against future contributions, to the benefit of the employer that reported the compensation; b) return any member contribut5ions paid by, or on behalf of, that member, to the member directly; c) permanently adjust the benefit of the affected retired member, et al., to reflect the exclusion of the disallowed compensation; and, d) provide written notice to the employer that reported contributions on the disallowed compensation and to the effected retired member, et al., that includes, at minimum, certain prescribed information. However, the repayment and notice requirements are subject to the employer reporting the compensation to the system, made contributions on that compensation while the member was actively employed, and the system determined after the date of retirement that the compensation was disallowed at the time the employer reported it.
4. Further require, in the case of a retired member, et al,. as provided in "3)", the employer to: a) pay to the CERL system, as a direct payment, or through recognition in the actuarial accrued liability, as determined by the system, the full cost of any overpayment of the prior paid benefit made to an affected retired member, et al., resulting from the disallowed compensation; b) pay to the affected retired member, et al., as appropriate, an amount that is 20%t of the amount calculated by the system representing the actuarial equivalent present value of the difference between the monthly allowance that was predicated on the disallowed compensation and the adjusted monthly allowance, as provided, for the duration that the CERL system projects to pay that allowance to the retired member, survivor, or beneficiary; and, c) to begin payment within six months of notice from the CERL system, but is authorized to have up to four years to complete the payment. In addition, the system is authorized to charge the employer the actual costs of actuarial services provided.
5. Authorize, in lieu of the process described in 3) and 4), above, a CERL system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, et al. to reflect the exclusion of the disallowed compensation, as provided, to continue to use that process provided that it is consistent with the PEPRA, and the holding in Alameda (id.).
6. Require a CERL system to provide the employer with retired member, et al. contact information data in its possession for the employer to fulfill its prescribed obligations upon the employer's request, and the recipient of the contact information data to keep it confidential and use such contact data only to the extent necessary to carry out the prescribed duties.
7. Authorize an employer or authorized employee representative to submit to an additional compensation item that a party to a proposed agreement requests to be included, contained, adopted, or entered into that agreement, on and after January 1, 2025, that is intended to form the basis of a pension benefit calculation, to the CERL system for review to review consistency of the proposal with the PEPRA, Alameda (id.), Section 31461 (relating to compensation earnable), other provisions of the CERL, and the system's administrative regulations or policies. In addition, a submission to the system for review must include all supporting documents or requirements the system deems necessary to complete its review, and the system must provide guidance regarding the submission within 90 days of the receipt of all information required to make the review.
8. Authorize a CERL system to periodically publish a notice of the proposed compensation language submitted by the system for review and the guidance it provided, and a CERL system or board of supervisors to enter into any contracts for administrative purposes or as necessary to carry out these provisions.
9. Establish that these provisions do not alter or abrogate an employer's responsibility to meet and confer in good faith with the employee organization regarding the impact of disallowed compensation, and among other things, that these provisions do not affect or alter a party's right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.
10. Make a legislative finding and declaration relating to confidentiality of personal contact information and a limitation on the public's right of access, as provided, and includes legislative intent regarding compliance to federal laws, systems, and programs, and authorizes the system to revise the process for purposes of federal compliance.
11. Respectively defines "Agreement," "Alameda," "Disallowed compensation," "Employer," "Initiated a process," "PEPRA," and "System," for these purposes.

COMMENTS

Background Regarding Administration of the CERL

Twenty counties currently operate separate retirement systems under the CERL.

Where the Public Employees' Retirement Law and the Teachers' Retirement Law applicable to statewide public employee retirement systems establish uniform standards that commonly apply to members, participating employers, contracting agencies, and school districts governed by those laws, respectively, the CERL generally provides uniform standards in the administration of retirement benefits by CERL systems, and also recognizes and allows for a modicum of variation in the administration of retirement benefits since each CERL jurisdiction is separate and unique. The practical and operational mechanics of the CERL permit such variation. However, this variation has resulted in concerning substantial challenges that, in one particular instance, required subsequent actions by some, not all, CERL systems to align their administration of retirement to the requirements of the PEPRA following the California Supreme Court's decision in Alameda (id.).

What is the PEPRA, and Why Does it Exist and Matter?

Enactment of the PEPRA by the Legislature and its effectuation on January 1, 2013, resulted from substantial negative legislative and public experiences that required a statutory response through prudent public policy reforms to public employee retirement.

The enactment of SB 400, (Ortiz), Chapter 555, Statutes of 1999 that generally increased pension benefit formulas, and coupled with the granting of pension contribution holidays (i.e.., reduced or eliminated employer and employee contributions) under a soon-to-be-realized mistaken belief that the superfunded (i.e., more than 100% funded) status of particular retirement systems would remain for some time following a strong period of national economic growth and pension system positive investment gains/returns, was shortly thereafter met by economic and financial crises due to the dot-com downturn in the early- to mid-2000s followed by the 2008 economic crisis that caused financial market instability. Both events negatively affected California's public employee pension systems' investment returns and their funded status which took nearly a decade for them to come close to recovering. With both the enactment of SB 400 (Ortiz) followed by economic crises affecting pension fund investment returns, this resulted in increased unfunded or underfunded actuarial liabilities (UAL) or obligations (UAO).

The public outcry following enactment of that statute coupled with successive economic crises and increases in UAL/UAO was then followed by regular and increased attention by the media that highlighted the growing liabilities as being shouldered by taxpayers. Concerns were further amplified by regular media and public attention to pension abuse and manipulation schemes such as pension spiking, double-dipping, and other questionable and concerning pension-related activities by public employers and their employees. This included regular attention by various media outlets as to public employees whose pensions annually exceeded $100,000, e.g., "The $100,000 Club", among others.

Following concerns regarding those cumulative actions and events, the threat of statewide ballot measures by attentive, informed, and well-resourced taxpayer interests (referred to by some as "pension critics," "pension-envy critics", or "anti-pension proponents") that proposed drastic austerity measures, up to and including, the elimination of public employee defined benefit plans (i.e., pensions) in favor of defined contribution plans (i.e., 401(k)-style plans) or draconian reductions to pension benefit formulas, was ever-present. In response, as a long term solution to address these concerns and others, the Legislature enacted the PEPRA as a means to address questionable pension-related activities, restore public confidence in public employee retirement, and to address long-terms costs relating to UAL/UAO. After enactment of the PEPRA, another crisis in the form of the global COVID-19 health pandemic and its ensuing uncertainty negatively affected all facets of society, including financial markets, which again, resulted in well over $100 billion in California's pensions systems' investment losses, followed by recent and ongoing federal inflationary measures that affect the economy and financial markets, investments returns, and short- and long-term assumptions where these systems continue to rigorously assess risks and seek opportunities in an effort to recover and maintain their ability to meet their statutory and constitutional mandates. Today, these systems continue their efforts to recover from those losses.

Since its enactment over a decade ago, two decisions by the California Supreme Court regarding the PEPRA have affirmed the Legislature's intent and enactment of this public policy and today, the PEPRA continues to exist as a prudent measure and means to maintain public confidence in public employee retirement and achieve its other objectives despite numerous legislative proposals, and attempted federal interference with respect to public transit agency employees, that would attempt to undermine the act and that could result in a return of past negative practices or experiences. Since the effectuation of the PEPRA, the prior ever-present and discernable drumbeat of threats to California's public employee pensions by concerned taxpayer interests largely remains, to a certain extent, somewhat muted; albeit, guarded, including by the media.

What was the Alameda Ruling? Important Aspects and Effects of the California Supreme Court's Decision in Alameda Regarding the CERL, Compensation Earnable/Disallowed Compensation, and the PEPRA Relating to this Bill

In the Alameda (id.), which addressed matters involving a Section of the Government Code (among others), the California Supreme Court upheld the Legislature's amendments to the CERL via the PEPRA that affected compensation earnable directly relating to the retirement benefit calculation for CERL legacy members (i.e., "pre-PEPRA" members), and rejected the state's arguments to abolish the "California Rule" relating to vested rights in retirement benefits.

Here, the court found that CERL legacy members (again, "pre-PEPRA" members) did not have a contractual right to the calculation of compensation earnable under the CERL that was inconsistent with the amendments made to Section 31461 of the Gov. Code (re: compensation earnable) by the PEPRA. Although the PEPRA changed the law regarding items that can be included in compensation earnable from what was in effect based on its prior ruling in Ventura County Deputy Sheriff's Assn. v. Ventura County Employees' Retirement Assn. (1997) 16 Cal.4th 483; Case No. S055682, this did not constitute an impairment of CERL legacy members' vested rights because: (i) the changes made by the PEPRA were made for the constitutionally permissible purpose of eliminating "pension spiking;" and, (ii) no "comparable offsetting advantage" [criteria relating to vested rights under the California Rule] was required because providing such an advantage would undermine, or otherwise be inconsistent with, that constitutionally permissible purpose. The court also reaffirmed the California Rule in rejecting the state's arguments that the amendments were prospective only; however, the court created an exception to "comparable advantages" as part of the California Rule when such advantages would undermine, or otherwise be inconsistent with, the permissible purpose of a modification to a pension plan. The court also emphasized that its decision in Alameda (id.) was limited to the specific matter before it, and its ruling did not go beyond that matter.

Following the court's holding in Alameda, because a number of CERL systems misinterpreted or misapplied and erroneously included disallowed compensation (also commonly referred to as, "nonpensionable compensation") reported by employers towards calculating a retirement allowance or benefit for CERL legacy members that was inconsistent with the PEPRA, those systems have the tedious task of reconciling the inclusion of disallowed compensation and the calculation of affected CERL legacy members' retirement benefits, and accordingly recalculating and adjusting their benefits. Through no fault of their own, CERL retired legacy members, et al., are required to financially shoulder the mistake of another by repaying amounts overpaid to them. Meanwhile, the CERL systems that correctly interpreted and applied the PEPRA amendment to the CERL as intended by the Legislature's enactment of that act, were not required to take those actions and their legacy retired members, et al., were not adversely affected.

This Bill:

This bill proposes to address financial harms borne by affected retired members, et al., through no fault of their own and as a result of a mistake of another.

Please see the policy committee analysis for a full discussion of this bill.

According to the Author

"[This bill] safeguards eligible county employees' pensions by preventing initiated processes to collect disallowed compensation. Placing the responsibility on employees to repay non-pensionable funds, determined without their fault, undermines the commitment to a secure retirement. Those who are currently serving and those who have retired anticipate the responsible management of their retirement plans. This expectation is particularly significant, given that many individuals have devoted their careers to public service, and in some instances, have even risked their lives in the line of duty."

Arguments in Support

Generally, among other things, numerous supporters express that after years of dedicated public service, public employees who retire expect that the promise of a pension will exist, and that public employees must make important life decisions when considering retirement, and more importantly, at the time of retirement. Further, they generally express that, these individuals expect pension promises to be maintained, and question the fairness of retirees or family members having to repay hundreds or thousands of dollars – while on a limited and fixed income, as a result of a mistake that was not of their making, but the mistake of another in which the retiree or family member(s) had/has no control. Finally, they generally express that this bill, like others before it relating to CalPERS and the California State Teachers' Retirement System (CalSTRS), address an injustice imposed by judicial decision.

Arguments in Opposition

None.

FISCAL COMMENTS

This bill is keyed nonfiscal by Legislative Counsel.

VOTES

ASM PUBLIC EMPLOYMENT AND RETIREMENT: 6-0-1

YES: McKinnor, Lackey, Boerner, Hart, Stephanie Nguyen, Luz Rivas

ABS, ABST OR NV: Vince Fong

UPDATED

VERSION: March 18, 2024

CONSULTANT: Michael Bolden / P. E. & R. / (916) 319-3957 FN: 0002830

Date of Hearing: May 1, 2024

ASSEMBLY COMMITTEE ON PUBLIC EMPLOYMENT AND RETIREMENT

Tina S. McKinnor, Chair

ABPCA Bill Id:AB 3025 (

Author:Valencia) – As Amended Ver:March 18, 2024

SUBJECT: County employees’ retirement: disallowed compensation: benefit adjustments

SUMMARY: Establishes certain processes and procedures in the County Employees’ Retirement Law (CERL), administered by CERL systems, relating to compensation earnable, disallowed compensation, and the recovery of overpayments, among other provisions. Specifically, this bill:

1. Requires a county employer to discontinue reporting disallowed compensation, if a CERL system determines that compensation reported for a member is disallowed.
2. Provides, in the case of active members, the CERL system to credit all contributions made on disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and to return any contribution paid by, or on behalf of, that member to the member by the employer that reported the disallowed compensation.

However, if a CERL system has initiated a process prior to January 1, 2024, to recalculate an active member’s reportable compensation to exclude disallowed compensation and return contributions, either directly to the member or indirectly through the employer, the system is authorized to continue using that process provided that it is consistent with the Public Employees’ Pension Reform Act (PEPRA) of 2013 as it read on January 1, 2024, and the California Supreme Court’s decision in Alameda.

1. Requires, in the case of a retired member, survivor, or beneficiary (hereinafter, referred to as “retired member, et al.”) whose final compensation at the time of retirement was predicated on the disallowed compensation, the CERL system to: (a) credit contributions on such compensation against future contributions to the benefit of the employer that reported the compensation; (b) permanently adjust the benefit of the affected retired member, et al., or beneficiary to reflect the exclusion of the disallowed compensation; and, (c) provide written notice to the employer that reported contributions on the disallowed compensation and to the effected retired member, survivor, or beneficiary that includes, at minimum, each of the following:
2. The overpayment amount that the employer must pay to the system, as prescribed.

ii) The actuarial equivalent present value that the employer owes to the retired member, survivor, or beneficiary as described.

iii) Written disclosure of the employer’s obligations to the retired member, survivor, or beneficiary, as provided.

However, the repayment and notice requirements are subject to the employer reporting the compensation to the system and made contributions on that compensation while the member was actively employed, and the system determined after the date of retirement that the compensation was disallowed at the time the employer reported it.

1. Further requires, in the case of a retired member, survivor, or beneficiary as provided in “3)”, the employer to: (a) pay to the CERL system as a direct payment, the full cost of any overpayment of the prior paid benefit made to an affected retired member, survivor, or beneficiary resulting from the disallowed compensation; (b) pay to the affected retired member, et al., as appropriate, 20 percent of the amount calculated by the system representing the actuarial equivalent present value (AEPV) of the difference between the monthly allowance that was predicated on the disallowed compensation and the adjusted monthly allowance, as provided, for the duration that the CERL system projects to pay that allowance to the retired member, survivor, or beneficiary; and, (c) to begin payment within six months of notice from the CERL system, but is authorized to have up to four years to complete the payment.
2. Authorizes, in lieu of the process described in “3)” and “4)”, above, a CERL system that has initiated a process prior to January 1, 2024, to permanently adjust the benefit of the affected retired member, et al. to reflect the exclusion of the disallowed compensation, as provided, to continue to use that process provided that it is consistent with the PEPRA as it read on January 1, 2024, and with Alameda.
3. Requires a CERL system to provide the employer with retired member, et al. contact information data in its possession for the employer to fulfill its prescribed obligations upon the employer’s request, and the recipient of the contact information data to keep it confidential.
4. Authorizes an employer or authorized employee representative to submit to an additional compensation item that a party to a proposed agreement requests to be included, contained, adopted, or entered into that agreement, on and after January 1, 2024, that is intended to form the basis of a pension benefit calculation, to the CERL system for review to review consistency of the proposal with the PEPRA, Alameda, Section 31461 (relating to compensation earnable), and the system’s administrative regulations. In addition, a submission to the system for review must include all supporting documents or requirements the system deems necessary to complete its review, and the system must provide guidance regarding the submission within 90 days of the receipt of all information required to make the review.
5. Authorizes a CERL system to periodically publish a notice of the proposed compensation language submitted by the system for review and the guidance it provided.
6. Establishes that these provisions do not alter or abrogate an employer’s responsibility to meet and confer in good faith with the employee organization regarding the impact of disallowed compensation or the effect of any disallowed compensation the rights of the employees and the obligations of the employer to its employees, include those who, due to the passage of time and promotion, may have become exempt from inclusion in a bargaining unit, but who benefit was the product of collective bargaining.
7. Establishes that these provisions do not affect or alter a party’s right to appeal any determination regarding disallowed compensation made by the system after July 30, 2020.
8. Makes a legislative finding and declaration relating to confidentiality of personal contact information and a limitation on the public’s right of access, as provided.
9. Defines the following terms for these purposes:
   1. “Agreement” to mean a memorandum of understanding (MOU) or collective bargaining agreement (CBA).
   2. “Alameda” to mean the Supreme Court case of Alameda County Deputy Sheriff’s Association v. Alameda County Employees’ Retirement Association (2020) 9 Cal.5th 1032 or its holding.
   3. “Disallowed compensation” to mean compensation reported for a member of the retirement system, consistent with the agreement covering that employee, that the system subsequently determines is not in compliance with PEPRA, Alameda, Section 31461, or the system’s administrative regulations, through no fault of the member.
   4. “Employer” to mean the appropriate applicable county, agency, or district standing in relationship between the employee and the system.
   5. “Initiated a process” to mean a system has begun collecting any portion of an overpayment from any affected retired member, survivor, or beneficiary or adjusted the retirement allowance of any affected retired member, survivor, or beneficiary due to a determination of disallowed compensation.
   6. “PEPRA” to mean the California Public Employees’ Pension Reform Act of 2013 (Article 4 (commencing with Section 7522) of Chapter 21 of Division 7 of Title 1).
   7. “System” means a retirement association or system established by this act.

EXISTING LAW:

1. Establishes the Public Employees’ Pension Reform Act of 2013 (PEPRA) – a comprehensive reform of public employee retirement that, among other things, increased contribution rates towards retirement, decreased retirement benefit formulas, and increased the age of retirement that apply to new members of the system first hired on or after January 1, 2013, and made changes that apply to all members towards resolving unfunded liabilities, manipulation of compensation for purposes of calculating a retirement allowance (i.e., pensions spiking), double-dipping, and includes other prescribed best practice measures as a matter of prudent public policy.^[1] The PEPRA also amended the CERL.
2. Provides, pursuant to Section 17 of Article XVI of the California Constitution, that the boards of California's public retirement systems have "plenary authority and fiduciary responsibility for… administration of the system."
3. Provides under the California Constitution that "the members of the retirement board of a public pension or retirement system shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administrating the system…,” among other provisions.^[2]
4. Establishes the CERL which governs 20 independent county retirement associations and provides for retirement systems for county and district employees in those counties adopting its provisions. Currently, 20 counties operate such systems that commonly are interchangeably referred to as “CERL systems,” “1937 Act systems,” or “’37 Act systems.” These systems are regulated by, and administer, the CERL (also commonly referred to as the “1937 Act”, or “’37 Act”).^[3]
5. Establishes that the purpose of the CERL is to recognize a public obligation to county and district employees who become incapacitated by age or long service in public employment and its accompanying physical disabilities by making provision for retirement compensation and death benefit as additional elements of compensation for future services and to provide a means by which public employees who become incapacitated may be replaced by more capable employees to the betterment of public service without prejudice and without inflicting a hardship upon the employees removed.^[4]
6. Provides for the establishment of a CERL system.^[5]
7. Defines, under the CERL, “compensation” to mean the remuneration paid in cash out of county or district funds, plus any amount deducted from a member’s wages for participation in a deferred compensation plan, as provided, but does not include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to the member.^[6]
8. Defines “compensation earnable” by a member to mean the average compensation as determined by the board, for the period under consideration upon the basis of 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; compensation that is deferred must be deemed as “compensation earnable” when earned, rather than when paid; and, expressly excludes certain types of forms of compensation from the definition.^[7]
9. Establishes that when a county or district reports compensation to the system, it must identify the pay period in which the compensation was earned regardless of when it was reported or paid, and prescribes the reporting requirements and limitations on compensation earnable.^[8]
10. Defines “final compensation” to mean the average annual compensation earnable by a member during any three years elected by a member at or before the time they file an application for retirement, or, if they fail to elect, during the three years immediately preceding their retirement. If a member has less than three years of service, their final compensation must be determined by dividing their total compensation by the number of months of service credited to them and multiplying by 12. In addition, for these purposes, the definition of final compensation here does not apply to a PEPRA member for all or any portion of the county retirement system membership.^[9]
11. Provides that, for members subject to the PEPRA, for all or any portion of their membership in a county retirement system, PEPRA definition of “final compensation” must apply; if a member has less than three years of service, their final compensation must be determined by dividing the total pensionable compensation by the number of months of service credited and multiplying by 12; and, when determining final compensation for a member who does not have three consecutive years of earned pensionable compensation due to an absence, the compensation for any absence must be on the pensionable compensation of the position held by the member immediately prior to the absence.^[10]
12. Governs collective bargaining in the private sector under the Federal National Labor Relations Act (NLRA) but leaves it to the states to regulate collective bargaining in their respective public sectors.^[11]

While the NLRA and the decisions of its National Labor Relations Board often provide persuasive precedent in interpreting state collective bargaining law, public employees have no collective bargaining rights absent specific statutory authority establishing those rights.

1. Provides several statutory frameworks under California law to provide public employees collective bargaining rights, govern public employer-employee relations, and limit labor strife and economic disruption in the public sector through a reasonable method of resolving disputes regarding wages, hours and other terms and conditions of employment between public employers and recognized public employee organizations or their exclusive representatives. These include statutes governing local public employer-employee relations pursuant to the Meyers-Milias-Brown Act.^[12]
2. Establishes the Public Employment Relations Board (PERB), a quasi-judicial administrative agency charged with administering certain statutory frameworks governing employer-employee relations, resolving disputes, and enforcing the statutory duties and rights of public agency employers and employee organizations, but provides the City and County of Los Angeles a local alternative to PERB oversight. ^[13]

FISCAL EFFECT: None. This bill is keyed nonfiscal by Legislative Counsel.

COMMENTS:

1. Brief Historical Information for the Committee Regarding the Subject of this Bill

The committee is informed that this measure is the second attempt by proponents to, according to proponents, correct a financial injustice that was borne by some (but, not all) retired members, et al., following legislative enactment of the PEPRA; misinterpretation or erroneous application of the PEPRA by some CERL systems relating to the inclusion of disallowed compensation for purposes of calculating a retirement allowance (or benefit) with respect to those members; and, subsequent required actions by some of those systems to recover retirement overpayments to become PEPRA-compliant following the California Supreme Court’s decision in Alameda. Each will be discussed in turn, below.

Although the current bill is not identical to Assembly Bill 2493 (Chen, 2022) as previously considered by this committee at that time, its intended purposes and potential effects remain the same. While being considered by the Senate in 2022, that bill was amended and is substantially similar to the current bill. Assembly Bill 2493 was passed by the Senate and returned to the Assembly for concurrence in Senate amendments, but was placed on the Assembly Inactive File by the author where it was held and died without further consideration. It remains unknown why that bill was not advanced to the Governor for consideration.

The provisions of the current bill begin where Assembly Bill 2493 ended, and it is unknown whether the provisions in the current bill may achieve a different outcome.

1. Background: Need for the Bill

Among other things, information provided by the author states that, “[this bill] introduces Section 31541.2 to the Government Code, addressing deficiencies in the CERL related to disallowed compensation. This bill addresses the unfairness of retirees suffering financial consequences for disallowed pay items beyond their control. The pension reductions that retirees face are a significant burden especially when some county employees such as public safety personnel do not receive social security benefits. This bill is needed because disallowed compensation greatly impacts active employees and retirees, putting the burden of paying back an overpayment on the annuitants.”

1. Background Regarding Administration of the CERL

As previously discussed under “Existing Law,” 20 counties currently operate separate retirement systems under the CERL. The counties are: Los Angeles, Orange, San Diego, Alameda, San Bernardino, Sacramento, Contra Costa, San Mateo, Fresno, Ventura, Kern, San Joaquin, Santa Barbara, Marin, Sonoma, Stanislaus, Tulare, Merced, Imperial, and Mendocino.

The CERL establishes “classes” of each county operating a retirement system which mirror the population of each county as ascertained and determined pursuant to Section 28020 of the Government Code. For example, under the CERL, Los Angeles County is of the first class; Orange County is of the second class; San Diego County is of the third class; Alameda County is of the fourth class; and so forth. None of these counties are within the same class.

Where the Public Employees’ Retirement Law (PERL) and the Teachers’ Retirement Law (TRL) for statewide public employee retirement systems establish uniform standards that commonly apply to members, participating agencies and school districts governed by those laws, respectively, the CERL generally provides uniform standards in the administration of retirement benefits by county employee retirement system, and also recognizes and allows for a modicum of difference in the administration of retirement benefits since each CERL jurisdiction is separate and unique.

Each CERL system operates pursuant to the CERL and, on occasion, an issue might arise related to the administration of retirement benefits. However, the issue may only be applicable to an individual system due to its interpretation of a provision in the CERL, or interpretation of a CERL provision that is specific to that jurisdiction. For example, Chapter 97, Statutes of 2018 (Assembly Bill 2076, Rodriguez) provides authority to the Los Angeles County Employees Retirement Association (LACERA) – a CERL system – to reconsider its decisions regarding the effective date of a disability retirement during a specific period. That measure only applied to LACERA because the issue sought to be addressed only existed in that system.

The practical and operational mechanics of the CERL permit such variation. However, this variation has resulted in concerning substantial challenges that, in one particular instance, required subsequent actions by some, not all, CERL systems to align their administration of retirement to the requirements of the PEPRA following a decision by the California Supreme Court, commonly referred to as Alameda (id.).

1. What is the PEPRA, and Why Does it Exist and Matter?

Enactment of the PEPRA by the Legislature and its effectuation on January 1, 2013, resulted from substantial negative legislative and public experiences that required a statutory response through prudent public policy reforms to public employee retirement.^[14]

The enactment of Chapter 555, Statutes of 1999 (Senate Bill 400, Ortiz) that generally increased pension benefit formulas, and coupled with the granting of pension contribution holidays (i.e.., reduced or eliminated employer and employee contributions) under a soon-to-be-realized mistaken belief that the superfunded (i.e., more than 100 percent funded) status of particular retirement systems would remain for some time following a strong period of national economic growth and pension system positive investment gains/returns, was shortly thereafter met by economic and financial crises due to the dot-com downturn in the early- to mid-2000s followed by the 2008 economic crisis that caused financial market instability. Both events negatively affected California’s public employee pension systems’ investment returns and their funded status which took nearly a decade for them to come close to recovering. With both the enactment of SB 400 (Ortiz) followed by economic crises affecting pension fund investment returns, this resulted in increased unfunded or underfunded actuarial liabilities (UAL) or obligations (UAO).

The public outcry following enactment of that statute coupled with successive economic crises and increases in UAL/UAO was then followed by regular and increased attention by the media that highlighted the growing liabilities as being shouldered by taxpayers. Concerns were further amplified by regular media and public attention to pension abuse and manipulation schemes such as pension spiking, double-dipping, and other questionable and concerning pension-related activities by public employers and their employees. This included regular attention by various media outlets as to public employees whose pensions annually exceeded $100,000, e.g., “The $100,000 Club”, among others.

Following concerns regarding those cumulative actions and events, the threat of statewide ballot measures by attentive, informed, and well-resourced taxpayer interests (referred to by some as “pension critics,” “pension-envy critics”, or “anti-pension proponents”) that proposed drastic austerity measures, up to and including, the elimination of public employee defined benefit plans (i.e., pensions) in favor of defined contribution plans (i.e., 401(k)-style plans) or draconian reductions to pension benefit formulas, was ever-present.

In response, as a long term solution to address these concerns and others, the Legislature enacted the PEPRA as a means to address questionable pension-related activities, restore public confidence in public employee retirement, and to address long-terms costs relating to UAL/UAO. After enactment of the PEPRA, another crisis in the form of the global COVID-19 health pandemic and its ensuing uncertainty negatively affected all facets of society, including financial markets, which again, resulted in well over $100 billion in California’s pensions systems’ investment losses, followed by recent and ongoing federal inflationary measures that affect the economy and financial markets, investments returns, and short- and long-term assumptions where these systems continue to rigorously assess risks and seek opportunities in an effort to recover and maintain their ability to meet their statutory and constitutional mandates. Today, these systems continue their efforts to recover from those losses.

Since its enactment over a decade ago, two decisions by the California Supreme Court regarding the PEPRA have affirmed the Legislature’s intent and enactment of this public policy and today, the PEPRA continues to exist as a prudent measure and means to maintain public confidence in public employee retirement and achieve its other objectives despite numerous legislative proposals, and attempted federal interference with respect to public transit agency employees, that would attempt to undermine the act and that could result in a return of past negative practices or experiences.^[15] Since the effectuation of the PEPRA, the prior ever-present and discernable drumbeat of threats to California’s public employee pensions by concerned taxpayer interests largely remains, to a certain extent, somewhat muted; albeit, guarded, including by the media.

It is equally important to note that, while various MOUs or CBAs may contain a plethora of items collectively bargained, California’s contract clause jurisprudence is designed, at least in part, to protect the reasonable expectations of public employees covered by the pension plan. Those reasonable expectations are defined not only by statutes themselves, but also by judicial interpretation of those statutes. (Alameda (id.).)

1. What was the Alameda Ruling? Important Aspects and Effects of the California Supreme Court’s Decision in Alameda Regarding the CERL, Compensation Earnable/Disallowed Compensation, and the PEPRA Relating to this Bill

In the Alameda ruling, which addressed matters involving a Section of the Gov. Code (among others), the California Supreme Court upheld the Legislature’s amendments to the CERL via the PEPRA that affected compensation earnable directly relating to the retirement benefit calculation for CERL legacy members (again, “pre-PEPRA” members), and rejected the state’s arguments to abolish the “California Rule” relating to vested rights in retirement benefits.

Here, the court found that CERL legacy members (i.e., pre-PEPRA members) did not have a contractual right to the calculation of compensation earnable under the CERL that was inconsistent with the amendments made to Section 31461 of the Gov. Code (re: compensation earnable) by the PEPRA. Although the PEPRA changed the law regarding items that can be included in compensation earnable from what was in effect based on its prior ruling in Ventura,^[16] this did not constitute an impairment of CERL legacy members’ vested rights because: (i) the changes made by the PEPRA were made for the constitutionally permissible purpose of eliminating “pension spiking;” and, (ii) no “comparable offsetting advantage” [criteria relating to vested rights under the California Rule] was required because providing such an advantage would undermine, or otherwise be inconsistent with, that constitutionally permissible purpose. (Emphasis added.)

The court also reaffirmed the California Rule in rejecting the state’s arguments that the amendments were prospective only; however, the court created an exception to “comparable advantages” as part of the California Rule when such advantages would undermine, or otherwise be inconsistent with, the permissible purpose of a modification to a pension plan. The court also emphasized that its decision in Alameda was limited to the specific matter before it, and its ruling did not go beyond that matter.

Following the court’s holding in Alameda, because a number of CERL systems misinterpreted or misapplied and erroneously included disallowed compensation (also commonly referred to as, “nonpensionable compensation”) reported by employers towards calculating a retirement allowance or benefit for CERL legacy members that was inconsistent with the PEPRA, those systems have the tedious task of reconciling the inclusion of disallowed compensation and the calculation of affected CERL legacy members’ retirement benefits, and accordingly recalculating and adjusting their benefits. Through no fault of their own, CERL retired legacy members, et al., are required to financially shoulder the mistake of another by repaying amounts overpaid to them, and generally, these repayments are made by reducing the fixed monthly retirement benefit until the overpaid amount has fully been repaid, or, for those CERL legacy retired members, et al., who are fortunate to have at least saved the sum owed, they may opt to repay the overpayment through a lump-sum payment. Although these CERL systems are required to take these actions following the Alameda ruling to become compliant, some affected CERL legacy members, et al. who disagreed with those actions, filed subsequent legal claims against some of those systems.

Meanwhile, the CERL systems that correctly interpreted and applied the PEPRA amendment to the CERL as intended by the Legislature’s enactment of that act, were not required to take those actions and their legacy retired members, et al., were not adversely affected.

1. Some Things Being Equal, However, Certain Differences or Distinctions are Important

Recall from earlier that this is the second legislative attempt to address similar matters with respect to CERL legacy retired members, et al., affected by the Alameda ruling. Importantly, it is noted that because of an error made by others in which affected CERL legacy retired members, et al., ultimately and unfortunately shoulder a mistake through no fault of their own, proponents of this bill view it as necessary to correct that injustice. In so doing, proponents regularly assert that this bill is similar to the intents and purposes of Chapter 331, Statutes of 2021 (Senate Bill 278, Leyva), which requires that when a retiree’s California Public Employees’ Retirement System (CalPERS) pension is reduced post-retirement due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be nonpensionable, the public employer must cover the difference between the pension as originally calculated and as reduced by CalPERS.

In many respects, the intents, purposes, and some of the operative provisions of the current bill are similar to that statute. However, a material difference and distinction between that statute and the current bill involves the court’s decision in Alameda, which neither affected nor applied to CalPERS, its members, nor the Public Employees’ Retirement Law (PERL) administered by CalPERS. Further, unlike the modicum of variation of CERL administration among the 20 CERL systems, the PERL is uniform and its provisions uniformly apply to members, employers, participating, and contracting agencies of CalPERS covered by that act. Thus, as previously noted in this committee’s analysis of Assembly Bill 2493, statements that attempt to equate fully the reasoning for enactment of Senate Bill 278 in comparison to the need for this bill largely apply an apples-to-apples comparison. Although Senate Bill 278 and this proposed statute may be apples, there is a difference between an apple and crabapple. When a legal decision affecting individuals is involved, such substantive, material, or nuanced differences are important. Nevertheless, both Chapter 331, Statutes of 2021, and what is proposed by this bill offer a means to address a financial (and in some cases, detrimental) loss to retired members, et al. through no fault of their own.

1. Impermissible Gift of Public Funds?

The committee is informed that, some opponents to Chapter 331, Statutes of 2021 (Senate Bill 278, Leyva) expressed concerns at that time that the provisions of that bill may violate Section 6 of Article XVI of the California Constitution regarding a prohibition against the gift of public funds.

Given that the statute in that instance was enacted and effectuated, it remains unknown whether those concerns may hold legal merit or validity if challenged, and whether similar concerns, if any, raised regarding this bill also would hold any legal merit or validity, if enacted, effectuated, and subsequently challenged.

1. Amendments Proposed by the Committee

Again, it is acknowledged that the purposes of this bill are intended to address a specific matter relating to the recovery of overpayments on disallowed compensation from CERL legacy retired members, et al., as previously discussed. However, given the entirety of the prior discussion, to balance protecting the public interest relating to public employee retirement regarding the CERL, PEPRA and its amendments to the CERL, judicial interpretation in Alameda, and the potential financial insecurity in retirement of individuals affected by that decision who must repay overpayments following the mistake of another, a number of concerns regarding this bill as it currently reads, must be addressed. As such, the committee proposes the following generally-described amendments to address those concerns:

1. Definition of “Agreement”

Among its provisions, this bill defines “agreement.” However, except for the agreement being a MOU or CBA, there is no reference to a specific statute regarding such agreements. As such, this phrasing may be deemed as vague and/or ambiguous for these purposes. For added clarity, there should be a direct reference to the statute relating to local public employer-employee relations: the Meyers-Milias-Brown Act (commencing with Section 3500 of the Gov. Code).

The committee’s proposed amendments address this matter.

1. Definition of “Disallowed Compensation”

Among its provisions, this bill defines “disallowed compensation.” However, the current definition suffers from multiple substantive deficiencies. For example: (i) It must be clarified that such compensation is “nonpensionable;” (ii) the inclusion of MOUs or CBAs (given that retirement benefits included in such agreements does not consider employees not covered by such agreements, e.g., nonunionized/nonrepresented, and managerial or supervisory employees; (iii) the specific reference to Section 31461 of the Gov. Code may be construed as limiting or restricting applicability within the entirety of the CERL when all other provisions of the CERL also apply; and, (iv) CERL system policies, not just regulations, are matters that also relate to compensation earnable and overall CERL administration by these systems.

The proposed committee’s amendments address each of these matters.

1. Definition of “Employer”

Among its provisions, this bill proposes to define “employer.” However, as drafted, the definition specifically refers to “applicable county,” “agency,” “or district” sans certain specificity as to “county agency”, and “special district.”

The committee’s proposed amendments address this matter.

1. Definition of “Initiated a Process”

Among its provisions, this bill proposes to define “initiated a process.” However, as proposed, the past-tense phrasing of this definition (i.e., has begun) dismisses the varying stages among the various CERL systems that are taking actions necessary to reconcile PEPRA compliance following the Alameda ruling. Nearly 4 years after that decision, and as of this writing, there are some CERL systems that are continuing those efforts, and ongoing efforts may be necessary in the future with respect to that judicial decision and compliance. As such, the current definition could be construed as to place a limit as to applying only to those activities that have already taken place without consideration of ongoing or future actions that are, and may be, necessary in these regards.

In addition, as proposed, the definition limits its application to retired members, et al., but does not include nonpensionable compensation reported for “active members” (i.e., CERL members currently employed and in which the employer and the member make contributions towards the member’s retirement during that employment).

Finally, the definition does not address a procedural matter by a system that authorized it to take necessary actions to comply with the PEPRA following the Alameda ruling for purposes of added clarity, consistency, and provide for protective guardrails to benefit both the initiated process implemented by the systems for compliance purposes, and potential arbitrary changes by the systems to such processes against affected individuals, as well as recognizing the applicability of the entirety of the CERL.

The committee’s proposed amendments address this matter.

1. Definition of “System”

Among its provisions, this bill proposes to define “system” by including in its definition, “…as established by this act.” within its phrasing. However, to the extent that this “act” may be construed to specifically refer to “this bill,” itself, this may create statutory ambiguity and inconsistency as “this act” (i.e., this bill) actually does not prescribe the establishment of CERL systems. Rather, such systems are established pursuant to the CERL commencing with Section 31500 of the Gov. Code.

The committee’s proposed amendments address this matter.

1. Need to Address “PEPRA as it read on January 1, 2024,” Due to Significant Concerns

Among its provisions, this bill applies its provisions in relation to the PEPRA, “… as it read on January 1, 2024.”^[17] It is acknowledged that on occasion, existing laws and proposed statutes may include similar references to another law based on what that law says (i.e., as it reads) at a specific point in time for various reasons. Here, however, a reasonable review of the legislative history and the provisions of the PEPRA by a layperson explicitly show and state that the PEPRA became effective on January 1, 2013, not January 1, 2024.

For purposes of maintaining important statutory consistency: (i) regarding the substantive PEPRA state public policy and public interest; (ii) the Legislature’s intent regarding enactment of that public policy in the public interest; (iii) when considering that the court’s decision in Alameda was issued on July 30, 2020, over 7 years and 6 months after PEPRA’s enactment and effectuation; and, (iv) that the Alameda ruling is based on the PEPRA as it read prior to the issuance of that decision, to the extent that the date referenced in relation to the PEPRA, as currently proposed, potentially may invite, enable or encourage creative schemes, reasoning, or arguments that attempt to circumvent or supersede Alameda, the PEPRA, or the CERL and CERL via the PEPRA amendment, the specific date in reference to the PEPRA must be removed to guard against such activities.

The committee’s proposed amendments address this matter.

1. Certain Specific References to Section 31461 of the Gov. Code

Recall under “Existing Law,” this section defines “compensation earnable.” This section also is specifically referenced twice in this bill.^[18]

It is noted that although CERL systems must comply with this section, and that this section was discussed in Alameda, CERL systems also must comply with the entirety of the CERL (as appropriately applicable given the modicum of administrative variation), not just Section 31461. Although what this bill proposes has a direct relation to Section 31461, the PEPRA also effectively applies to other provisions of the CERL, again, not just that section. Further, to ensure adherence to legislative intent established by enactment of the PEPRA state public policy, and as it applies via amendments to the CERL (not just Section 31461), this must be addressed.

The committee’s proposed amendments address this matter.

1. Federal Law Compliance

Among other things, public employee pension systems must comply with both applicable federal and state laws. Absolutely important to the administration of public employee retirement, public employee pension systems must maintain their tax exempt qualification status under federal law, including, but not limited to, the federal Internal Revenue Code (IRC), IRS regulations and certain related programs, to name a few.

Because a public employee pension system member, retiree, survivor, or beneficiary is not entitled to receive more than what they are statutorily or legally entitled to receive, public pension system must not pay out more, and must recover unlawful overpayments for purposes of state and federal compliance. This includes the recovery of overpayments present and future.

To the extent that what is proposed by this bill may implicate various existing applicable federal laws, regulations, or federal programs, etc., or anticipatory changes to the same, this must be addressed to ensure that CERL systems are compliant and maintain their current federal tax exempt qualification status should anticipated future changes occur.

The committee’s proposed amendments address this matter.

1. Other Technical, Clarifying, Conforming or Substantive Changes, Including Those Relating to CERL Administrative Matters

Among its provisions, this bill mandates certain actions by CERL systems, including, but not limited to, the return of contributions; the initiated process; actuarial calculations; CERL, PEPRA, and Alameda ruling compliance, and providing confidential information data to employers, among others not expressly enumerated immediately above.

As to those matters not expressly enumerated immediately above, the committee’s proposed amendments make various other technical, clarifying, conforming, or substantive changes that, with respect to this bill in toto, attempt to provide for other protective statutory guardrails in the public interest and increased clarity and consistency to resolve varying interpretations that may invite questionable pension-related practices relating to the CERL and PEPRA that are inconsistent with Alameda.

1. Statement by the Author

The author states that, “[this bill] safeguards eligible county employees' pensions by preventing initiated processes to collect disallowed compensation. Placing the responsibility on employees to repay non-pensionable funds, determined without their fault, undermines the commitment to a secure retirement. Those who are currently serving and those who have retired anticipate the responsible management of their retirement plans. This expectation is particularly significant, given that many individuals have devoted their careers to public service, and in some instances, have even risked their lives in the line of duty."

1. Comments by Supporters

Generally, among other things, numerous supporters express that after years of dedicated public service, public employees who retire expect that the promise of a pension will exist, and that public employees must make important life decisions when considering retirement, and more importantly, at the time of retirement. Further, they generally express that, these individuals expect pension promises to be maintained, and question the fairness of retirees or family members having to repay hundreds or thousands of dollars – while on a limited and fixed income, as a result of a mistake that was not of their making, but the mistake of another in which the retiree or family member(s) had/has no control. Finally, they generally express that this bill, like others before it relating to CalPERS and the California State Teachers’ Retirement System (CalSTRS), address an injustice imposed by judicial decision.

1. Comments by Opponents

None on file.

1. Prior or Related Legislation

Assembly Bill 2284 (Grayson, 2024) proposes to makes changes to the CERL by authorizing a CERL retirement system to define “grade,” as specified, for purposes of compensation and calculating a retirement benefit. This bill is currently pending on the Assembly Third Reading File.

Assembly Bill 1997 (McKinnor, 2024) makes changes to the Teachers’ Retirement Law (TRL), administered by CalSTRS, relating to creditable compensation, creditable service, and the reporting of compensation to the system by CalSTRS employers for purposes of retirement, among other provisions. This bill is currently pending on the Assembly Appropriations Committee’s Suspense File.

Chapter 215, Statutes of 2023 (Senate Bill 432, Cortese) clarifies certain provisions within Chapter 754, Statutes of 2022 (Assembly Bill 1667, Cooper) relating to the recovery of pension overpayments from retired teachers by CalSTRS due to errors in reported compensation.

Assembly Bill 2493 (Chen, 2022) proposed to make several changes to the County Employees Retirement Law of 1937 (CERL or ’37 Act) regarding pension calculation adjustments arising from erroneous inclusion of disallowed compensation, including requiring participating county employers to do the following: (1) reimburse their respective retirement system for pension overpayments made to peace officer and firefighter retirees arising from erroneous employer reporting of disallowed compensation, and (2) pay affected retirees a lump sum amount equal to 20 percent of the actuarial equivalent present value of a retiree’s “lost” pension going forward due to the system’s recalculation of the retiree’s benefit to exclude the disallowed compensation, among other provisions. This bill was held and died on the Assembly Inactive File during concurrence in Senate Amendments.

Chapter 754, Statutes of 2022 (Assembly Bill 1667, Cooper) prescribes various requirements in connection with audits by CalSTRS; CalSTRS' interpretation and clarification of rules relating to creditable compensation; CalSTRS' review of compensation items included in a memorandum of understanding or collective bargaining agreement; errors relating employer reporting of compensation to the system; and, the recovery of payments, among other provisions.

Chapter 331, Statutes of 2021 (Senate Bill 278, Leyva) requires that when a retiree’s CalPERS pension is reduced post-retirement, due to the inclusion of compensation agreed to under a collective bargaining agreement that is later determined to be nonpensionable, the public employer must cover the difference between the pension as originally calculated and as reduced by CalPERS.

REGISTERED SUPPORT / OPPOSITION:

Support

California Professional Firefighters (Sponsor)

American Federation of State, County and Municipal Employees, AFL-CIO

Association of Orange County Deputy Sheriffs

California Fraternal Order of Police

California Labor Federation, AFL-CIO

California Teachers Association

Contra Costa County Professional Firefighters Local 1230

Kern County Firefighters Local 1301 Union

Long Beach Police Officers Association

Los Angeles County Firefighters Local 1014

Marin Professional Firefighters Local 1775

Orange County Employees Association

Orange County Professional Firefighters Association, Local 3631

Sacramento Area Firefighters Local 522

Sacramento County Deputy Sheriff's Association

San Bernardino County Firefighters Local 935

San Bernardino County Sheriff's Employees' Benefit Association

Ventura County Professional Firefighters Association Local 1364

Opposition

None on file.

Analysis Prepared by: Michael Bolden / P. E. & R. / (916) 319-3957

1. Sections 7522.02 et seq. of the Government (Gov.) Code. ↑

2. Section 17, art. XVI, Cal. Const. ↑

3. Sections 31450 et seq. of the Gov. Code. ↑

4. Section 31451 of the Gov. Code. ↑

5. Sections 31500 et seq. of the Gov. Code. ↑

6. Section 31460 of the Gov. Code. ↑

7. Section 31461 of the Gov. Code. ↑

8. Section 31542.5 of the Gov. Code. ↑

9. Section 31462 of the Gov. Code. ↑

10. Section 31462.05 of the Gov. Code. ↑

11. Sections 151 et seq., Title 29, United States Code. ↑

12. Sections 3500 et seq. of the Gov. Code. ↑

13. Sections 3541 et seq., of the Gov. Code. ↑

14. Ref. “Existing Law, 1)” ↑

15. Alameda (id.), and CAL FIRE Local 2881 v. CalPERS (2019) 6 Cal. 5^th 965. It is noted that while the specific subject matter of the litigation in each of these cases involved “pensionable compensation” or “compensation earnable” and “air time,” respectively, the commentary regarding these two cases is offered to provide significant historical context as to legislative efforts that may undermine the “spirit” and Legislature’s intent regarding the substantive PEPRA state public policy. ↑

16. Ventura County Deputy Sheriff’s Assn. v. Ventura County Employees’ Retirement Assn. (1997) 16 Cal.4th 483; Case No. S055682 ↑

17. See Sections 31541.2 (c)(1)(B), and (c)(5). ↑

18. See Sections 31541.2 (b)(3) and (d)(1). ↑