Bill Text: CA AB3025 | 2023-2024 | Regular Session | Amended

California Assembly Bill 3025 (Prior Session Legislation)

NOTE: There are more recent revisions of this legislation. Read Latest Draft

Bill Title: County employees’ retirement: disallowed compensation: benefit adjustments.

Spectrum: Slight Partisan Bill (Republican 2-1)

Status: (Passed) 2024-09-22 - Chaptered by Secretary of State - Chapter 427, Statutes of 2024. [AB3025 Detail]

Download: California-2023-AB3025-Amended.html

Amended IN Assembly March 18, 2024

CALIFORNIA LEGISLATURE— 2023–2024 REGULAR SESSION

Assembly Bill

No. 3025

Introduced by Assembly Member Valencia

February 16, 2024

~~An act to amend Section 31461 of the Government Code, relating to retirement.~~ An act to add Section 31541.2 to the Government Code, relating to county employees’ retirement.

LEGISLATIVE COUNSEL'S DIGEST

AB 3025, as amended, Valencia. ~~County employees’ retirement: compensation.~~ County employees’ retirement: disallowed compensation: benefit adjustments.

(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 member’s 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 member’s 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 contributions made on the disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and return any contribution paid by, or on behalf of, that member, to the member by 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 contributions made on the disallowed compensation against future contributions, to the benefit of the employer that reported the disallowed compensation, 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 party’s 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.~~

Vote: MAJORITY Appropriation: NO Fiscal Committee: NO Local Program: NO

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

SECTION 1.

Section 31541.2 is added to the Government Code, to read:

31541.2.
(a) The board of retirement or board of supervisors, as authorized pursuant to this chapter, may enter into any agreements as may be necessary and appropriate to carry out the provisions of this section.
(b) For purposes of this section, the following definitions apply:
(1) “Agreement” means a memorandum of understanding or collective bargaining agreement.
(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 or its holding.
(3) “Disallowed compensation” means 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” means the appropriate applicable county, agency, or district standing in relationship between the employee and the system.
(5) “Initiated a process” means 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” 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 by this act.
(c) If the system determines that the compensation reported for a member is disallowed compensation, it shall require the employer to discontinue reporting the disallowed compensation.
(1) (A) In the case of an active member, the system shall credit all contributions made on the disallowed compensation against future contributions to the benefit of the employer that reported the disallowed compensation, and shall return any contribution paid by, or on behalf of, that member, to the member by the employer that reported the disallowed compensation, except as provided by subparagraph (B).
(B) A system that 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, may continue to use that process provided that it is consistent with PEPRA as it read on January 1, 2024, and with Alameda.
(2) In the case of a retired member, survivor, or beneficiary whose final compensation at the time of retirement was predicated upon the disallowed compensation, the system shall credit the contributions made on the disallowed compensation against future contributions, to the benefit of the employer that reported the disallowed compensation, and the system shall permanently adjust the benefit of the affected retired member, survivor, or beneficiary to reflect the exclusion of the disallowed compensation.
(3) (A) In the case of a retired member, survivor, or beneficiary whose final compensation at the time of retirement was predicated upon the disallowed compensation as described in paragraph (2), the repayment and notice requirements described in this paragraph and paragraph (4) shall apply only if all of the following conditions are met:
(i) The employer reported the compensation to the system and made contributions on that compensation while the member was actively employed.
(ii) The system determined after the date of retirement that the compensation was disallowed.
(iii) The member was not aware that the compensation was disallowed at the time the employer reported it.
(B) If the disallowed compensation meets the conditions of subparagraph (A), the employer that reported contributions on it shall do all of the following:
(i) Pay to the system, as a direct payment, the full cost of any overpayment of the prior paid benefit made to an affected retired member, survivor, or beneficiary resulting from the disallowed compensation.
(ii) Pay to the affected retired member, survivor, or beneficiary, as appropriate, 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 pursuant to paragraph (2) for the duration the system projects to pay that allowance to the retired member, survivor, or beneficiary. The employer shall begin payment within six months of notice from the system as prescribed in paragraph (4) and may have up to four years to complete the payment.
(4) The system shall 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:
(A) The overpayment amount that the employer shall pay to the system as described in subparagraph (B) of paragraph (3).
(B) The actuarial equivalent present value that the employer owes to the retired member, survivor, or beneficiary as described in clause (ii) of subparagraph (B) of paragraph (3), if applicable.
(C) Written disclosure of the employer’s obligations to the retired member, survivor, or beneficiary pursuant to this section.
(5) In lieu of the process described in paragraphs (3) and (4), 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 pursuant to paragraph (2) may continue to use that process provided that it is consistent with PEPRA as it read on January 1, 2024, and with Alameda.
(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.
(d) (1) An employer or authorized employee representative may submit to the system for review an additional compensation item that a party to a proposed agreement requests 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, in order for the system to review consistency of the proposal with PEPRA, Alameda, Section 31461, and the system’s administrative regulations.
(2) A submission to the system for review under paragraph (1) shall include all supporting documents or requirements the system deems necessary to complete its review.
(3) The system shall provide guidance regarding the submission within 90 days of the receipt of all information required to make a review.
(e) The system may periodically publish a notice of the proposed compensation language submitted to the system pursuant to this section for review and the guidance it provided.
(f) This section 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.
(g) This section 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.

SEC. 2.
The Legislature finds and declares that Section 1 of this act, which adds Section 31541.2 to the Government Code, imposes a limitation on the public’s right of access to the meetings of public bodies or the writings of public officials and agencies within the meaning of Section 3 of Article I of the California Constitution. Pursuant to that constitutional provision, the Legislature makes the following findings to demonstrate the interest protected by this limitation and the need for protecting that interest:
In order to appropriately 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, it is necessary to limit access to this information if it is provided to other public entities for purposes of Section 31541.2 of the Government Code.

SECTION 1.Section 31461 of the Government Code is amended to read:
31461.
(a)“Compensation earnable” by a member means 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. The computation for any absence shall be based on the compensation of the position held by the member at the beginning of the absence. Compensation, as defined in Section 31460, that has been deferred shall be deemed “compensation earnable” when earned, rather than when paid.
~~(b)“Compensation earnable” does not include, in any case, the following:~~
~~(1)Any compensation determined by the board to have been paid to enhance a member’s retirement benefit under that system. That compensation may include:~~
(A)Compensation that had previously been provided in kind to the member by the employer or paid directly by the employer to a third party other than the retirement system for the benefit of the member, and which was converted to and received by the member in the form of a cash payment in the final average salary period.
~~(B)Any one-time or ad hoc payment made to a member, but not to all similarly situated members in the member’s grade or class.~~
(C)Any payment that is made solely due to the termination of the member’s employment, but is received by the member while employed, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period regardless of when reported or paid.
(2)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.
~~(3)Payments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise.~~
(4)Payments made at the termination of employment, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid.
(c)The terms of subdivision (b) are intended to be consistent with and not in conflict with the holdings in Salus v. San Diego County Employees Retirement Association (2004) 117 Cal.App.4th 734 and In re Retirement Cases (2003)110 Cal.App.4th 426.