Special Compensation Reporting – Bonus Pay for Classic Members

October 2, 2026
Circular Letter: 200-041-26
Topic: Retirement Benefits

To: All Contracting Agencies and School Employers

Purpose

The purpose of this Circular Letter is to provide updated information on the payment of bonus pay for classic members (Bonus pay) to ensure reporting is in accordance with the Public Employees’ Retirement Law (PERL) and the implementing regulations, including California Code of Regulations (CCR), title 2, section 571. This Circular Letter:

  • Provides a reminder that Bonus pay is not reportable unless paid in accordance with a publicly adopted written labor policy or agreement
  • Describes the criteria for determining whether the Bonus pay has been paid for “superior performance”
  • Replaces prior guidance concerning the payment of Bonus pay to employees at the “top-step” of their pay schedules

Note: Bonus pay is not reportable for members subject to the Public Employees’ Pension Reform Act of 2013 (PEPRA) and considered new members under Government (Gov.) Code section 7522.04, subdivision (f).

Defining Bonus Pay

Bonus pay, which is listed as a type of Incentive pay, is an item of special compensation defined in CCR, title 2, section 571(a)(1) as:

Compensation to employees for superior performance, such as “annual performance bonus” and “merit pay." If [Bonus pay is] provided only during a member's final compensation period, it shall be excluded from final compensation as “final settlement” pay. A program or system must be in place to plan and identify performance goals and objectives.

Written Labor Policy or Agreement

In accordance with Gov. Code sections 20636, 20636.1, and CCR, title 2, section 571(c)(2), an item of special compensation, including Bonus pay, must be contained in a written labor policy or agreement. The labor policy or agreement should authorize the Bonus pay, describe the circumstances under which bonuses are paid, identify the group or class of employees eligible to receive the Bonus pay, and provide objective criteria for determining whether the bonus is being paid for “superior performance.”

Superior Performance

Bonus pay is pensionable only if paid for “superior performance.” The determination that an employee’s performance is superior must be based on previously specified performance goals and objectives applicable to that employee. Performance may be deemed “superior” if the employee’s attainment of stated goals and objectives is more than average or typical; performance that simply meets (but does not surpass) the employer's expectations or standards is not to be considered superior.

Top-Step Requirements

As a form of special compensation, Bonus pay must meet all statutory and regulatory standards for compensation earnable in the PERL, including but not limited to:

  • The prohibition against reporting bonuses for overtime work or “additional services rendered outside of normal working hours” as provided in Gov. Code sections 20635, 20636(c)(7)(B), or 20636.1(c)(7)(B).
  • The prohibition against reporting items of special compensation that are not expressly included within the definitions set forth in CCR, title 2, section 571 (review also, DiCarlo v. County of Monterey (2017) 12 Cal. App. 5th 468; In the Matter of the Appeal Regarding the Final Compensation Calculation of Mark L. Wheeler, et al. (2019) CalPERS Precedential Dec. No. 19-01).

Further, Bonus pay must be made available to all other similarly situated members of the recipient’s group or class in accordance with Gov. Code sections 20636(c)(2), 20636.1(c)(2), and CCR, title 2, section 571(b)(2) & (d).

Circular Letter 200-019-20 advised, in part, that a group or class cannot be comprised solely of employees at the top step of their pay schedules. This Circular Letter replaces that guidance. Top-step requirements no longer necessarily conflict with the group or class condition; however, such requirements may impact pensionability for other reasons.

Employer Responsibilities

It is the employer’s responsibility to comply with all terms and conditions set forth in the employer’s contract with the California Public Employees’ Retirement System (CalPERS) and to ensure all reportable information is compliant with the PERL, PEPRA, and the applicable CCR.

Questions

If you have questions, contact us by email at Bonus@calpers.ca.gov.

Brad Hanson, Chief
Employer Account Management Division