CalPERS Approves New Regulations that Set Strong Safeguards Against Pension Spiking
March 16, 2017
Communications & Stakeholder Relations
Brad W. Pacheco, Deputy Executive Officer
Wayne Davis, Chief, Office of Public Affairs
Contact: Amy Morgan, Information Officer
Pensionable Compensation Pay Items Align with Requirements of Pension Reform
SACRAMENTO, CA - The California Public Employees' Retirement System (CalPERS) Board of Administration approved new draft pensionable compensation regulations that move pension reform forward another step. The draft regulations set compensation that is factored into the calculation of pension benefits for new members hired on or after January 1, 2013, under the Public Employees' Pension Reform Act, or PEPRA.
"Let's be clear, the draft regulations don't add any new types of pay that can be counted toward pensions or create or change the pension reform law that Governor Brown signed in 2012," said Rob Feckner, president of the CalPERS Board. "These regulations ensure compliance with pension reform and provide consistency and guidance on anti-pension spiking laws governing pensionable compensation. Without the regulations the risk of employers inconsistently interpreting the law is high."
The draft regulations comply with PEPRA through the elimination of six types of compensation including:
- Bonus Pay
- Management Incentive Pay
- Value of Employer Paid Member Contributions
- Off Salary Schedule
- Uniform Allowance
- Temporary Pay Upgrade
Pay is only included as pensionable compensation in a new member's retirement benefit calculation if it meets all four requirements, including:
- Pay is part of the normal monthly rate of pay.
- Pay is paid in cash to similarly situated members of the same group or class of employment.
- Pay is for services rendered during normal working hours.
- Pay is paid pursuant to publicly available pay schedule.
"Finalizing the regulations reduces risks to the System and provides clear guidance to our contracted employers that aligns with the law," said Priya Mathur, chair of the CalPERS Pension & Health Benefits Committee.
Senate Bill 53, which became law in 1994, defined the overall rules governing types of compensation that could be used toward pensions, while also defining some types that were prohibited. Following the bill's passage, CalPERS implemented regulations to define specific types of compensation that could be reported for members.
When the pension reform law passed in 2012, pensionable compensation defined what qualified as reportable for new members but was largely silent on the types of compensation that would be permitted under the new law. PEPRA didn't change reportable compensation (special compensation) for classic members hired before January 1, 2013.
The estimated normal cost savings for pensionable compensation reporting is $16 million in Fiscal Year 2017-18 for public agencies, schools, and the state. Normal cost is one component of the total employer contribution that employers pay to provide benefits to active employees for the upcoming fiscal year.
Currently, there are nearly 241,000 PEPRA members accruing lower benefits across all employers, representing nearly 28 percent of the active public employee workforce.
The draft regulations now will be submitted to the Office of Administrative Law (OAL) for a 45-day public comment period. Comments received will be reviewed and responses provided for each submission. The draft regulations will then return to the Board for final approval. The Board-approved proposed regulations then will be submitted to the Department of Finance for review and approval followed by submission to OAL for final review and adoption.
For more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 1.8 million members in the CalPERS retirement system and administers benefits for 1.4 million members and their families in our health program, making us the largest defined-benefit public pension in the U.S. CalPERS' total fund market value currently stands at approximately $311 billion. For more information, visit www.calpers.ca.gov.