A divided CalPERS board approved a regulation Wednesday that will allow nearly 100 different types of supplemental pay to count toward pension calculations for state and local government employees.
The 7-5 vote drew a swift rebuke from Gov. Jerry Brown, who signed pension overhaul legislation in 2012 that, in part, attempted to crack down on pension spiking. Specifically, Brown objected to CalPERS’ allowing pension calculations to include “temporary upgrade pay” for workers who briefly fill a higher-paying position to count toward retirement.
“Today CalPERS got it wrong,” Brown said in a statement released shortly after the board’s action. “This vote undermines the pension reforms enacted just two years ago. I’ve asked my staff to determine what actions can be taken to protect the integrity of the Public Employees’ Pension Reform Act.”
That law required pension calculations based on “the normal monthly rate of pay or base pay” of employees who become retirement system members on Jan. 1, 2013, and later. It also disallowed “ad hoc” payments included in retirement benefit calculations, a key provision intended to thwart pension spiking.
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Employees already in the system weren’t affected by the law and, if their employers agree, can count everything from streetlight-changing duty premiums to reimbursements paid for maintaining job-required licenses. The board’s Wednesday action interprets the law as recognizing temporary upgrade pay and 98 other supplemental pays for pension purposes for those hired since the beginning of 2013.
Brown’s appointees on the board tried to remove temporary upgrade pay from the list, arguing that such payments are ad hoc compensation specifically banned by the law.
“(Temporary pay) is for limited duration and thus in our view they do not meet the definition of normal monthly pay,” said Department of Human Resources Director Richard Gillihan, during Wednesday’s board debate on the regulation, “because it’s only for specific time and is limited.”
Board member Bill Slaton, Brown’s appointee to represent local governments, agreed with Gillihan and also questioned whether the long list of supplemental payments is outdated and needs thinning.
“It was suggested that it’s probably appropriate there be a review of these at some point in time,” Slaton said, referring to a Tuesday committee debate on the proposed pension regulations. “I think that would be useful.”
Board member J.J. Jelincic countered that temporary upgrade pay should count toward pensions because it’s part of employees’ compensation for taking on more responsibility.
And because the first employees who come under the 2013 law have to work until 2018 to qualify for retirement benefits, Jelincic noted, “if we got it wrong, the Legislature has more than adequate time to fix it.”
Employers and pension reform advocates, including San Jose Mayor Chuck Reed, have argued that CalPERS could help curb rising pension costs by taking a tougher stand and more narrowly defining the law. Brown, however, remained silent on the subject. A letter from the governor to CalPERS last week asked the board to exclude temporary upgrade pay and didn’t mention anything else.
Marcia Fritz, a pension-change advocate and president of the California Foundation for Fiscal Responsibility, said that allowing temporary upgrade pay “is laughable” and will spur efforts to change the board’s composition with a ballot measure. Fritz has been part of previous pension initiative efforts that failed for lack of funding.
“We don’t have an independent, unbiased board,” Fritz said, predicting that CalPERS will continue to “chip away” at Brown’s pension law with its authority to write regulations that interpret the statute. “This is just the first thing. The board is going to look at any way they can find to wiggle around it.”