CalPERS’ pension rules would OK 99 types of extra pay to count toward pensions

By Jon Ortiz

Published: Tuesday, Aug. 19, 2014 - 12:00 am - The Sacramento Bee

More than a year after Gov. Jerry Brown signed a law he said would tamp down pension spiking, the state’s biggest public pension fund is on the verge of adopting rules critics say would undermine its intent.

Staff at the California Public Employees’ Retirement System has suggested that the fund’s board authorize 99 types of special payments as counting toward pension calculations for employees hired since Brown’s pension law took effect on Jan. 1, 2013. Among them: longevity pay, police marksmanship certification pay, physical fitness pay, smog inspector license pay, notary pay, cement finisher pay and holiday pay.

Public pension-change advocates, including Democratic San Jose Mayor Chuck Reed, say the proposal is another sign that the union-dominated CalPERS board “is doing what they can to resist reforms. … They’re in favor of anything that expands benefits.”

But CalPERS says the proposal is consistent with the law and gives much-needed clarity to the 3,100 school districts and state and local governments in the retirement system who need to know what to report to the fund.

The proposal up for discussion Tuesday and a vote by the CalPERS board on Wednesday isn’t political, fund spokesman Brad Pacheco said in an emailed statement to The Bee.

“We administer the pension system based on what was written in the law and not on what others wish had been written,” Pacheco said.

When Brown signed the public pension law in 2012, he said it would limit pension spiking and chip away at the soaring cost of government retirement benefits, in part by ending the practice of boosting “pensionable” income with supplements to base pay.

To date, Brown has publicly objected to only one item on the additional pay list, a category allowing “temporary upgrade pay” to count toward pensions. Temporary upgrades occur, for example, when an employee fills in for a superior who has to take sudden leave. The promoted employee receives the absent boss’s level of pay while in the acting role. CalPERS is proposing to count that extra income toward pensions.

After CalPERS announced it would take up the proposal this week after giving the public several weeks to write support and opposition letters, the governor sent a brief letter of his own to CalPERS President Rob Feckner on Friday. Brown urged the board to reconsider including temporary-promotion income in pension calculations.

“This disregards the rule that pensions will be based on normal monthly pay and not on short-term, ad hoc pay increases,” Brown wrote.

CalPERS does not have a cost estimate of how much employers’ pensions cost might rise from adding the various pay categories to newer employees’ pensionable income, or how much more workers or their employers would have to contribute to the fund.

Action by CalPERS would not affect employees hired before the law took effect, who already were able to count supplemental pay toward their pensions.

Elk Grove City Manager Laura Gill said including temporary upgrade pay “really does invite spiking” and threatens to erode savings from pension changes the Sacramento suburb has enacted the past couple of years, such as city employees paying their share of pension costs.

She envisioned a scheme where an employee late in his or her career would find a temporary assignment and earn between 5 percent and 10 percent more salary for six months to a year. Upon retirement, the boost would then ripple into the employees’ pensionable salary calculation.

If such practices became standard, “it would put us backward from all the work we’ve done to have a sustainable and sound pension system,” Gill said.

But Mike Durant, president of the union-backed Peace Officers Research Association of California, dismissed those kinds of concerns. If a city or the state needs pension relief, he said, “they can bargain it.”

Instead, he said, government employers expect CalPERS to save them from themselves.

“They want to put it on the backs of someone else to make those decisions rather than making it themselves,” he said.

CalPERS administers pension benefits and investments for about 1.6 million members. In fiscal 2012-13 it took in $3.9 billion in contributions from employees and $8.1 billion from employers. Its assets are approaching $300 billion.

But it is still recovering from deep losses six years ago while confronting a growing number of retirees who are living longer. As a result, the fund has announced it is raising rates on employers over the next several years, in some cases squeezing local and school district budgets.

Despite those concerns, Brown’s letter to CalPERS did not mention the other 98 items on the pensionable compensation list.

When asked whether the governor supported everything except the proposal to recognize temporary upgrade pay, Brown spokesman Jim Evans said, “I think the letter is pretty clear on what the governor opposes.”

CalPERS has taken the letter as a clear signal that temporary pay is Brown’s only objection to the proposal.

“We appreciate that Governor Brown recognized that CalPERS proposed regulations are essentially consistent with the purposes of the Pension Reform Act,” fund spokesman Pacheco said.