The California Public Employees’ Retirement System (CalPERS) Board of Administration recently approved new draft regulations concerning what types of compensation will be used to calculate pension benefits. These regulations will apply only to members hired on or after January 1, 2013, under the Public Employees’ Pension Reform Act (PEPRA). The regulations are meant to counter pension spiking (artificially inflating compensation in order to increase pensions).
The proposed regulations eliminate six types of compensation from pension calculations: bonus pay; management incentive pay; value of employer paid member contributions; off-salary-schedule pay; uniform allowances; and temporary pay upgrades.
Pay is included in PEPRA pension compensation only if it meets all four of the following requirements: it is part of the normal monthly rate of pay; it is paid in cash to similarly situated members of the same group or class of employment; it is for services rendered during normal working hours; and it is paid pursuant to a publicly available pay schedule.
These draft regulations have a few hurdles to jump before becoming final. First, they will be submitted to the Office of Administrative Law (OAL) for a 45-day public comment period. Comments will be reviewed and responses provided. Second, the draft regulations will be submitted to the Department of Finance for review and approval. Finally, they will be submitted to the OAL for final review and adoption.
According to the CalPERS Board, there are close to 241,000 PEPRA members, representing close to 28 percent of active public employees.
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