On June 26, Senate Bill (SB) 266 (Leyva) passed out of the Assembly Public Employment and Retirement committee on a 7-0 vote. Sponsored by the California Professional Firefighters (CPF), SB 266 will require CalPERS (PERS) contracted agencies to directly pay retirees and/or their beneficiaries, disallowed retirement benefits using general fund dollars. Contracting agencies includes the State of California, all local agencies as well as school employers who contract with PERS for retirement services. As amended, SB 266 places 100 percent of the total liability for such overpayments on public agencies—abdicating all responsibility previously held by PERS to ensure that retirement benefits are calculated and administered correctly. PERS claims that continuing to pay a benefit that is considered unlawful would jeopardize its plan qualification status with the IRS—making public agencies the target of this measure.
SB 266 Highlights:
- Would require public agencies make direct General Fund payments to retirees and beneficiaries in perpetuity.
- Agencies may seek review of pending MOU compensation proposals from PERS however, there is no certification or recourse should PERS mistakenly approve.
- Provisions in the measure give the retiree full discretion to choose to receive a lump sum payment of the projected lifelong benefit amount or to opt for a direct annuity payment.
- Restricts due process rights for public agencies.
- Retroactively applies to January 1, 2017
Pursuant to Government Code section 20160, once PERS determines that a benefit is disallowed, both the employer and the employee cease making future payments on that benefit, past contributions from the employee are returned to the employee, while past contributions from the employer are applied towards future benefit payments. In the case of a retiree who is receiving a disallowed benefit, the pension system must recoup the overpaid benefit from the retiree directly and adjust future benefit payments to reflect the true pensionable amount earned.
This measure, by its very design, puts state lawmakers in a difficult political position. Afterall, the narrative that continues to drive this measure forward is that “retirees should not have to pay for the mistakes made by the employer”. While the accuracy of that narrative can certainly be debated, lawmakers are faced with a choice to “vote against” the very powerful California Professional Firefighters and Peace Officer Research Association of California (PORAC) unions.
In 2018 Sen. Leyva introduced a similar measure that was vetoed by Governor Brown. Brown expressed significant concerns stating in his message:
“ I’m concerned that this bill’s broad provisions could be easily abused to circumvent limitations in law intended to protect the government – and ultimately taxpayers – from pension spiking. Indeed, in the case of an error, this bill would effectively perpetuate that error for the rest of a member’s life, at substantial taxpayer expense”.
Public employer associations such as the League of California Cities, California State Association of Counties and others remain strongly opposed to this measure.
Governor Newsom, to date, has not indicated where he will land on this measure. As early endorsers of Newsom’s gubernatorial campaign, the California Professional Firefighters may anticipate Governor Newsom will be more receptive than Governor Brown. The question remains, should this measure make it to Governor Newsom, will he exercise the same fiscal restraint as his predecessor?
Now that SB 266 has made it out of its final policy committee, it will move to the Assembly Appropriations committee’s Suspense File. Should the measure make it off the Suspense File, it will move to the Assembly Floor where it will take a simple 41 vote majority to pass. Given that the bill has been amended in the Assembly, it will need to go back to the Senate Floor for a 21-vote majority concurrence vote before heading to the Governor for his signature or veto.
For more information regarding this measure please contact:
Director, Government Affairs
To watch the full debate on SB 266 Click HERE and advance to 41:40 of the Assembly Public Employment and Retirement Committee hearing.