HomeMy WebLinkAbout03.b. Receive overview of pensionability of elements of compensation Page 1 of 14
Item 3.b.
CENTRAL SAN
January 14, 2020
TO: ADMINISTRATION COMMITTEE
FROM: TEJI O'MALLEY, HUMAN RESOURCES MANAGER
REVIEWED BY: ANN SASAKI, DEPUTY GENERAL MANAGER
ROGER S. BAILEY, GENERAL MANAGER
SUBJECT: RECEIVE OVERVIEW OF PENSIONABILITYOF ELEMENTS OF
COMPENSATION
This memo provides an overview of how elements of compensation are determined to be pensionable, as
well as a list of what District-specific pay items have been determined to be pensionable.
Government Code Sections 31460, 31461, and 31462.1 define what pay items are considered
compensation earnable (Legacy employees) and pensionable (Public Employees' Pension Reform Act
(PEPRA) employees). Although two different terms are used, "compensation earnable" and
"pensionable," each is based upon an employee's membership date in Contra Costa County Employees'
Retirement Association (CCCERA), and both define what pay items are included in the Final Average
Salary (FAS) period for retiring employees and are factors in determining employee and employer
contributions throughout employment.
CCCERA is the agency responsible for interpreting, applying, and upholding the applicable Government
Code sections for employers who participate in CCCERA. The CCCERA Board of Trustees has
adopted policies that determine the pensionability of all pay items. For reference, both CCCERA policies
(Attachment A and Attachment B) are included.
An employer may determine what compensation to provide for their employees but cannot determine
whether that pay item is or is not pensionable.
Also attached is a list of District-specific pay items (Attachment C)that have been authorized by CCCERA
to be pensionable.
Staff will be available to answer any questions or provide clarification at the meeting.
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ATTACHMENTS:
1.Attachment A- Post AB 197 Compensation Earnable Policy
2.Attachment B - Post AB340 Pensionable Compensation Policy Under PEPRA
3.Attachment C -The District's Pensionable Pay Items
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ATVA FiMkWr A
CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION
BOARD OF RETIREMENT
POLICY ON DETERMINING "COMPENSATION EARNABLE"
UNDER ASSEMBLY BILL 197
FOR PURPOSES OF CALCULATING RETIREMENT BENEFITS
FOR "LEGACY" (PRE-PEPRA) MEMBERS
Adopted: 9/10/2014
I. INTRODUCTION
In 1997, the California Supreme Court held that "compensation earnable" used to determine a
retiring member's retirement allowance ordinarily includes all cash payments received for
services performed, with the exception of overtime pay. Ventura Deputy Sheriffs'Assn. v. Board
of Retirement, 16 CalAth 483 (1997). In 2012, the California Legislature enacted and the
Governor signed into law Assembly Bill 197, which changed the way the Board of Retirement
must calculate "compensation earnable". The effective date of AB 197 was January 1, 2013, but
that date was postponed until July 12, 2014 by an order of the Contra Costa County Superior
Court! AB 197 applies to the calculation of benefits for all active or deferred employees who
first became CCCERA members before January 1, 2013 ("Legacy Members.") AB 197 does not
apply to "New Members," generally those who became members of CCCERA for the first time
on or after January 1, 2013. The retirement allowances of"New Members" will be calculated
under the provisions of the California Public Employees'Pension Reform Act of 2013
("PEPRA.")
On May 12, 2014, the Contra Costa County Superior Court issued a final Judgment and Writ
interpreting AB 197 and concluding that it was consistent with prior law. The Court's Statement
of Decision supporting the Judgment concluded that several of CCCERA's prior practices were
not consistent with applicable law—primarily with reference to the inclusion of leave sell-backs
and cash-outs for time not both earned and payable annually during the one- or three-year final
average salary("FAS")period. Although the litigation is now on appeal, the Judgment and Writ
have not been stayed, and CCCERA is legally bound to apply them to all retirements occurring
on or after July 12, 2014.
AB 197 and the Judgment and Writ changed the way CCCERA is obligated to calculate Legacy
Members' retirement allowances, primarily by requiring CCCERA to exclude certain elements of
compensation that previously were treated as "compensation earnable" if earned or received
during the FAS period. AB 197 provides that these exclusions from "compensation earnable"
are intended to be consistent with and not in conflict with the holdings in Salus v. San Diego
County Employees Retirement Association, 117 Cal.App.4th 734 (2004) and In re Retirement
Cases, 110 Cal.AppAth 426 (2003). (Gov. Code § 31461(c).) These two appellate court
decisions held as follows: (1) Compensation that may only be received at termination and never
1 Contra Costa County Deputy Sheriffs Association, et al., v. CCCERA, et al., Contra Costa
County Superior Court, Case No. N12-1870.
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during service must be excluded from "compensation earnable"; and (2) Amounts received at the
end of a career that "distort" the notion of"average annual compensation" must also be excluded.
The Legislature intended that the Board's implementation of AB 197 be guided by these two
principles, and the CCCERA Board intends to follow these principles in implementing the
requirements of AB 197.
II. PURPOSE
The purpose of this Policy is to set forth what elements of pay constitute "compensation
earnable" for Legacy Members under AB 197 and the Superior Court's Final Judgment and Writ.
III. POLICY
This Policy identifies what elements of compensation are now considered "compensation
earnable" during the FAS period and sets forth the policies and practices CCCERA intends to
follow in implementing the new law. A list of general pay items that are included in, and
excluded from, "compensation earnable" by CCCERA effective on and after July 12, 2014 is
attached hereto as Attachment A.
Where an item of remuneration is not excluded categorically from "compensation earnable,"
CCCERA's participating employers will need to collect and pay both employer and employee
contributions on such amounts, if and when paid during service.
A. "Compensation Earnable" Is the Average Annual Compensation For the
Period Under Consideration.
Applicable Law: "Compensation earnable"by a member means the average compensation as
determined by the board,for the period under consideration upon the basis of the average
number of days ordinarily worked by persons in the same grade or class of positions during the
period, and at the same rate of pay. The computation for any absence shall be based on the
compensation of the position held by the member at the beginning of the absence.
Compensation, as defined in Section 31460, that has been deferred shall be deemed
"compensation earnable"when earned, rather than when paid. (Gov. Code Section 31461(a).)
CCCERA Policies and Practices. This provision remains unchanged under AB 197. The section
primarily defines what constitutes an ordinary work week, excluding compensation received for
non-mandatory "overtime." Consistent with the Supreme Court decision in Ventura Deputy
Sheriffs'Assn. v. Board of Retirement, 16 CalAth 483 (1997), "compensation earnable"
ordinarily includes all cash payments received for services performed during normal working
hours, and usually does not have to be earned or received by everybody else in the same grade or
class. Thus, "compensation earnable" ordinarily includes regular salary, service and skill based
differentials (e.g. POST, CPA, bilingual pay), holiday pay, allowances (uniform, automobile).
"Compensation earnable" excludes overtime pay.
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B. "Compensation Earnable" Excludes Payments For Unused Leave To
The Extent They Exceed What Was Both Earned and Could Have
Been Sold Back For Cash During Service During The FAS Period
Applicable Law: "Compensation earnable"does not include, in any case, the following:
Payments for unused vacation, annual leave,personal leave, sick leave, or compensatory time
off, however denominated, whether paid in a lump sum or otherwise, in an amount that exceeds
that which may be earned and payable in each 12-month period during the final average salary
period, regardless of when reported or paid. (G.C. § 31461(b)(2).)
CCCERA Policies and Practices. Every CCCERA employer has policies and memoranda of
understanding governing its employees' ability to earn vacation, sick, compensatory and other
leave time, and to receive the value of some or all of those accruals in cash in lieu of time off,
but not all such cash payment for unused leave can be included as "compensation earnable".
Cash payment for unused leave will be included only to the extent it does not exceed that which
may be earned and payable in each 12-month period during the final average salary period.
The CCCERA Board has determined that if a Legacy Member has an employment agreement
that allows an annual "sell back" of a certain number of leave hours (e.g., every calendar or fiscal
year), then the payment to be included in the FAS period will be limited to that same number of
hours per year, regardless of whether the member actually cashed out more during the selected
one- or three-year FAS period. Thus, if a member earns 240 hours of vacation leave in a
calendar year and is allowed to sell back 80 hours of unused leave each calendar year, the
amount that can be counted as "earned and payable" during the FAS period will be 80 hours,
even if the member chose a FAS period that "straddles" two calendar years and sells back 80
hours twice during that period. This avoids the distortion that could arise between comparable
members solely due to the selection of the twelve (or thirty-six) month FAS period, and yields a
true "average annual" compensation earnable.
In general, it does not matter whether the member actually received the cash in lieu of time while
still employed or at termination. If it was both earned and payable during the FAS period and
does not exceed the employment agreement annual sell back limits, it will be "compensation
earnable," regardless of when actually paid.
CCCERA will not need to trace the origin of each hour of leave earned, accrued and/or sold
during a member's career. CCCERA will look to the applicable employment agreement to
determine how much a member may earn and receive in cash in each time period (e.g., each
calendar year or fiscal year) during the FAS period to determine how much is to be included in
"compensation earnable."
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(i) Exception: "Estoppel Class" Members Are Entitled to
Include Additional Leave Cash Out Amounts Beyond
What AB 197 Allows.
Applicable Law. The Judgment and Writ recognize that some Legacy Members of CCCERA
may be entitled to include additional leave cash-out amounts in their "compensation earnable"
beyond the amounts allowed by AB 197. The requirements are:
➢ Before Dec. 31, 2012, the member's employer allowed, during employment, a cash out of
unused leave time in amounts in excess of the amount of leave time earned in the selected
FAS period.
➢ On Dec. 31, 2012, the member had accrued ("banked") such excess leave time.
➢ At retirement, the member still has some or all of that banked leave time at
commencement of his or her FAS period.
➢ The member cashes out some or all of that bank during service in the FAS period (not
upon termination).
If all the foregoing requirements are met, CCCERA also will include in the Legacy Member's
"compensation earnable" for the FAS period the lesser of(a) the accrued bank or(b) the amount
of the bank actually cashed out during the FAS period.
The CCCERA Board has determined that the bank can be preserved entirely if the member never
uses or sells back more than what the member earns and can sell after December 31, 2012. For
example, assume that the member had a bank of 320 hours on December 31, 2012, and prior to
the beginning of the final compensation period the member only uses or sells back hours that the
member earned after December 31, 2012. If the employer allows the member to sell back 320
hours during the final compensation period, it will all count towards the retirement allowance.
C. "Compensation Earnable" Excludes Termination Pay.
Applicable Law: "Compensation earnable"does not include, in any case, the following:
Payments made at the termination of employment, except those payments that do not exceed
what is earned and payable in each 12-month period during the final average salary period,
regardless of when reported or paid. (G.C. § 31461(b)(4).)
CCCERA Policies and Practices. AB 197 made clear, based on case law precedent, that
payments that are not both earned and payable to the member during service, but only received
because of termination of employment, may not be included in the calculation of the retirement
allowance. For example, severance pay and termination pay are generally excluded from
"compensation earnable." It is recognized, however, that some pay for unused leave that could
have been received during service may not be received until termination, solely due to the
member's choice not to take it during service. Taking the money in a "lump sum" at termination
does not necessarily disqualify it from inclusion in "compensation earnable." So long as the total
of leave cashouts received during the FAS period and at termination does not exceed the amount
that was both earned and could have been paid in cash during the FAS period, it will be included
in calculating the retirement allowance, subject to the annual "sell back" limitation described in
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Section III.B. of this Policy. Amounts in excess of that amount will be excluded from
"compensation earnable."
D. "Compensation Earnable" Excludes Payments For Additional
Services Rendered Outside of Normal Working Hours.
Applicable Law: "Compensation earnable"does not include, in any case, the following:
Payments for additional services rendered outside of normal working hours, whether paid in a
lump sum or otherwise. (G.C. § 31461(b)(3).)
CCCERA Policies and Practices. Pay received for "overtime" is not included in "compensation
earnable." To be included, the time for which compensation is received (1) must be the normal
working hours set forth in the applicable employment agreement, (2) must be required by the
employer to be worked by the employee (as distinguished from voluntarily worked), and (3)
must be ordinarily worked by all others in the same grade or classification at the same rate of pay
during the FAS period. Pay that will be reviewed under these conditions is often described as
"standby" and "on-call." Employers must report to CCCERA as pensionable only that pay for
work that is required of and ordinarily served by everyone in the same grade or classification, at
the same rate of pay.
E. "Compensation Earnable" Excludes Compensation Determined By
the Board To Have Been Paid To Enhance A Member's Retirement
Benefits.
Applicable Law: "Compensation earnable"does not include, in any case, the following:
Any compensation determined by the board to have been paid to enhance a member's
retirement benefit under that system. That compensation may include:
(A) Compensation that had previously been provided in kind to the member by the
employer or paid directly by the employer to a third party other than the retirement
system for the benefit of the member, and which was converted to and received by the
member in the form of a cash payment in the final average salary period.
(B)Any one-time or ad hoc payment made to a member, but not to all similarly situated
members in the member's grade or class.
(C)Any payment that is made solely due to the termination of the member's employment,
but is received by the member while employed, except those payments that do not exceed
what is earned and payable in each 12-month period during the final average salary
period regardless of when reported or paid.
(G.C. § 31461(b)(1).)
CCCERA Policies and Practices. AB 197 gives the Board authority to review employer pay
practices generally, and compensation received individually, to determine if any element of
compensation being considered as "compensation earnable" during the FAS period was paid to
"enhance" the member's retirement benefit. Examples would include converting from the use of
an automobile for many years during service to the sudden receipt of an auto allowance in the
year before retirement; converting from employer payments to third-party insurance providers
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during a member's career to making direct cash payments to the member instead, and having the
member separately purchase insurance coverage with the cash; a bonus received at the end of
career solely for announcing one's retirement; retroactive grants of cashable leave time; pay
received for voluntary after-hours "on-call" service substantially exceeding the member's
practice during his or her career; "termination pay" that could not have been received during
service; departmental transfers to higher paying positions in a member's final year after it is
known the member is retiring; and similar examples of activities that appear to distort the
"average annual" compensation earnable the member would have received had he or she not
been nearing retirement.
Before the Board makes a determination under this provision, it will afford the member
appropriate due process, including an opportunity to appear before the Board and present
evidence to support the inclusion of the pay item in calculating the member's retirement
allowance, as set forth in the Policy Regarding Assessment and Determination of Compensation
Enhancements.
IV. IMPLEMENTATION BY CCCERA
The Retirement Chief Executive Officer, with assistance from legal counsel, is responsible for
implementing the Board's determination related to "compensation earnable." The CEO is
authorized to examine new pay codes and determine their pensionablility as follows: If new pay
codes are substantially similar to ones addressed in this Policy, the CEO is authorized to notify
the employer of the pay item's pensionability without taking the item to the Board. If new pay
codes are unusual or unique, the CEO will present the pay code to the Board for the Board's
determination on pensionability. In all cases, the CEO will keep the Board informed regarding
significant ongoing issues and challenges, as appropriate.
This Policy was adopted by the Board of Retirement on September 10,2014 and supersedes
the predecessor "Determining Which Pay Items are 'Compensation' for Retirement
Purposes," as amended, and the Addendum thereto.
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Attachment
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CONTRA COSTA COUNTY EMPLOYEES'RETIREMENT ASSOCIATION
BOARD OF RETIREMENT
CHART OF GENERAL PAY ITEMS THAT ARE INCLUDED IN AND EXCLUDED
FROM "COMPENSATION EARNABLE" EFFECTIVE JULY 12, 2014 UNDER
ASSEMBLY BILL 197 AND THE SUPERIOR COURT'S JUDGMENET AND WRIT
FOR "LEGACY" (PRE-PEPRA) MEMBERS
The following list applies to the calculation of benefits for all active or deferred employees who
first became CCCERA members before January 1, 2013 ("Legacy Members.") New members
after that date will have their retirement allowances calculated under the provisions of the
California Public Employees'Pension Reform Act of 2013 ("PEPRA.")
"Compensation earnable" ordinarily includes:
• Regular base salary
• FLSA premium pay for regularly scheduled work assignment (fire and law
enforcement)
• Longevity pay
• Cash payments for special skills and qualifications and unique services, such as:
➢ bilingual pay
➢ shift differential
➢ special assignment differential
➢ holiday pay
• Educational incentive pay (e.g. POST, CPA)
• In-service leave cash outs (earned and payable each year, regardless of when actually
paid)
• Allowances (e.g. uniform, automobile)
• Standby or on-call pay (for work during normal working hours, required by the
employer and not voluntary, and ordinarily worked by all others in the same grade or
classification at the same rate of pay during the FAS period)
"Compensation earnable" ordinarily excludes:
• Overtime pay
• Expense reimbursements
• The monetary value of advantages received in kind, such as:
➢ uniforms
➢ employer payments to third-party insurers
➢ lodging
➢ transportation
➢ the use of an automobile.
• Employer contributions to deferred compensation plans
• Lump sum at termination for accrued unused leave that could not be cashed out
annually during service
• Severance pay
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ATTAeFW&?1d4
CONTRA COSTA COUNTY EMPLOYEES' RETIREMENT ASSOCIATION
BOARD OF RETIREMENT
POLICY ON DETERMINING "PENSIONABLE COMPENSATION"
UNDER PEPRA
FOR PURPOSES OF CALCULATING RETIREMENT BENEFITS
Adopted: 9/10/2014
I. INTRODUCTION
In 2012, the Legislature enacted and the Governor signed into law Assembly Bill 340, which
included the California Public Employees' Pension Reform Act of 2013 ("PEPRA.") PEPRA
changes the terms, conditions and calculation of retirement allowances for new CCCERA
members from those previously in place for "Legacy Members" of CCCERA. This Policy is
effective as to the calculation and amount of retirement allowances for those members of
CCCERA who become "new members" of the retirement system, as defined in PEPRA, Gov.
Code Section 7522.04(f), on or after January 1, 2013.
II. PURPOSE
The purpose of this Policy is to implement provisions of PEPRA relating to member
compensation included in pensionable compensation in accordance with G.C. Section 7522.34.
Pursuant to PEPRA, "pensionable compensation" is used to calculate members'retirement
allowances. (Note: "Pensionable compensation" under PEPRA is comparable to "compensation
eamable" under the County Employees' Retirement Law of 1937, which is used to calculate the
retirement allowances of Legacy Members.)
III. POLICY
Applicable Law: PEPRA defines "pensionable compensation" as follows:
"Pensionable compensation"of a new member of any public retirement system means the
normal monthly rate of pay or base pay of the member paid in cash to similarly situated
members of the same group or class of employment for services rendered on a full-time
basis during normal working hours,pursuant to publicly available pay schedules.
Compensation that has been deferred shall be deemed pensionable compensation when
earned rather than when paid.
(Gov. Code Section 7522.34(a) and (b).)
1
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PEPRA excludes from "pensionable compensation" the following:
(1) Any compensation determined by the board to have been paid to increase a member's
retirement benefit under that system.
(2) Compensation that had previously been provided in kind to the member by the employer
or paid directly by the employer to a third party other than the retirement system for the
benefit of the member and which was converted to and received by the member in the
form of a cash payment.
(3) Any one-time or ad hoc payments made to a member.
(4) Severance or any other payment that is granted or awarded to a member in connection
with or in anticipation of a separation from employment, but is received by the member
while employed.
(5) Payments for unused vacation, annual leave,personal leave, sick leave, or compensatory
time off, however denominated, whether paid in a lump sum or otherwise, regardless of
when reported or paid.
(6) Payments for additional services rendered outside of normal working hours, whether
paid in a lump sum or otherwise.
(7) Any employer-provided allowance, reimbursement, or payment, including, but not limited
to, one made for housing, vehicle, or uniforms.
(8) Compensation for overtime work, other than as defined in Section 207(k) of Title 29 of
the United States Code [FLSA].
(9) Employer contributions to deferred compensation or defined contribution plans.
(10)Any bonus paid in addition to the compensation described in subdivision (a) [of G.C. §
7522.34].
(11)Any other form of compensation a public retirement board determines is inconsistent
with the requirements of subdivision (a) [of G.C. § 7522.34].
(12)Any other form of compensation a public retirement board determines should not be
pensionable compensation.
(Gov. Code Section 7522.34(a) and (b).)
CCCERA Policies and Practices. The CCCERA Board has determined that "Pensionable
Compensation" includes "base pay." Pensionable compensation does not include any pay other
than base pay, in accordance with Govt. Code Sections 7522.34(c)(11) and (12).
For purposes of determining the amount of"pensionable compensation," pensionable
compensation shall be limited to the amount listed on "publicly available pay schedules." A
"publicly available pay schedule" must meet all of the following requirements:
1. Has been duly approved and adopted by the employer's governing body in accordance
with requirements of applicable public meetings laws;
2. Identifies the position title for every employee position;
3. Shows the pay rate for each identified position, which may be stated as a single
amount or as multiple amounts within a range;
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4. Indicates the time base, including, but not limited to, whether the time base is hourly,
daily, bi-weekly, monthly, bi-monthly, or annually;
5. Is posted at the office of the employer or immediately accessible and available for
public review from the employer during normal business hours or posted on the
employer's internet website;
6. Indicates an effective date and date of any revisions;
7. Is retained by the employer and available for public inspection for not less than five
years; and
8. Does not reference another document in lieu of disclosing the pay rate.
Whenever an employer fails to meet all of the foregoing requirements, the Retirement Board, in
its sole discretion, may determine an amount that will be considered to be "pensionable
compensation," taking into consideration all information it deems relevant including, but not
limited to:
(a) Documents approved by the employer's governing body in accordance with
requirements of public meetings laws and maintained by the employer; and
(b) Pensionable compensation earned by the member that last met the foregoing
requirements.
This policy was adopted by the Board of Retirement on September 10, 2014 and supersedes
the predecessor "Second Addendum to Policy for Determining Which Pay Items are
'Compensation' for Retirement Purposes."
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The District's Pensionable Pay Items ATTACHMENT C
Pensionable pay items for employees with a CCCERA membership date prior to December 31, 2012
(72% of current workforce)
Base Salary Crane and Boom Truck Pay Provisional Appointment Pay
Registration Differential Meal Allowance Bilingual Pa
Mandatory Stand-By Pay Out-of-Class Pay Relief Operator Pay
Night Shift Differential Class A/B License Pa Annual Vacation Sell Back
Swing Shift Differential Longevity Pay (Up to one year's worth of accruals to a
Scheduled Holiday Pay Cafeteria Plan imaximum of 160 hours)
Pensionable pay item for employees with a CCCERA membership date on or after January 1, 2013
(28% of current workforce)
Base Salary
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