UPDATE: November 10, 2011 – AB340 was withdrawn in September.  For more information please see the news update, Governor Brown releases plan to reform public pensions.

UPDATE:  July 6, 2011 – Assembly Bill 340 has been amended.  Prior to the amendment, the bill would have limited Tier II members to a maximum inclusion of just one years’ worth of vacation compensation in their final average salary calculations.  ACERA staff interpret the amended bill to state that inclusion of vacation compensation cannot exceed what is earned and payable during “each” year of the 3-year Tier II final compensation period.   This is already the current limitation for Tier II, so if the bill passes, Tier II members’ Ventura Benefits would not change.  And as before, Tier I and Tier III members’ Ventura benefits would also not change.

Additionally, if the bill passes, ACERA’s Board of Retirement would become newly responsible for establishing a procedure for assessing and determining whether elements of compensation were paid for the principal purpose of enhancing a member’s retirement benefits.

May 10, 2011 – In the California counties that operate a public retirement system, such as Alameda County, the amount of a member’s lifetime monthly retirement allowance is calculated using a formula. One of the factors in that formula is the retiring member’s highest average monthly salary based on one year or three years’ compensation. In general, the higher the average salary, the higher the member’s monthly retirement allowance.

Currently, under ACERA’s Ventura Agreement, ACERA includes the monetary compensation a member receives for unused, earned vacation leave (and sick leave for Deputy Sheriffs) in the final average salary calculation if that compensation is paid during the member’s highest compensation period of one year (Tiers I and III) or three years (Tier II). A member can receive this compensation by “selling back” vacation during employment, instead of going on vacation. A member will also receive compensation when he or she receives a “vacation cash out” upon terminating employment for any earned vacation he or she did not use. The cash payments included in final average salary cannot exceed what one can earn during the final compensation period.

A bill that is currently pending in California’s legislature, Assembly Bill 340, would limit for some ACERA members the amount of vacation compensation includable in the salary calculation. The bill would also place news rules on returning to work for your employer, and place new mandates on the employer.

Compensation for Unused Vacation – Ventura Benefits

If passed, the bill would limit ACERA to include only 1 years’ worth of vacation accruals in its salary calculation for all retiring members. This means that Tier I and Tier III members would not be affected, as compensation for 1 years’ worth of unused vacation accruals is already the maximum ACERA can include in the salary calculation.

Tier II members, however, would be affected, as the bill would limit ACERA to include the compensation a member receives for 1 years’ worth of unused vacation in the salary calculation, instead of the current 3.

Types of Compensation Included in Salary Calculation

ACERA includes base pay, eligible shift differentials, and eligible footnotes in a member’s retirement salary calculation, as well as any eligible compensation for unused vacation as explained above. If passed, the AB340 would exclude bonus pay, vehicle allowances, and housing allowances from being included in the retirement salary calculation (some ACERA employers have included these as compensation earnable). The bill would also exclude severance pay and unscheduled overtime from being included, but ACERA already excludes these types of compensation from being included in the retirement salary calculation.

Retirees Returning to Work

The bill would also establish regulations that prohibit retirees from returning to work for their employers “in any capacity” until they have been separated from service for a period of at least 180 days.

New Rules for Employers

The bill would mandate that employers enroll new members in the retirement system within 90 days of their eligibility. If an employer failed to do this, it would be responsible for paying to the retirement system any of the member contributions that the new member would have been required to make, plus a $500 administrative fee.

Additionally, the bill would mandate that the employers identify to the retirement system all pay periods in which compensation was earned, regardless of when paid or reported.

Bill Still Pending

This bill is still pending in the legislature and has not yet passed. If passed, the bill would affect any ACERA members retiring on or after January 1, 2012.

To read the complete text of the pending bill, go to www.leginfo.ca.gov/bilinfo.html and type in AB340 in the search blank.