HomeMy WebLinkAboutCC 6 PERS 12-21-92CONSENT CALENDAR NO. 6
12-21-92
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DECEMBER 16 1992 Inter -Com �S T�;�
TO: WILLIAM HUSTON, CITY MANAGER
FROM: CITY ATTORNEY
SUBJECT: PUBLIC EMPLOYEES RETIREMENT SYSTEM; CITY ATTORNEY
The Public Employees Retirement System Board has issued a
Circular Letter No. 310-369 dated April 10, 1992 (copy attached).
This letter deals with abuses of the PERS system by artificially
increasing an employee's compensation in the last year of
employment (called "spiking") with the effect of obtaining (or
trying to obtain) a higher pension than the employee's
contributions to PERS over the years of employment would justify.
The objective of the PERS letter is understandable and
reasonable, but should have no effect on my pension rights. I have
been a regular employee member of PERS for more than the past 27
years and have paid regular PERS contributions during all that
period, totalling in excess of $90,0.00. There is nothing
whatsoever in the nature of spiking about my PERS situation. No
changes have been made in the City Attorney's employment or
compensation other than normal inflation increases from time to
time. (The last time the monthly salary was revised was in 1989.)
In order to fully comply with the law of the Public Employees
Retirement Systems and the latest rules and interpretations of the
PERS Board, it is necessary to clarify and restate the provisions
of the basic employment of the City Attorney as set forth in the
attached Resolution. This restatement is not a change from the
provisions which have been in effect for a number of years and will
have no financial change or effect.
Recommendation:
That the City Council adopt the attache esolut' n.
JAMES G. ROURKE, City Attorney
J0R:jab:R2:121692(IC-306 Jab)
Enclosure
cc: Ronald Nault
PERS
Vi
rcular Letter
California Public Employees' Retirement System
P.O. Box 942701
Sacramento, CA 94229-2701
(916) 3263141
Telecommunications Device for
the Deaf - No Voice (916) 326-3240
Date: April 10. 1992
Reference No.:
Circular
Letter No.: 310-369
Distribution: SPECIAL
Special:
CERTIFIED MAIL - RETURN RECEIPT REQUESTED
TO: HEAD OF ALL CONTRACTING AGENCIES AND SCHOOL EMPLOYERS
SUBJECT: INFLATED RETIREMENT BENEFITS
Recently, PERS has become aware that many contracting agencies have
been entering into labor agreements with individuals and groups,
that provide inflated pension benefits for employees- "whose
retirements are imminent. The most prevalent method of inflating
benefits is to increase the compensation reported to PERS in the
final year(s) before retirement. In most instances, the increased
compensation reported to PERS is not in compliance with the Public
Employees' Retirement Law (PERL) . In some_ cases, this has occurrAd
because of a misunderstanding of law; in other cases, there is
evidence of possible criminal fraud and collusion.
The vPERL does not restrict the employer from agreeing to provide
the employee with any form of compensation. It does, however,
define what is "reportable" compensation for the purpose of -
calculating PEPS benefits; and it is this latter issue that this
letter addresses.
COMPENSATION REPORTABLE TO PERS
Government Code (G.C.) section 20022 of the PERL defines what is
and is not regarded as "compensation" reportable to PERS for
retirement purposes. This section has been amended numerous -times
over the past several years, primarily for clarification purposes.
Today, this section enumerates several forms of reportable/non-
reportable compensation. The legislature, realizing that it was
impossible to include every form of compensation in the law, gave
the PERS Board express authority to determine what compensation is
to be included or excluded in the calculation of retirement
benefits. (Government Code Sections 20022(a)(12) and
20022 (b) (15) ] .
PERS-ADM-69-HP (Rev. 6191)
INFLATED RETIREMENT BENEFITS 4 PAGE 2 ,
INCLUDABLE COMPENSATION
In determining what is and is not reportable, PERS will look beyond
the name of a particular form of compensation and apply the law
accordingly. -The fundamental intent of 20022(x) is to include as
reportable compensation:
• any payment for services rendered during a normal work schedule
(base pay)- including any deductions such as deferred
compensation deductions, haalth care premiums, etc.
EXCLUDABLE COMPENSATION
The .fundamental intent. of 20022 (b) is to exclude from reportable
compensation:
• any payment which is in excess of compensation earned during a
normal work schedule (such as overtime, etc.);
• any employer payments towards benefits such as (health care,
dental care, etc.);
• any additional payments directly connected to termination
and/or retirement;
• any payments in lieu of benefits (such as cafeteria plans);
TYPES OF COMPENSATION MOST FREQUENTLY REPORTED IN ERROR
The items of compensation that appear to be erroneously reported
the most frequently are: -
• payments resulting from the conversion of a benefit to salary.
For example, if an employer provides medical insurance and
contributes in part or in whole for the premium, such premium
cannot be reported as compensation for the member. If a member
.elects not to have the benefit, then any additional
compensation that may result cannot be reported as compensation
to PERS. For example, if a flexible benef it plan provides that
the employee may choose between fully -paid medical coverage of
$400 per month or waive the insurance and take the $400 in
additional compensation, such compensation cannot be reported
to PERS. This prohibition is stated in G.C. section
20022(b)(1) and (14) and by Board interpretation (see
Attachment).
INFLATED RETIREMENT BENEFITS
PAGE 3
employer payments of member contributions which are credited to
the member's account. These payments cannot be paid by the
employer and then included in the compensation reported to
PERS. Such action is in violation of G.C. Section 20022(b) (6)'.
payments for unused sick leave, vacation, annual leave,
compensating time off, management leave, or any other leave
program. Government Code section 20022(b)(7) and Board
interpretation (Attachment) prohibit such conversions in either
lump sum or through periodic payments.
final settlement pay. This highly misused item is clearly
defined in G.C. section 20022(b) as "any pay in excess of
salary granted or awarded in connection with a separation from
employment, including severance pay, bonuses, retroactive
adjustments to salary, payment of the value of retroactive
adjustment to benefits, and any other grant or award that the
board may determine..."
special compensation for performing additional services outside
regular duties. This includes standby pay, call-back pay,
automobile allowance, and bonuses for services outside normal
duties [G.C. Section 20022(b)(10)).
EFFECT OF ERRONEOUS REPORTING
A public agency which contracts with PERS for retirement benefits
must comply with the provisions of the PERL (G.C. section 20493).
The PERL supersedes all other law, city or county/district
ordinances, resolutions, agreements, memoranda of understanding,
policies, etc., regarding -retirement issues. Failure to comply
with the PERL and the Board's interpretation of the PERL could
result in the termination of your PERS contract.
PERS actuaries estimate that for each one dollar increase in
monthly benefits in excess of the actuarial assumptions, taxpayers
will pay as much as one hundred fifty dollars ($150.00) to fund
that extra benefit. For example, if an employer/employee
arrangement provides $200 per month in excess of the actuarial
assumptions, the unfunded amount would be $30,000. In one case
reviewed by PERS, the unfunded liability was projected by the
actuaries to be nearly $650,000. In another instance, the
estimated unfunded liability was nearly $1,000,000.
INFLATED RETIREMENT BENEFITS PAGE 4
The Public Employees' Retirement System was established to provide
disability, retirement and death benefits to its members in an
actuarially sound manner. Further, federal law requires all
members be treated without discrimination. When special agreements
are made that provide increased benefits for an individual or a
selected group, it is contrary to the very principles on which this
System was established and which protect it from the loss of tax
qualification.._3_:
HOW TO OBTAIN A RULING FROM PERS
As part of our increasing scrutiny in this area, we are increasing
our field audits to ensure compliance. In addition, we have
established a new unit to provide rulings on the reportability of
compensation. If you are unsure of the reportability of any item
of compensation, or have an employer/ employee agreement that
enhances retirement benefits by increasing the compensation
reported to PERS in the final year(s).. write to our Member Services
Division at the address shown above. Please include in your
request any documentation that clgarly defines the item of
compensation or issues that are of concern. This documentation
should include, -but not be limited to, memoranda of understanding,
board resolutions and minutes, examples of how and when the form of
compensation.is paid, etc. PERS will respond to your inquiry in
writing. We will only respond to written requests, and will not be
bound by any oral communication of any sort.
Dale M. Hanson
Chief Executive Officer
BH:bct
Attachment
REPCOMP2.DOC
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RESOLUTION NO. 92-155
A RESOLUTION OF THE CITY COUNCIL OF THE CITY
OF TUSTIN, CALIFORNIA, PRESCRIBING THE
EMPLOYMENT AND COMPENSATION OF THE CITY
ATTORNEY
The City Council of the City of Tustin hereby resolves as
follows:
WHEREAS; the retainer and compensation of the City Attorney
for basic legal services has been prescribed by Minute Orders and
Resolutions of the City Council from time to time; and
WHEREAS, recent interpretations of the Public Employees
Retirement System ("PERS") Board and staff have created ambiguities
about the proper construction of city attorney compensation for
Public Employees Retirement System purposes; and
WHEREAS, for purposes of clarification, the City Council by
this Resolution restates the terms of the compensation of the City
Attorney for basic services.
NOW, THEREFORE, the City Council of the City of Tustin,
California, hereby resolves as follows:
1. The monthly salary of the City Attorney for the
performance of basic services is Six Thousand Dollars ($6,000) per
month.
2. For the prescribed monthly salary, the City Attorney
shall continue to provide to the City each month services of
attendance at all regular meetings of the City Council and Planning
Commission and thirty-five (35) hours of basic legal services.
3. Any and all legal services as may be required by the City
in addition to those specified above shall be billed to City at the
rate of One Hundred Twenty Dollars ($120) per hour.
4. The City Council declares that the foregoing provisions
are the same arrangements which have been in existence and have
been understood by the City and the City Attorney at all times over
most of the past twenty years or more, with only the amounts having
been adjusted from time to time, primarily as necessary to reflect
inflation, and are restated in this Resolution to eliminate anyl
possible different understandings or interpretations of the Public,
Employees Retirement System.
JGR: jab: R3:121692(A261.jab)
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Resolution No.
Page 2
PASSED AND ADOPTED, at a regular meeting of the City Council
for the City of Tustin on this day of , 1992.
LESLIE ANNE PONTIOUS, Mayor
ATTEST:
MARY E. WYNN, City Clerk
RESOLUTION CERTIFICATION
STATE OF CALIFORNIA )
COUNTY OF ORANGE ) ss.
CITY OF TUSTIN )
RESOLUTION NO.
MARY E. WYNN, City Clerk and ex -officio Clerk of the City
Council of the City of Tustin, California, does hereby certify that
the whole number of the members of the City Council of the City of
Tustin is five; that the above and foregoing Resolution was passes
and adopted at a regular meeting of the City Council held on the
day of , 19 by the following vote:
COUNCILPERSONS AYES:
COUNCILPERSONS NOES:
COUNCILPERSONS ABSTAINED:
COUNCILPERSONS ABSENT:
Published: `'
MARY E. WYNN, City Clerk