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(Reuters) — The California Public Employees' Retirement System, America's largest public pension fund, is expected to approve nearly 100 types of extra pay on Wednesday that will count toward how pensions are calculated for newly hired workers.
Critics say the move will increase pension costs at a time when cash-strapped California cities are already straining to pay rising retirement costs.
But Calpers said it was only clarifying a recent pension reform law and making changes based on input from city and state employers and workers. The fund said it had not analyzed the impact of the additional pay on pension costs.
The central issue is what counts as monthly income, which is what determines the size of a worker's final pension.
California Gov. Jerry Brown passed a reform law in 2012 that was aimed at reducing pension costs for newly hired workers. The law was intended to end the practice of pension “spiking” or inflating income on the eve of retirement by cashing out sick and vacation time, for example.
The law stated that pensions should be calculated on a worker's “normal monthly rate of pay, or base pay.”
Under the Calpers' provisions, various types of incentive, educational and special assignment pay will be deemed eligible as pensionable income. They include extra payments to police officers for being good marksmen and physically fit and library staff who are “consistently assigned to provide direction or resources to library patrons.” Compensation for workers frequently asked to apply a tar-like substance to sidewalks, roofs and parking lots will also be considered eligible.
Gov. Brown, in a letter to Calpers on Aug. 15, only objected to one item on the additional pay list: allowing temporary upgrade pay to count toward pensions.
“This disregards the rule that pensions will be based on normal monthly pay and not on short term, ad hoc pay increases,” Brown wrote.
On Tuesday, Calpers' Pension & Health Benefits Committee ignored Brown's objection and accepted the whole package. The full board, most of whose members are affiliated with labor unions, will vote on the measure on Wednesday.
The League of California Cities, which represents 450 municipalities, strongly objected to the move.
“The broadening of how Calpers calculates 'pensionable compensation' beyond 'base pay' will further strain cities struggling to recover from the Great Recession,” the League said in a statement.
Calpers administers benefits for over 3,000 city, state and local agencies, or nearly 3 million people, and manages assets of $300 billion. It is phasing in rate increases over the next six years. Many cities say those rate hikes will be hard to meet.
In a statement, Calpers said of the new pay rules for pensions: “The anti-spiking provisions of the new pension reform laws are not being changed and will remain completely intact.”
U.S. Bankruptcy Court Judge Steven W. Rhodes last week accepted the city's petition enabling it to seek protection under Chapter 9 of the U.S. bankruptcy code, and ruled Detroit may legally reduce public pension benefits, despite protection of public pensions under Michigan's constitution.