By administrative fiat, the California Public Employees' Retirement System has undermined a key anti-spiking provision of the new state pension law that Gov. Jerry Brown signed last summer.

The agency's absurd interpretation of the new law will fatten pensions for new public employees, drive up government costs and erode untold billions of dollars of savings that the governor and CalPERS previously claimed the new law would produce.

The key provision is pretty simple: New employees will receive pensions based only on their "normal monthly rate of pay or base pay."

But CalPERS, an agency run by a labor-dominated board, quietly issued notice between Christmas and New Year's Day that it intends to interpret that language broadly, effectively gutting a provision that seemed designed to rationally reduce the size and cost of future public employee pensions.

If new workers receive one of nearly 100 different pay premiums for everything from marksmanship and longevity to being a notary or working on a library reference desk, CalPERS has decided, the extra compensation will be counted as income when their pensions are calculated.


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CalPERS is the largest public employee pension system in the state and the nation. So its interpretation of the new law is likely to guide other California retirement programs. Some county-level pension systems are already looking at a similarly generous interpretation -- even though it stands the language of the new law on its head.

CalPERS is calling its Dec. 27 notice an "interim determination" while the retirement system seeks input from stakeholders. But, absent a protest from the governor or key legislators, or a lawsuit, it seems unlikely that CalPERS will reverse course.

To understand the issue, keep in mind that public employee pensions are calculated using a formula that takes into account age at retirement, years on the job and final compensation. At stake is what is included in that compensation.

The new law did not change the types of pay included for most employees hired before this year. For workers covered by CalPERS, the law will continue to allow them to count two types of income:

First, there is "payrate," defined as "the normal monthly rate of pay or base pay." Second, there is "special compensation," defined as payments for "special skills, knowledge, abilities, work assignment, workdays or hours, or other work conditions."

However, the pension bill changes the rules for new employees, hired starting Jan. 1. For them, only the first type of income will count. The law's definition of compensation that can be used in new employees' pension calculations is exactly the same wording used in the law to define "payrate" for workers hired before Jan. 1. For new employees, the new law makes no mention of the second type of income, "special compensation."

But CalPERS, which operates in a parallel universe, has decided that the Legislature and governor meant to include special compensation, even if they didn't say so in the bill. It reasons that because the law for new employees mentions some other types of income that will be excluded from the calculation, all other income should be counted.

So pay premiums that the law considers "special compensation" for employees hired before Jan. 1 will now be redefined by Cal-PERS to be part of the basic "payrate" for new workers. It seems that any pay premium provided on a regular and recurring basis will be counted as income for new employees' pension calculations. Essentially, calculations for new employees will be treated the same as for current workers.

It's bad enough that state and local governments pay extra for many of these items: Compensation for staying physically fit. Pay premiums for confidential work or an "audio visual" assignment. Police paid extra to be DUI traffic officers, or completing Peace Officer Standard Training courses.

Now CalPERS wants to keep counting that premium pay in its calculations, boosting workers' pensions for their entire retirement.

It's bad policy, and it's not a rational reading of the new law.

Daniel Borenstein is a staff columnist and editorial writer. Contact him at 925-943-8248 or dborenstein@bayareanewsgroup.com. Follow him at Twitter.com/borensteindan. For CalPERS' Dec. 27 notice, which contains the list of nearly 100 different pay premiums, go to this column online at contracostatimes.com/daniel-borenstein.