Friday, August 27, 2010

AB 194: Limits on Pensions

AB 194 is part of a six-bill package of legislation in response to the salary scandal at the City of Bell. AB 194 would cap compensation that could be considered in calculating a public employee's pension at 125% of the Governor's current salary, which is $173,987.  (The Governor's salary was $212,179 but the Citizen's Compensation Commission voted on May 20, 2010 to reduce that salary by 18%, to $173,987, effective December 7, 2009.)  So the cap would be $217,483.75.  The cap would only apply to individuals joining a pension system on or after January 1, 2011 and the cap would be subject to an annual cost-of-living increase. 

This bill isn't all that radical as there is already a federal IRS rule that limits the amount of compensation that can be considered in calculating a public employee retirement benefit to $245,000.  (IRC section 401(a) (17).)  (There is apparently a special provision that allows some governmental plans to consider up to $360,000 of compensation provided certain requirement were met in 1993 - but I don't think that applies to any governmental plan in California).  But the federal rule doesn't apply to individuals who were part of the pension system prior to 1996.