• CalPERS Identifies Special Compensation Items That May be Reported as Pensionable Compensation
  • January 9, 2013 | Authors: Allison De Tal; Isabel Cesanto Safie; John D. Wahlin
  • Law Firm: Best Best & Krieger LLP - Riverside Office
  • In recently released Circular Letter 200-062-12, CalPERS identifies items of compensation, recognized by Section 571 of the California Code of Regulations as special compensation for classic members, that may be reported as pensionable compensation for new members if those items satisfy certain requirements. Classic members are defined as employees enrolled in CalPERS or another California public retirement system with reciprocity prior to January 1, 2013.

    Only the following Section 571 special compensation items are expressly excluded from the definition of pensionable compensation - bonuses, management incentive pay, EPMC value, off-salary schedule pay, temporary upgrade pay and uniform allowance. All the other items can be reported as pensionable compensation, but only if they are:

    1. Part of the normal monthly rate of pay or base pay;
    2. Paid in cash to similarly situated members of the same group or class of employment;
    3. Paid for services rendered during normal working hours; and
    4. Paid pursuant to publicly available pay schedules.

    Thus, these items are not automatically considered pensionable compensation. In fact, as currently documented, it is unlikely that many special compensation items in MOUs and employment policies would satisfy either the first or last requirements. As a result, many of these items may need to be restructured to be recognized as pensionable compensation.

    However, restructuring special compensation items may not be a simple task due to labor and fiscal considerations. Further, CalPERS has yet to provide guidance as to how they can be integrated into a new member’s normal monthly rate of pay or base pay. Thus, until further guidance is issued, employers should determine which items of special compensation can be considered pensionable compensation and which will need to be restructured.

    On this note, CalPERS has begun the regulatory process to codify the information provided in this circular letter. We expect that this process will also provide guidance on how each of the four requirements can be satisfied. However, until such regulations are issued, items listed in the circular letter that meet the four requirements may be reported as pensionable compensation.