We’ve all heard the saying, “If it’s not written down, it didn’t happen.” In the context of retirement benefits for PERS members, the saying is slightly modified: “If an employee’s salary isn’t set forth on a properly adopted salary schedule, that individual’s retirement benefits may not pay out as expected.” While a mouthful, the message is an important one: employees’ salaries must be part of a publicly available, posted salary schedule to be counted by PERS when calculating pension benefits. PERS’ regulation requiring a publicly available pay schedule is often overlooked, with potentially serious consequences. Here we will review the requirements under the regulation, and identify actions your agency can take if it’s not currently in full compliance.
Establishing Compensation Earnable: Requirement for a Publicly Available Pay Schedule
When a member retires, PERS is tasked with determining the amount of “compensation earnable” to determine how much that individual will receive as a monthly pension in retirement. Compensation earnable is a term defined by the Public Employees’ Retirement Law (“PERL”), section 20636. Generally, compensation earnable is calculated using the member’s pay rate and special compensation the employee earned while working for the contracting agency.
To determine the pay rate for the compensation earnable equation, PERS will only consider the normal monthly rate of pay or base pay that is established on a publicly available pay schedule. That pay schedule must meet several criteria, detailed in Title 2 of the California Code of Regulations, section 570.5. First and foremost, the governing body must have approved and adopted the pay schedule as a standalone document detailing the pay rates for each agency position. The schedule must be publicly accessible, and available for inspection for at least 5 years. The schedule itself must also include the following: every position’s title; the base salary for each position (ranges or steps); the time base for how pay is calculated (i.e., hourly, bi-weekly, etc.); and the effective date and dates of revisions.
Consequences for NOT maintaining a compliant salary schedule
If an employer does not establish the publicly available pay schedule outlined above, PERS may consider additional relevant information to determine the appropriate pay rate for the employee or employees. However, the PERS Board has the sole discretion to decide what the pay rate should be. PERS usually limits the member’s pay rate to the salary that was part of the publicly available pay schedule that was approved by the agency’s governing board and disregards most other evidence presented to support including the additional compensation into the pay rate. As a result, individuals may receive a lower monthly pension benefit than expected.
Does your agency employ individuals whose positions are not part of an established salary schedule?
To avoid any unwelcome surprises when PERS determines pay rates when calculating compensation earnable, we recommend a careful review of your agency’s pay schedule practices. Here are a few common issues that you should consider:
- Is the position and title of every person who is enrolled in PERS on the agency’s pay schedule, including employees with individual employment agreements?
- Do employees in certain classifications receive annual increases to their base pay rates under a memorandum of understanding or collective bargaining agreement? If so, has your agency’s governing board approved, and published, updated salary schedules each year to reflect those annual increases?
If the answer to the questions above is no, then your agency may not have a properly administered pay schedule. In practice, employers should make sure that their governing bodies adopt one unified pay schedule that includes all employee classifications. Additionally, the governing body should adopt an updated pay schedule every year that salaries change – including pursuant to a negotiated memorandum of understanding, or per an employment contract for an unrepresented employee. Further, the governing body should not simply pass a resolution adopting the salaries that are detailed in a separate document, like a memorandum of understanding or collective bargaining agreement. The salary schedule should be its own, standalone document that the governing body adopts in a publicly-noticed meeting that complies with all open meeting laws.
If you have any questions as to how to ensure compliance with this PERS regulation (section 570.5 of Title 2 of the California Code of Regulations), please consult legal counsel.