Merced County California

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May 12, 2014
In light of AB197 and AB340 pension reform legislation that Governor Brown signed into law in 2012, there has been uncertainty regarding compensation payouts for retirement purposes in the Merced County retirement system. Of special interest has been the issue of the maximum 160 vacation hours that each employee is allowed to cash out and have counted as pensionable compensation for retirement purposes in one's last year prior to retirement.

On May 12, 2014, a judgment by the Contra Costa Superior Court was entered which presented orders regarding this vacation payout issue. In summary, these orders are as follows and apply to members within Tiers 1, 2 and 3:

  1. To continue to permit all employees to utilize the 160 hours of vacation payout for calculating "compensation earnable" for retirement pension purposes whose effective dates of retirement are within sixty (60) days (Stay Period) following the issuance of the judgment. We've been advised that to-date a writ, as ordered by the judgment, has not yet been filed.
  2. Following the sixty (60) day period, only those MCERA members who had accumulated "banked" vacation hours as of December 31, 2012 may have their cashed-out-vacation terminal pay included in their final compensation calculation up to the lesser of:
    1. 160 hours; or,
    2. The amount of accumulated "banked" vacation hours available on December 31, 2012 (this is the day prior to AB197 and AB340 becoming effective).
The following chart shows some examples for MCERA under the Hon. Flinn's (Contra Costa Superior Court's) recent judgment:
Hours Included in Retirement Calculation
(1)
Scenario

(2)
Hours
12/31/2012
(3)
Hours at retirement
(after cashout, if applicable)
(4)
Retire before
Stay Period ends
(5)
Retire after
Stay Period
#1 120 100 100 100
#2 100 120 120 100
#3 200 120 120 120
#4 120 200 160 120
#5 200 220 160 160

Another action of the recent court decision requires that our MCERA retirement system evaluate various pay codes (such as on-call pay or stand-by pay) to ensure that they are included as "compensation earnable" when appropriate in considering retirement pensions.

The above illustrations isolate the factors relevant to the AB 197 judicial decision. Factors such as hours cashed out in the final average compensation period (25th pay period) are omitted to simplify the illustration. These other factors are unchanged by the court's decisions.

Merced County 2222 M Street Merced, CA 9543 Ph. (209) 385-7434 Toll Free (800) 226-6452