Report 93105 Summary - October 1994

A Review of Service-Related Disability Retirements at Three Retirement Systems

Results in Brief

The Public Employees' Retirement System (PERS), the City of Los Angeles Fire and Police Pension Systems (City of Los Angeles), and the San Diego County Employees' Retirement Association (San Diego County) provide disability retirement benefits to their members. When employees are no longer able to perform their jobs, they become eligible for a monthly disability benefit. This audit focuses on industrial disability retirement (IDR) benefits among employees in specific occupations. For employees who are members of the PERS, these occupations are listed in Part 3 (commencing with Section 20000), Division 5, Title 2 of the California Government Code. This list includes such occupations as state traffic officer, state police officer, and correctional officer; the list also includes such local governmental occupations as police officer and fire fighter. For the remainder of this report, we refer to employees of state departments and local governments who work in these occupations as "safety" employees. Not only must the member have worked in one of these specific occupations, but the disabling condition must be the result of the member's employment for the member to qualify for IDR benefits from the PERS. If the disabled member's occupation is not listed as eligible in the California Government Code, the PERS pays ordinary disability retirement (ODR) benefits. The PERS also will pay ODR benefits to members whose occupations are listed as eligible for IDR benefits but whose disability is not a result of the member's employment. An essential difference between ODR benefits and IDR benefits is that PERS applies an earnings limitation to ODR benefits, but not to IDR benefits.

According to Section 21300 of the California Government Code, the PERS may reduce or eliminate a member's ODR monthly pension if that member earns income after retirement from a job that is not in state service, but the PERS cannot do so for any member who receives IDR benefits. The primary objective of this audit was to analyze the impact of applying earning limitations currently applied only to members receiving ODR benefits to "safety" members receiving IDR benefits through the PERS.

Our audit determined that if Section 21300 of the California Government Code allowed the PERS to apply earning limitations (as allowed for ODR) to members with earned income who receive IDR benefits, the PERS would save approximately $1.8 million a year by reducing member pensions for the 214 members included in our sample, and a total of $7.2 million by the time those members reached the age of 50. Our sample did not include individuals who became selfemployed after retirement.

Recommendation

In response to the increasing costs of IDRs, the Legislature should amend Section 21300 of the California Government Code to apply earning limitations to retirees receiving IDR benefits who are earning income that, combined with their benefits, exceeds their preretirement income. These earning limitations are currently applied to retirees who are receiving ODR benefits and who are earning income above specified levels.

Agency Comments

The three retirement systems generally concur with the report, although each of the three systems suggested that we provide elaboration on certain items of information in the report, which we did in this final version of the report. Our comments follow the responses from the three retirement systems.


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