On August 8, 2024, the California Public Employees’ Retirement System (“CalPERS”) issued Circular Letter No. 200-037-24 (“Circular Letter”), setting forth guidance concerning reporting Holiday Pay for CalPERS classic members and new members. The Circular Letter, which departs from and supersedes the previous guidance in Circular Letter No. 200-064-17, provides that Holiday Pay is not reportable for new members where they have the ability to receive holiday banks that can be used as leave or cashed out.
For CalPERS classic members, 2 CCR section 571 defines Holiday Pay in relevant part as follows:
Additional compensation for employees who are normally required to work on an approved holiday because they work in positions that require scheduled staffing without regard to holidays. If these employees are paid over and above their normal monthly rate of pay for approved holidays, the additional compensation is holiday pay and reportable to PERS.
For those employees with written labor agreements providing holiday credit and allowing employees to cash out accumulated holiday credit, the cash out must be done at least annually and reported in the period earned. If a written labor agreement allows an employee to accumulate holiday credit beyond the year in which it is earned and an employee later elects to cash out accumulated holiday credit, it is not compensation for PERS purposes.
If an employee utilizes the cash out option only during his/her final compensation period, it will be considered final settlement pay and excluded from reportable compensation. If the cash out option is also utilized near his/her final compensation period, it may still be excluded based upon a review of the contracting agency or school employer’s experience relating to: the number of employees in the group with this option; the number of employees who exercise this option; the frequency with which employees exercise this option; whether or not the cash out is paid periodically, and in a manner that is historically consistent; and whether or not the cash out would create an unfunded liability over and above PERS’ actuarial assumptions. This review will be conducted by PERS on a case-by-case basis.
For CalPERS new members, 2 CCR 571.1 defines Holiday Pay as follows:
Additional compensation for employees who are normally required to work on an approved holiday because they work in positions that require scheduled staffing without regard to holidays.
Holiday Pay is Only Reportable for Employees Who Work Without Regard to Holidays
As a threshold matter, in order to be eligible to have Holiday Pay reported to CalPERS, the employee must work in a positon that is normally required to work without regard to holidays because they work in positions that require scheduled staffing without regard to holidays. Generally, this will cover employees such as police and fire employees who are on shift rotations and are scheduled to work holidays, depending on where their shift rotation falls. Public agencies often incorrectly report Holiday Pay for employees who happen to work a holiday, but are not regularly scheduled to work holidays, or for command staff that are actually working an administrative schedule.
Reporting Holiday Pay for CalPERS Classic Members
As long as it satisfies the other regulatory requirements, additional compensation paid to classic members for holidays is reportable to CalPERS. For example, some agencies provide a specific amount of cash in lieu of holidays rather than providing any leave. Under the Circular Letter, this type of compensation remains reportable for classic members.
Other agencies provide a bank of holiday leave that can be taken as leave over the course of the year and is usually cashed out at the end of the year or at specified intervals during the year. The applicable regulation and the Circular Letter provide that Holiday Pay cash outs must be done at least annually in order to be reportable to CalPERS. The Holiday Pay accrued and paid cannot exceed one year. Holiday Pay provisions in labor agreements that allow Holiday Pay to accumulate beyond the year in which it is earned will cause the Holiday Pay to be non-reportable for CalPERS classic members.
Holiday Pay must also be reported “as earned,” which CalPERS interprets as requiring the public agency to apportion or prorate the Holiday Pay cash outs over the entire year, even if they are cashed out in lump-sum amounts.
Reporting Holiday Pay for CalPERS New Members
For CalPERS new members, CalPERS has now clarified that cash outs for unused leave are not pensionable. If Holiday Pay may be used as leave for CalPERS new members, it is not pensionable, even if it is ultimately cashed out at the end of the year. Accordingly, where an agency provides a bank of holiday leave that can be used over the course of the year, and which is cashed out during the year, the Holiday Pay may be reportable to CalPERS for classic members, but not for new members.
While the Circular Letter comports with the regulation, it departs from CalPERS’ previous guidance in Circular Letter No. 200-064-17, which expressly discussed reporting of cashed out leaves for new members, and which the new Circular Letter expressly supersedes.
Additional Reporting Guidance
The Circular Letter also provides public agencies with some guidance regarding common reporting errors, some of which reiterates previous guidance. Specifically, CalPERS provides the following guidance:
Agencies Need to Review their Labor Agreements and Practices
Based on the new guidance, many public agencies must change how they are reporting Holiday Pay. Public agencies may need to give notice to their bargaining units that certain types of Holiday Pay may not be reportable for CalPERS new members and that the agency will cease reporting it to CalPERS based on the new guidance. While the guidance may render the compensation non-pensionable for CalPERS new members, it is not unlawful to pay compensation that is not pensionable. Indeed, some agencies intentionally structure payments to be non-pensionable.
In addition, public agencies and labor groups may seek to revise their labor agreements to change Holiday Pay so that it is pensionable for CalPERS classic and new members by removing employees’ ability to use the Holiday Pay as leave. Alternatively, public agencies could have different holiday provisions for classic members and new members in order to make them both pensionable.
Liebert Cassidy Whitmore attorneys are closely monitoring developments in relation to this Special Bulletin and are able to advise on the impact this could have on your organization. If you have any questions about this issue, please contact our Los Angeles, San Francisco, Fresno, San Diego, or Sacramento office.