On September 29, 2022, Governor Newsom vetoed Assembly Bill 826, a bill sponsored by SEIU and the County of Ventura. Had it passed, AB 826 would have allowed, under specific conditions, Legacy members’ compensation for calculating their retirement benefits (“compensation earnable) to include a larger portion of their flexible benefit credit (the amount the employer credits toward medical and other tax qualified benefits for its employees each pay period.) This benefit has been referred to as “cafeteria plan allowance” or other similar terms, but in Ventura County, it is most frequently called “flex credit”.

Because AB 826 did not become law, the portion of flex credit that cannot be received in cash may not be included in Legacy members’ compensation for retirement purposes. NOTE: For PEPRA members (those who established membership after January 1, 2013), no portion of flex credit may be pensionable so the bill would have had no effect on PEPRA members.

AB 826 was originally introduced in the 2021 legislative session, and was amended to apply only to Ventura County, but went “inactive” for the remainder of that session.  The bill was amended in the 2022 session to allow the non-cashable portion of flex credit to be pensionable for Legacy members who retired prior to 2026.

Background: The Alameda Decision
The veto of AB 826 was the latest in a series of events following the 2020 landmark California Supreme Court Decision, commonly referred to as the Alameda Decision. While generally Alameda clarified the pensionability of pay items such as standby pay,  termination pay and certain annual leave redemptions, it also addressed in-kind benefits not payable in cash directly to the member. The Supreme Court in Alameda ruled that retirement boards do not have, and never had, the discretion to include “in-kind benefits” (i.e., cannot be received in cash directly by a member) because they do not meet the definition of “compensation.”

So while the Alameda applied to public pension systems across the state, in Ventura County, the exclusion of in-kind benefits not receivable in cash had a larger impact because Ventura County’s full flexible benefit allowance had been treated as pensionable.

Flex credit is the annual dollar amount contributed by the County to the cafeteria/flexible benefits plan, and credited toward the medical premium deductions that correspond with the employee’s medical and qualified benefit choices. For most employees, this credit does not cover the cost of their premiums, though for some it may. If the flex credit amount exceeds the amount of deducted premium or qualified benefit cost, the employee receives the balance in cash. For employees who opt out of medical insurance altogether, such as when they are already covered on a spouse’s policy, they still cannot receive the entire flex credit amount in cash; the County mandates that an “opt out” fee be deducted from the employee’s flex credit so only the remaining balance is received in cash. The maximum any member could receive in cash is the “employee-only” flex credit minus the lessor of the opt out fee or the lowest priced healthcare plan.

To illustrate, below shows the maximum amount of flex credit that members covered under the County’s Management Resolution were/are provided, and what portion may be received in cash. (Amounts may vary based on bargaining unit.)

Put simply, had AB 826 passed, it would have allowed VCERA Legacy members who retired on or before December 31, 2025, to include the entire flex credit allowance amount in their compensation used to calculate retirement benefits. So for 2022, in addition to the already-includable $162.25 portion, they would also have included the $334.75 portion. But given the veto of AB 826, only the cashable portion of flex credit is includable for Legacy members.

Next Steps
Though the Alameda was issued in July 2020, the VCERA Board of Retirement has delayed excluding the non-cashable portion of flex credit for Legacy members, awaiting the outcome of AB 826. Now that the veto has occurred, the Board of Retirement will turn its attention back to implementation of that exclusion.

At its October 24, 2022, business meeting, the VCERA Board of Retirement voted 4-3 to delay the exclusion of the non-cashable portion of flex credit from compensation earnable for Legacy members, and to revisit the item at its first Business meeting in April of 2023.