He earned a big salary while collecting a CalPERS pension. His penalty could set new standard

Most everyone agrees the former City of Industry controller shouldn’t have been able to return to work at twice the pay while also collecting a retiree’s pension.

Yet a proposal from CalPERS attorneys to standardize the former controller’s penalty is meeting resistance from some local government groups and pension board members.

Dudley Lang, the former controller of the suburban Los Angeles city, argued last year that he shouldn’t have to pay back the pension payments he received while working part-time after retirement in 2011 and 2012 as a retired annuitant. As a retiree, Lang performed many of the same financial oversight duties as he did during his employment.

Lang said he mistakenly worked more than the 960 hours per year California allows for retired public workers, and that it wasn’t fair to compare his old salary of $20,000 per month to the pay he earned at $135 an hour in retirement.

An administrative law judge and the pension system’s board rejected his arguments last year, saying CalPERS was right to claw back pension payments Lang received while working in retirement. He was ordered to pay back about $66,000 in pension payments he received from Jan. 4, 2012 to Dec. 14, 2012.

CalPERS attorneys now want the board to adopt as standard two parts of the judge’s decision in Lang’s case: that retired annuitants have the responsibility to make sure their post-retirement employment is legal, and that CalPERS may recoup all pension money that was paid improperly to a retired annuitant, despite another section of retirement law that limits recoveries to a three-year period preceding the beginning of the recovery.

That would affect a handful of disputes every year between the pension system and individual retirees, according to the attorneys.

Some government employer groups say extending the decision to similar cases imposes a harsher penalty on workers — and potentially on local governments — than state law requires.

“We’re not contesting the decision, but we are opposed to adopting that decision as precedential,” Dillon Gibbons, a lobbyist who represents special districts in California, told the CalPERS board last week.

Gibbons, along with Bijan Mehryar from the League of California Cities, argued the three-year limit on recoveries of overpayments that applies generally to retirees should also apply to retired annuitants.

Why cities are worried

CalPERS has been notifying regular retirees of those recoveries in recent years, often surprising them in letters saying their former government employers improperly calculated their pension benefits and now they owe the difference.

State Sen. Connie Leyva, D-Chino, has called the collections unfair and has introduced legislation to place responsibility for the mistakes with local governments, not retirees. Leyva’s legislation, which was approved last session by both chambers of the Legislature but was held from reaching the governor, is opposed by local government groups.

Matt Jacobs, CalPERS’ chief legal counsel, called the Lang decision a “straightforward application of the law.”

The Legislature stiffened the penalty in 1987 for retired annuitants, requiring them to return overpayments as a way to deter abuses. CalPERS enforces the law.

Chirag Shah, an outside attorney retained by CalPERS, said that using the Lang decision as a standard would simply clarify existing law, not change it.

“The law will be the law,” Shah told the board. “And staff’s duty to enforce the law stays the same.”

Jacobs said the pension system has about a dozen similar cases in its queue of appeals.

More retirees back to work in pandemic

Gov. Gavin Newsom signed an executive order early in the pandemic allowing state and local agencies to expand their use of retired annuitants. The local government representatives said now is not the time to change how the work is regulated.

Eraina Ortega, the director of the California Department of Human Resources and a CalPERS board member, said many state and local agencies have increased their reliance on retired annuitants amid the coronavirus, yet the rules governing their use are complicated.

Ortega said she worries that setting a new standard could restrict the board’s ability to resolve mistakes without having to send retirees surprise bills.

“I am concerned that we’re perhaps entering into an era of more mistakes and misuse of retired annuitants,” she said. “Because ... I think there are a lot of entities out there who don’t follow the rules or don’t understand the rules clearly and then these issues come up after the fact in the audits.”

The board plans to consider the decision again at a meeting in November.

This story was originally published September 21, 2020 at 5:00 AM.