A new California laws protects workers from CalPERS clawbacks. It won’t help these retirees

Fifty-six Glenn County retirees likely will have to return part of their pensions to CalPERS due to a mistake their employer made that inflated their retirement benefits.

The California Public Employees’ Retirement System is moving to reduce the retirees’ pensions despite a new state law aimed at holding employers — rather than employees — responsible for pension mistakes.

Eighteen of the retirees appealed CalPERS’ collection notices to the state Office of Administrative Hearings. An administrative law judge ruled against them in June, saying the county’s mistake didn’t relate to the new law. On Wednesday, the pension system’s Board of Administration is scheduled to vote whether to adopt the judge’s decision.

The appeal provided one of the first tests of Senate Bill 278, which took effect Jan. 1.

The new law sought to address a situation that comes before the CalPERS board a handful of times each year: In routine audits, the pension system identifies past mistakes made by local governments that improperly inflate retirees’ pensions. Often the mistakes are related to employers counting non-pensionable pay items, such as certain stipends, as pensionable when they calculate an employee’s pension at retirement.

CalPERS is legally bound to account for those overpayments, and before Jan. 1, the system’s standard practice was to collect three years’ worth of them from the retirees while also reducing their pensions moving forward.

The new law shifts responsibility for those repayments to local governments, when certain conditions are met.

CalPERS identified Glenn County’s payroll mistake in a 2018 audit of the county’s payroll from 2012 through 2017, leading the retirement system to issue notices that it would dock retirees’ pension checks to make up for three years’ worth of overpayments and would recoup older overpayements from Glenn County.

The Glenn County retirees argued that since they didn’t make the mistake that inflated their pensions, the law should protect them from having to repay any of the money.

“I felt it was their issues that they should have to take responsibility for, not to just say, ‘OK you guys make it right for us,’” said Timothy Asbury, 68, a retired Glenn County Sheriff’s Office lieutenant who is the lead respondent in the appeal.

But Administrative Law Judge Wim van Rooyen ruled the mistake didn’t meet conditions required to trigger the law.

Retirees still responsible for some overpayments

The law says that for employers to be held liable for overpayments, employees must have made pension contributions on the compensation they erroneously received. CalPERS explained that distinction to local governments in a December 2021 directive, van Rooyen noted.

Glenn County accurately reported the total amount of each employee’s earnings, so their income-based contributions were correct, but the county double-reported some pay items to CalPERS, inflating their pensions.

“To be sure, the members correctly note that the legislative findings … evince a general intent to hold employers, rather than impacted retirees, accountable for reporting disallowed compensation,” van Rooyen wrote in his proposed decision. “But regardless of any sympathy for the nembers’ predicament, the court’s analysis must be guided by the statutory text itself.”

Asbury, the retired lieutenant, said he was recently told he’ll have to repay around $7,000, but that figure had changed before and he wasn’t sure about the most recent figure. He’ll also see a reduction of about $100 per month to his pension check, he said.

With 34.5 years of service, his pension was about $90,500 for 2021, according to the Transparent California website. He said some retirees owed hundreds, some thousands, and no one seemed to understand the specifics of Glenn County’s mistake.

Change to county debt repayments?

Glenn County, meanwhile, filed its own appeal under the new law, and won.

CalPERS has recouped overpayments from retirees only within the three-year statute of limitations. But since 2017 it has turned to local governments to collect overpayments older than three years.

The retirement system attempted to recoup payments older than three years from Glenn County, but the county appealed under the same new law cited by the retirees. The county argued that since the law uses a three-year limitation period, it couldn’t be forced to pay back older overpayments.

Judge van Rooyen agreed, barring CalPERS from collecting older overpayments from Glenn County.

When the system can’t collect older debt, one of its few options is to discharge the debt. When it does that, the debt gets assessed to the broader employer population through the annual valuation process, according to van Rooyen’s decision.

In addition to deciding on Wednesday whether to adopt van Rooyen’s decision, the board faces a question over whether to adopt the decision as precedent for reference in similar situations in the future.

“We agree with the administrative law judge’s proposed decision with regard to the requirements of SB 278,” CalPERS’ general counsel Matthew Jacobs said in an emailed statement. “But we disagree with the decision when it comes to the issue of the statute of limitations. Regardless, the decision is not precedential.”

This story was originally published September 19, 2022 at 5:25 AM.