California retirees violated post-employment pension laws, a state appeals court decides
.JPG "The California Public Employees’ Retirement System, or CalPERS, headquarters buildings in downtown Sacramento.")
Nearly a decade after Tarlochan Sandhu took a part-time job helping various cities complete their budgets, the retiree is facing a nearly $660,000 bill from CalPERS — California’s largest public pension system — after courts determined he ran afoul of state post-employment rules.
The California Third District Court of Appeal ruled last week that Sandhu, of Fremont, should not have received pension benefits from the California Public Employees’ Retirement System while he worked as a finance and accounting professional for several California municipalities.
Now, depending on whether he appeals the decision, Sandhu could be on the hook for paying CalPERS back for the pension benefits he received while he was working. Last year, CalPERS informed Sandhu he owed the agency over half a million dollars unless he retires again, which will result in a reduced overpayment due to the agency.
Sandhu is one of five retirees CalPERS investigated who courts have deemed crossed retirement employment rules. Essentially those rules prohibit receiving pension benefits from CalPERS while working for another government entity that feeds into the pension system. CalPERS argued that Sandhu and the other retirees should not have received pension payments and they should have paid into the pension fund while working for local governments.
But allies of Sandhu and other retirees say that the confusing rules around retirement employment and CalPERS’ methods to enforce them could make it more difficult for local governments around California to meet staffing needs.
“What the Court of Appeal is doing is they’re foreclosing the cities from bringing in a specialized expert to help them with something that falls within their mandate,” said Scott Kivel, Sandhu’s attorney who also represents other retirees with similar cases.
The court of appeal affirmed a 2023 decision by the Sacramento Superior Court that found Sandhu and three other annuitants who worked for local governments after retiring should be considered public employees who were required to make pension contributions.
CalPERS said in a statement that it was satisfied with the court of appeal’s decision.
“The Court correctly applied the common law employment test in determining whether Mr. Sandhu was employed by the four agencies he worked for after retiring,” CalPERS General Counsel Matthew Jacobs said.
In a letter CalPERS sent to Sandhu last year, the agency informed him that if he didn’t plan to retire he would be required to pay CalPERS nearly $660,000. If he did re-retire, Sandhu would still owe the agency nearly $92,000 to repay CalPERS for overpayments made to him when he worked for the local municipalities.
In a federal complaint, the lawyer Kivel argued the state’s penalties violated his client’s Eighth Amendment rights against excessive punishment. Kivel said the money CalPERS was demanding from Sandhu and his other clients far exceeds what each earned while working part time for the California cities. Kivel estimated Sandhu made $79,000. Additionally, Kivel noted that the agency’s penalty against Sandhu would move his client to a retirement plan for employees who became CalPERS members after 2013, which comes with reduced pension benefits.
In the fall of 2024, CalPERS sent letters to the retirees, and the widow of one, of how much they owed the agency in overpayments once they had declared re-retirement. One of the retirees, David Dowswell, had a final overpayment sum of over $38,000. Jonnalyn Cabarales-Breeze, the widow of Douglas Breeze, owes the state over $36,000. Of the two re-payment options, Margaret Souza faces the highest penalty due to CalPERS of $430,000.
A federal judge dismissed Kivel’s argument of excessive penalties over a lack of jurisdiction.
A ‘common law employee’
Sandhu worked as a finance and accounting professional for various public entities between 1989 and 2011 when he retired from the Santa Clara Valley Transportation Authority. Shortly after retiring he began receiving pension benefits from CalPERS.
To supplement his income, Sandhu began working as an advisor for various cities across California as a finance and accounting professional. He was paid by Regional Governmental Services, a third party group that contracts with local agencies across California to provide temporary employees.
In Sandhu’s case, CalPERS notified the retiree that his work with the cities of Capitola, Alameda, Union City and Los Altos Hills violated aspects of California’s Public Employees’ Retirement Law. The CalPERS board found Sandhu had exceeded the number of hours annuitants could work and the wage RGS paid him exceeded the amount that a previous government employee who conducted the same work made in that role.
The pension system found Sandhu’s professional responsibilities were directed by city leaders, which the courts interpreted to mean that Sandhu was a “common law employee” of the municipalities — and therefore should have been making pension contributions into CalPERS while working part-time. People working for RGS are not required to pay into the pension system.
Kivel argued that California’s government code allows municipalities to either retain an independent contractor or hire an employee.
“It’s your choice. It’s not CalPERS’ decision,” Kivel argued.
Sophia Selivanoff, the executive director of RGS, said it’s very common for local municipalities to hire contractors to meet staffing needs and to do specialized work. With this decision, she said, CalPERS is disregarding third party groups like hers as the employer of consultants.
“It’s a little disturbing to think everyone becomes an employee of the public agency,” Selivanoff said.
Four other retirees who were investigated by CalPERS challenged the agencies’ demand for pension clawbacks. Two years ago, the Sacramento Superior Court ruled in favor of one plaintiff, Linda Abid-Cummings. The trial court sided with CalPERS in the other four cases, including Sandhu’s.
Kivel, who represented the five retirees, appealed those cases before the Third District Court of Appeal. The appellate court has only issued a decision in Sandhu’s case.
Kivel hopes to challenge the appellate court’s decision with the California Supreme Court because he believes the case has significant implications for municipalities across the state, but a final decision has not been made.
When CalPERS comes knocking
Selivanoff, the RGS executive director, also believes CalPERS’ penalties are too severe. She said the retired annuitants were performing a public service by helping small cities that were short on critical staff to meet deadlines. They were not trying to run afoul of retirement laws.
With the threat of CalPERS knocking on retirees’ doors a decade after returning to work and asking for pension repayments and threatening to shut off health insurance, Selivanoff has concerns that other retired annuitants will be dissuaded from going back to work.
The court’s decision could exacerbate an issue many local governments already face: workforce shortages. On top of that there is confusion around the role of third-party contracts, which public agencies rely on, Selivanoff said.
In an amicus brief filed by the League of California Cities and the California Special Districts Association in support of Sandhu’s case, attorney Arthur Hartinger wrote that public agencies need clear guidance to avoid misclassifying CalPERS retired annuitants who are working as independent contractors. The “working after retirement laws” are vague, he wrote.
“When a seasoned professional leaves a post in a city and the city needs to fill that position on an interim basis, this decision just throws up a road block to that,” Hartinger said in an interview.
Annuitants are not going to take the risk of facing CalPERS’ penalties, he said. That will lead to a smaller pool of qualified applicants who can help local governments in a pinch.
This story was originally published February 20, 2025 at 11:22 AM.
