CalPERS settles long-running ‘working after retirement’ case, but confusion remains
For over six years, California’s public pension system has attempted to recover retirement payments made to a group of annuitants who ran afoul of the state’s post-retirement employment laws when they worked for various local governments after retiring.
By working for various cities, these annuitants should have been reinstated as active members of the California Public Employees’ Retirement System and, thus, making regular pension payments instead of receiving them, the agency maintained. The annuitants, and the local governments they worked for, disagreed.
The long, legal saga concluded this month, following a January decision by an administrative law judge. CalPER and the retired annuitants reached a settlement this month that restored their pension benefits to their original allowances and required CalPERS to pay any increases to their benefit that they might have missed while the case was being litigated.
“They could call it a settlement, but basically they agreed to implement everything that the ALJ ordered,” Scott Kivel, an attorney who represents several of the retirees and local governments involved in the case, said in an interview.
The settlement represents a major win for the small group of retirees and the cities they briefly worked with, but the broader confusion around post-retirement employment laws, and when they can be enforced, remains unresolved.
On Tuesday, the CalPERS board of administration pulled an item from its agenda in which trustees would have voted whether to adopt the administrative law judge’s decision, which would have established a three-year statute of limitations for CalPERS to identify and remedy violations of post-retirement employement laws.
Staff urged the board not to adopt the judge’s decision as precedential. They argued that such a short statute of limitations would make it more difficult to identify and enforce violations of these “working after retirement” laws.
In the absence of this statewide statute of limitations and without clear guidance around post-retirement laws, those representing local governments expressed exasperation at the prospect of fighting similar expensive legal battles with CalPERS in the future.
Sophia Selivanoff, executive director of Regional Government Services, said during the public comment period of Tuesday’s board meeting that CalPERS staff “wasted hundreds of thousands of taxpayer dollars and subjected your retirees to enormous distress to no end,” in its unsuccessful attempt to recover retirement payments from these retirees. RGS is a public agency that hires annuitants to work with cities and counties.
“Many common scenarios such as hiring independent contractors, lack discernible guidelines to apply to ensure compliance. Your staff says that they use certain test factors, but these test factors contain no bright lines and completely opposite interpretations are made and tolerated,” she said.
In a statement, CalPERS spokesperson Amy Morgan said the retirement system provides extensive guidance and tools to help employers and retirees comply with working after retirement laws. But ultimately, “the responsibility for hiring and managing retired annuitants including compliance with retirement laws falls to the employer and members,” she said.
Retirees faced six-figure bill from CalPERS
The recently settled case focused on four individuals who worked for various local governments after retiring and beginning to receive CalPERS benefits.
One of those individuals was Tarlochan Sandhu, a municipal finance professional from Fremont who retired in 2011 and worked as a finance and accounting professional for several municipalities including the city of Alameda, the city of Capitola, the town of Los Altos Hills, and Union City. The three other CalPERS retirees included Margaret Souza, David Dowswell and Douglas Breeze.
Both the state and local governments use retired annuitants frequently to navigate staffing shortages and bring in specific expertise when needed. Retirees are allowed to work for public agencies after retiring, as long as they follow the state’s post-retirement employment rules that limit how many hours they can work and what type of work they can do while still receiving pension benefits.
Last year, an appeals court ruled that Sandhu and the other retired annuitants should be considered “common-law” employees, instead of contractors. The appeals court found that these individuals had violated the state’s post-retirement employment laws and could potentially face steep financial penalties. For example, Sandhu was looking at paying a nearly $660,000 bill from CalPERS to return pension benefits he received while he was working for several California municipalities.
Following the appeals court’s ruling, the case of whether CalPERS still had standing to collect pension repayments from the individuals went before Administrative Law Judge Juliet Cox. In January, Cox issued a decision that found a section of California’s government code, which establishes a three-year statute of limitations related to erroneous payments, applied to these individuals’ cases.
Given the work that these individuals did as annuitants fell outside the statute of limitations, Cox decided that CalPERS could not seek pension repayments and effectively restored Sandhu and others’ pension benefits to their original amounts.
Additionally, Cox reprimanded CalPERS in the decision, writing that staff members acted unprofessionally throughout the hearing and failed to provide evidence supporting CalPERS’ claims.
“CalPERS staff members have sent inconsistent demands, in some cases for shocking sums, to Sandhu, Souza, Dowswell, and Breeze’s widow. Their communications have been error-riddled and opaque,” Cox wrote. “On multiple occasions … CalPERS staff members have taken actions without advance warning that have caused actual hardship as well as unnecessary anxiety to Sandhu, Souza, and Dowswell.”
CalPERS maintains that the three-year statute of limitations should not apply to instances when annuitants run afoul of these laws.
CalPERS staff recommended that the board of administration reject adopting Cox’s decision on Tuesday before it was pulled from the agenda. Staff said that the judge had failed to analyze whether a previous decision, extending the statute of limitations, should apply to these situations.
CalPERS staff said the conclusion reached by Cox would lead to “absurd results” because the pension system is not aware of these violations until conducting an audit or receiving an ethics report. If the three-year statute of limitations is adopted, “many violating members will escape accountability because CalPERS will not discover the violation well past the three years of the unlawful employment,” staff wrote.
‘People don’t want to break the rules’
The CalPERS board’s decision to not vote on Cox’s proposed decision leaves the statute of limitations question open to interpretation in future cases. The issue is further exacerbated by California’s confusing post-retirement employment laws.
In a March letter sent to the CalPERS board by the League of California Cities, the California State Association of Counties and the California Special Districts Association, the groups said the lack of clear statute of limitations and unclear guidelines will continue to negatively impact local governments in California “due the inconsistent approach taken by CalPERS staff in these situations.”
Selivanoff, with RGS, said if post-retirement employment laws were more clear, local governments and retirees would follow them.
“People don’t want to break the rules. Public agencies are very rule-abiding, and so are their annuitants,” Selivanoff said in an interview.
Morgan, the CalPERS spokesperson, said the pension system has taken efforts to ensure annuitants don’t run afoul of these regulations, including providing individuals the ability to track reported hours in their online “myCalPERS” account. The retirement system sends warning notices to employers and annuitants as they approach hourly limits, Morgan said. She added that CalPERS provides ongoing education around post-retirement employment laws through webinars, forums, and advisory groups.
Dave Fleishman, who serves as Atascadero’s city attorney, said he was grateful that the matter was settled. Atascadero was one of the parties in the case, which worked with Breeze, one of the annuitants who passed away in 2021. CalPERS was seeking pension repayments from Breeze’s widow before the settlement was reached.
“I have zero certainty about moving forward,” Fleishman said, adding that he had concerns that similar lengthy legal battles will occur in the future.
“A lot of local governments, like my city, are reluctant to hire people who were CalPERS annuitants, because of this kind of situation and because CalPERS is so aggressive in pursuing people’s pensions,” he said.
