The State Worker

CalPERS goof stopped some payroll deductions – for three years

The CALPERS building in downtown Sacramento.
The CALPERS building in downtown Sacramento. Sacramento Bee Staff Photo

A CalPERS boo-boo in 2012 stopped some members’ payroll-deducted payments or billings for service credit for more than three years, and fund officials still don’t know why it happened.

The error halted extra contributions from 2,257 members who purchased additional retirement service credit, or “airtime,” military service credit, sabbatical credit or other types of service credit. Fund officials discovered the problem in September. They’re sending out letters to affected members about how to make it right.

Although the mistake affects only about 3 percent of the 75,000 school, state and local-agency employees buying credits, it’s a reminder of the airtime’s controversial history.

Until a few years ago, lawmakers allowed CalPERS and other public-pension fund members with as little as five years on the job to purchase up to another five years of their pension costs and their employers’ pension costs. If an employee retires with 15 years of real service and five years of airtime, CalPERS treats it like 20 years on the job when calculating the member’s pension.

Although the airtime payments are supposed to cover the added cost, the program came under heavy fire during the recession. Critics noted that costs for the benefit boost were passed on to taxpayers when CalPERS’ investments fell short, since airtime investments enjoy the same guaranteed payouts as pensions. (It could go the other way, too. When investments exceed expectations, CalPERS could keep the airtime investment windfall.)

After lawmakers opened the airtime window about 11 years ago, CalPERS set contribution rates that assumed that many midcareer employees would purchase it, giving the money years to grow through investments before it would be drawn down.

The prediction didn’t pan out. Members bought airtime much later in their careers. The extra contributions, which run into the tens of thousands of dollars depending on a number of factors, had little or no time to grow. So CalPERS hiked airtime prices in 2010 to adjust for its miscalculation.

Gov. Jerry Brown was among the airtime law’s critics. A pension law he signed closed the airtime-purchase window in 2013. By then, some members were already in arrears because CalPERS had stopped billing them or their payroll deductions had stopped prematurely. It’s not like the phone lines were burning up with calls from members wondering why CalPERS wasn’t taking their money.

CalPERS doesn’t know how much the group owes. Staff is reviewing each account to figure out when payment stopped and how much it was supposed to be. In September, the fund devised “a manual process” to work around the mistake, spokeswoman Rosanna Westmoreland said, and letters are going out to members “explaining that their payment periods will be extended by the number of months payments were missed.”

Some will be getting a bill: 443 service-credit purchasers don’t work for the state any more and 577 have retired. One is no longer a CalPERS member. The rest work for an agency with a CalPERS-administered pension.

One little tidbit of good news for those airtimers in arrears: CalPERS staff recommends against charging interest for the fund’s oversight.