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CalPERS on Tuesday gave up a seven-year legal battle to claw back hundreds of thousands of dollars from four pensioners who the fund accused of breaking the rules about working after retirement.
The end of the saga is meaningful not just to the retirees who no longer face “shocking” payment demands from their pension fund, but also for cities that turn to former government employees as part-time workers for short-term staffing needs.
At one point, CalPERS adjusted benefits for the retirees in a way that caused them to lose monthly income. Under the settlement, they’ll earn what they were due on their original retirement dates.
The four retirees “got restored to where they should have been seven years ago,” said Scott Kivell, the attorney who represented the pensioners through numerous court and administrative hearings. “It really wasn’t a settlement. CalPERS caved in and said they would give my clients everything.”
The case dates to 2018 when CalPERS began looking into five retirees who worked for Regional Government Services, a firm that provides consultants and independent contractors to local government agencies. Each of the retirees had gone to work for the firm, which placed them in various cities.
CalPERS auditors determined that the retirees were performing work under the direction of city supervisors, and that they were acting more like local government employees than independent contractors reporting to a private company.
That’s a violation of California retirement law, which strictly caps the number of hours that retirees can work for government agencies that provide benefits through the California Public Employees’ Retirement System.
As CalPERS evaluated the retirees, it sent them overpayment letters saying they had incorrectly received pension income and that their retirement dates would be adjusted to when they stopped working for Regional Government Services rather than when they left civil services.
One retiree, Margaret Souza, in 2022 received a “past due notice” from CalPERS saying she was overpaid $846,292.
Another, Tarlochan Sandhu, in a February 2022 notice from CalPERS, was told he owed $454,474.
David Dowswell got a “past due notice” saying he owed $664,289.
And Douglas Breeze’s widow got one saying she owed $36,192.
For the most part, CalPERS’ determination that retirees were in conflict with state law held up in court. CalPERS lost just one case when the five employees sued the fund. That was Linda Abid-Cummings, who won her lawsuit in Sacramento Superior Court, The Sacramento Bee reported.
Just last year, the 3rd District Court of Appeal found CalPERS was justified when it determined Sandhu’s work for Regional Government Services violated California retirement law.
But a more recent decision by an administrative law judge focused on the penalties and clawbacks CalPERS wanted to assess. It found the fund violated a three-year statute of limitations in how far back it could collect reimbursement for retirement law violations.
CalPERS’ review of Souza, for instance, went as far back as 2011. It sent her the “past due notice” describing the massive overpayment in February 2022.
Souza and the others received subsequent letters demanding lower sums, a practice the administrative judge Juliet Cox criticized in her January ruling.
“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.
CalPERS did not accept Cox’s determination immediately. Its staff wrote to the CalPERS Board of Administration recommending that it reject Cox’s decision and send the case to another administrative hearing.
But, just before the board was scheduled to vote on that recommendation, CalPERS reached an agreement with the employees and the cities that hired Regional Government Services Authority.
Regional Government Services Executive Director Sophia Selivanoff urged the CalPERS board at its meeting to go further by declaring Cox’s ruling as a “precedential decision”, a formality that she said would stress to CalPERS that it must abide by the three-year statute of limitations when investigating retirement law violations and recalculating benefits.
The board did not take that step. After the meeting, representatives for CalPERS in a written statement said the terms of the settlement would prohibit Cox’s decision from setting precedent.
“We disagree with certain characterizations in (Administrative Law Judge Cox’s) proposed decision,” CalPERS representatives said. “CalPERS staff works diligently to assist members, always striving to provide accurate and straightforward information to them, and did so here.”
Selivanoff told the board that pensioners who are open to part-time work need clear, “bright lines” to understand the rules of post-retirement work, as do the local governments that want to hire them.
“There are plenty of union retirees who are at the same risk of having these unlimited damages land in their lap in any kind of mistake they do in trying to help out post retirement,” she said in an interview with CalMatters.
Attorneys for three major groups representing the local government agencies that participate in CalPERS — the League of California Cities, the California State Association of Counties, and the California Special Districts Association — also wrote a joint letter urging the pension board to give more weight to Cox’s decision. They called CalPERS “inconsistent” in “these situations.”
“Lacking transparency, CalPERS staff practices have, at times, appeared to create underground regulations and inconsistent processes that are not known to” local government employers, they wrote.
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