The California Employee’s Retirement System cites dozens of retirees each year for violating a law that limits employment after stopping work and collecting a pension.
But the pension system has almost exclusively gone after individual employees who seek out post retirement jobs.
In 2017, the California Public Employees’ Retirement System began a new effort: examining retirees who were placed by a third party company, Regional Government Services Authority, in consultant jobs at at California local governments affiliated with CalPERS.
It’s been a long process, but in November, CalPERS board members found five retirees hired by RGS violated retirement rules, including one who did consulting for the city of Atascadero. The five are being required to pay back a combined more than $400,000 in pension benefits.
An attorney representing the employees said he plans to appeal the board’s decision in the next few weeks. In the meantime, CalPERS actions may raise questions over whether jobs arranged for CalPERS retirees by third-party agencies, like RGS, will pass muster in the future.
Sacramento attorney Timothy Talbot represents dozens of CalPERS retirees each year who are accused by CalPERS of violating post-retiree employment rules by working for another entity that is part of the retirement system. He is not affiliated with the RGS cases, but said retirees should take note of them.
He noted that CalPERS is not seeking any penalties against RGS, only the five employees.
“The employee is bearing all the risk,” he said.
State Administrative Law Judge Coren Wong ruled on Sept. 17 in separate decisions that the five workers’ employment with RGS were a “subterfuge to hide the fact” that the employees actually worked for various municipalities.
Wong said the workers did not meet the legal definition of consultants because their part-time work was ultimately controlled by their municipal government superiors.
Attorney Scott Kivel insisted the five workers controlled their own hours and took responsibility for work projects without supervision from superiors, key indicators they were consultants.
CalPERS has strict rules on retirees working for another agency that participates in the CalPERS pension system. These include working less than 960 hours in a year, making less than the set hourly rate for the position, and waiting 180 days after retiring to take a temporary position.
RGS was formed in 2002 in part to help government agencies legally hire CalPERS retirees in areas of their expertise, said Sophia Selivanoff, the organization’s deputy executive director for client services. Selivanoff said it’s legal to hire CalPERs retirees as consultants on a temporary basis to help municipalities and government entities with their work.
Here’s how the administrative law judge concluded the retirees violated California pension rules:
Consultants have no limitations on much they can earn from government agencies.
In the RGS cases, the administrative law judge determined the retirees were not consultants and instead were subject to civil service rules that restrict pay for so-called retired annuitants. Those part-time employees drawing pensions from CalPERS cannot earn hourly wages that are greater than what government agencies pay other employees in similar roles
In one case, CalPERS annuitant Douglas Breeze was hired by RGS to provide consulting services for the city of Atascadero.
Breeze, who died this year, had retired from the public works director position in the city of Ojai in 2007, the administrative law judge said. Wong said he performed some of the public works director’s duties for Atascadero in 2014.
Because Breeze died several months ago, his widow would be forced to make a potential payment of around $9,500. Breeze worked performed public works executive duties, and CalPERS filings show he as paid a rate of $70 an hour for a job whose maximum salary was $62.04 an hour. He took the job after the city’s public works director had retired.
In another case, an RGS employee named Tariochan Sandhu, who was the interim finance director for the city of Capitola, was paid $75/hour even though the salary authorized for the position was $62.55 an hour.
Changed titles, but not jobs
In a couple of cases, local governments moved officials from their payroll to RGS and then assigned them similar work.
The administrative law judge said that Dixon city officials received warnings from CalPERS that David Dowswell’s continued employment as community services director after he retired in 2011 was against CalPERS rules.
The city acted. Wong said that after hearing from CalPERS officials in 2013, Dixon officials found another way to continue their relationship with Dowswell. He was switched to an RGS consultant’s role and was assigned to Dixon as community services director.
He stayed in that position for almost two years. Dowswell told CalPERS officials that City Manager Jim Linley said that he “needed to look more like a consultant and less like an employee.” Linley testified that he felt that hiring Dowswell as a consultant through RGS would satisfy CalPERS.
In another case, former Hughson City manager, Bryan Whitemyer hired Margaret Souza as interim city finance director in 2012 during a municipal crisis.
Judge Wong noted that the city manager “had no confidence in the numbers that were coming out of the Finance Director’s office.”
A year later after new CalPERs post-retiree rules went into place, Souza was switched to a consultant’s role, hired by RGS, but still working for Hughson. Souza worked as the interim finance director from one to two days a week until 2015.
Souza was paid $45 an hour and made around an estimated $100,000 during her four-year tenure. CalPERS wants her to pay back not the money she earned from the Hughson job, but the entire retirement benefits she earned during that four-year period between 2012 and 2015 of more than $235,000.
Consultants normally don’t receive benefits like health insurance or life insurance. Wong noted that RGS paid the workers benefits but was reimbursed by the municipalities for the the cost of proving them. Wong said RGS “was simply a conduit through which the cities” paid the employees, an indicator they were employees.
RGS’s Selivanoff said RGS does provide benefits to its employees but they are still consultants.
“As with most businesses, our bill rates to client agencies are designed to include cost recovery for RGS, which covers the cost of our consulting staff, administration costs, technology and other resources, etc,” she said. “The client agency payment of an agreed-upon bill rate is not a direct reimbursement of benefit costs, despite the judge’s perspective.”
CalPERS customer service
CalPERS isn’t discussing the specifics of the five cases
Spokeswoman Amy Morgan said it has always been the responsibility of the employer and members to comply with the laws governing the hiring of independent contractors.
She said CalPERS members can call the pension plan and “we are happy to speak to them. We will even answer specific questions they have relating to any post-employment employment they are seeking to undertake.”
Morgan added that retirees should “not rely on third-party agencies that may provide incorrect information.”