CalPERS Contracting Agencies Face New World of Liability Issues | Best Best & Krieger LLP

SB 278 imposes increased legal liability for CalPERS reporting errors

SB 278 was promulgated on September 27, adding section 20164.5 of the Government Code. Section 20164.5 imposes a new liability on employers when CalPERS identifies an error in the declaration of compensation agreed between an employer and a recognized employee organization that results in the reduction of the retirement benefits of a retiree, survivor or employee. ‘a beneficiary (collectively retirees). Although SB 278 comes into effect on January 1, 2022, it will apply to adverse decisions regarding reportable compensation made on or after January 1, 2017, if an appeal has been filed and the retiree has not exhausted the administrative or legal remedies.

CalPERS reviews compensation reported to the system through periodic compliance reviews, upon receipt of anonymous tips, or upon an employee’s retirement. When CalPERS determines that the amounts reported are not eligible for pension purposes, the denied allowance must be removed by the employer from all affected pay periods in the my | CalPERS system. After corrections, all contributions paid on the refused remuneration are credited back to the employer for active employees and retirees. This results in minimal impact on active employees. However, this can have a significant negative impact on the retirement allowance received by retirees requiring a reduction in the retirement benefit they receive retroactively to the date of retirement. This reduction takes two forms: an overpayment based on excess pension benefits received from the date of retirement and a decrease in future pension benefits. Under current law, CalPERS can collect 3 years of overpaid pension benefits from retirees, regardless of how long the retiree retires.

SB 278 transfers an important responsibility to the employer. Specifically, SB 278 imposes a legal obligation on employers to reimburse the overpayment to CalPERS on behalf of the retiree and to pay a lump sum penalty equal to 20% of the present value of the lifetime loss of retirement benefits attributed to the retiree. compensation refused. Of this penalty, 90% is paid to the retiree and 10% is paid to CalPERS as an administrative fee. The risk of SB 278 for employers is magnified by the fact that any single-person review or determination that identifies compensation denied by CalPERS can be extended to a comprehensive audit spanning multiple years and impacting many retirees. . Therefore, employers should focus their efforts on ensuring compliance for employees who are at high risk of triggering a comprehensive review.

Additionally, SB 278 allows employers to request a review of the compliance of proposed wording regarding compensation elements to be included in a memorandum of understanding or collectively negotiated agreement to be concluded or adopted on January 1, 2022 or later. While CalPERS is required by the new law to provide advice within 90 days of receiving all information required to perform a review, SB 278 does not identify what constitutes advice, how long CalPERS must continue to provide advice. request information or what happens when CalPERS provides inaccurate information or incomplete guidance.

With the imminent implementation of SB 278, employers should consider verifying the compensation they report for their represented employees. Additionally, while SB 278 is limited to compensation that is negotiated between an employer and a recognized employee organization, it is prudent for employers to assess the risks for all groups of employees, as new legislation extending the scope to unrepresented employees is likely to follow. As such, we recommend consulting an experienced legal advisor in CalPERS to review relevant documents to assess risk and exposure as well as to formulate resolution strategies.

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