Endicott: Why is the nation’s largest public pension demanding millions from a handful of retirees?
In 2011, Tarlochan Sandhu, now 67, retired from his 23-year career working in financial accounting for local governments.
Sandhu loved his work. It was “a different kind of satisfaction” than the high tech job he left behind (along with the bonuses and stock options) to pursue public service, he tells me.
But with his 92-year-old mother in need of 24-hour care, Sandhu, then 55 years old, took early retirement. Intermittently in the years after, the Fremont resident took on part-time assignments with a handful of Bay Area cities looking to fill temporary gaps.
“It kept me in touch with my profession, and secondly, it gave me some extra income,” says Sandhu, who had house payments and two kids to put through school. “The pension wasn't enough to pay for everything.”
Unbeknown to Sandhu, though, several years later, some of that work -- specifically work done over the course of about 15 months in 2015 and 2016. It would leave him facing the revocation of his retirement and health benefits and a past due bill from CalPERS, the nation’s largest public pension fund, for $454,000.
"It's adding a lot of stress,” Sandhu tells me. “I’m the head of the household. I have a son who's still in college. This retirement is my only income.”
CalPERS argues that Sandhu, along with four other former public sector employees, violated the pension system’s rules for post-retirement work and therefore were not eligible to simultaneously collect benefits.
Moreover, they owed back what had been paid out to them, apparently since the original violation and regardless of how long they worked in breach. The result: The almost half-million-dollar bill Sandhu received.
This isn’t your typical “double-dipping” scandal, and while less flashy, this case has much further reaching implications.
That’s because at its center is a clash over the thorny and ever unresolved question of what separates a contractor or consultant from an employee. (You might remember similar questions at the heart of the AB 5 “gig economy” debate.)
All five of these retirees’ alleged violations occurred when they went to work for the Regional Government Services Authority (RGS.) It is a nonprofit public agency started in 2002 to help local governments deal with decreasing revenues and staff attrition by connecting them to skilled workers with the relevant expertise to serve as consultants or help with specific projects like budget preparation.
RGS operates statewide, including extensive work in Sonoma County and the North Bay.
“I understand the economics of the pension system, but I also understand the needs of government agencies for skills and expertise, which are sometimes short term, sometimes not readily available in the marketplace,” says Sophia Selivanoff, deputy executive director for RGS.
“We talk about these employees being crushed by CalPERS, but CalPERS is also crushing small agencies, by means of discouraging this talent set from being deployed.”
Former public employees collecting retirement can work freely in the private sector, or, under certain specific conditions like limited hours for employers in their same pension system.
RGS’ purview is that the five people in question were employees of the agency and acted only as contractors to the cities, RGS’ clients. Since RGS is not part of CalPERS’ system, the group was not subject to post-retirement work restrictions.
CalPERS, on the other hand, considers the work performed by the retirees through RGS to actually be the duties of regular city employees.
“CalPERS position is that they should not have been collecting the pension while they were essentially a de facto employee,” says Nari Rhee, director of the Retirement Security program at the UC Berkeley Labor Center, who reviewed the broad strokes of the case.
“Usually we deal with this in the context of is somebody an independent contractor or not,” Rhee says. “But in the CalPERS situation, it's really about regardless of who is paying the person, the employment relationship is also defined by who controls the work and who supervises, and sometimes it's very difficult to sort out.”
Indeed, the definitions and regulations around employment relationships are complex, ever-evolving and controversial.
What’s clear, though, is that while the confusion and dispute play out between these public agencies and policymakers more broadly, it’s the retirees who are caught in the cross hairs.
After nearly 40 years of public service, Margaret Souza retired as finance director for the city of Patterson in 2010. The next year, she was asked to work in a similar capacity on an interim part-time basis to help the tiny city of Hughson in the Central Valley sort out its budget in the midst of a financial crisis.