Subscribe

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.

Like Sandhu, one day, a decade after her retirement, Souza, now 70, received a statement from CalPERS in the mail claiming her work after retirement violated the pension’s policies. She purportedly owed almost $930,000 in back pay.

She worked just 1,045 hours over the course of 33 months earning a gross $47,000, according to RGS.

“Now they want to charge me and make me pay all this back,” Souza says. “I'm not able to work. my health isn't that good. I can't...I can’t do it anymore.”

Last year, an administrative law judge agreed with CalPERS, and the CalPERS board adopted the decisions in November. The retirees, with RGS’ help, are now challenging the case in California Superior Court.

In the meantime, over the past couple months, they’ve stopped receiving their pension payments and health coverage in some cases.

“CalPERS has to find a way to make itself whole because it’s responsible for safeguarding its resources to be able to pay all retirees now and in the future,” Rhee tells me.

“I do think that sometimes, given some of these complex bureaucratic rules, that retirees are probably in the worst position to, one, catch these mistakes in the first place, and then, two, to pay for the entire amount.”

David Dowswell, 69, of Vallejo, allegedly owes $744,000 in backpay to CalPERS stemming from several weeks in 2015 where he exceeded the maximum yearly allowable post-retirement work hours if he had been working for the city instead of as an RGS employee as he thought.

“Who the hell has that kind of money,” he tells me.

“They're implicating that I don’t deserve any of my retirement. All of it should be taken away from me because of that 11-week period, which is insane. I've been contributing for 36 years, some of it my own money that comes out of my paycheck.”

“I never thought I was doing anything, even remotely, illegal,” Dowswell says. “I sure as hell thought, ‘This is what they want us to do, so, by God, I'll do it.’”

CalPERS notes that it’s bound by its own enforcement obligations.

“These cases are solely about CalPERS following the Public Employees’ Retirement Law,” CalPERS said in an emailed statement.

“An Administrative Law Judge has upheld CalPERS’ determination, finding the RGS contracts to be a ‘subterfuge to hide the fact’ that these retirees were actually the common-law employees of these employers. Whatever amounts the retirees are required to repay, they should look to RGS, the architect of this ‘subterfuge,’ for recompense.”

Ultimately, the large back pay sums may not stick. And in mid-March, a California Superior Court judge ordered a stay that reinstates their pension payments and health insurance until a ruling is made.

Still, even the brief halt to benefit payments withholds a lifeline, and those left temporarily without health coverage weren’t able to pick up prescriptions or get necessary medical care. The ongoing uncertainty, too, is a persistent source of anxiety. (The next big court date isn’t until August.)

Dowswell can’t sleep and is considering whether he and his wife, who is also retired, will need to sell assets. Sandhu is thinking about whether he might need to go back to work since he’s started to draw on his savings.

“I’m 67 years old. Who’s gonna hire me again?” Sandhu asks with a wry chuckle. “I don't think I deserve that.”

“At the end of the day, we the individuals are the ones who have to suffer,” he tells me.

In a way, the whole situation is a culmination and reflection of the economic shocks we’ve seen in the last few decades and a vastly changed labor landscape.

For decades, “we've been underfunding public services in California,” Rhee tells me. “It's boiling down to these very individual cases, but I think it ties into this broader issue of how we recruit, retain and compensate public employees.”

The public sector certainly has a hard time competing with the shiny offerings of the private sector when it comes to attracting and keeping especially highly educated workers with specialized skills.

The direct impact to pension systems like CalPERS, which has struggled with underfunding, is less people feeding into retirement funds while more people draw from it as they retire. These legitimate concerns could dovetail with CalPERS’ quarrel with RGS.

Of course, filling the undeniable gaps in government vacancies is part of why RGS exists.

“This isn’t a case of somebody trying to make a quick buck,” Rhee says. “This is really somebody trying to solve a public sector staffing problem. That's sort of the root issue that needs to be addressed, and that's not necessarily the domain of CalPERS. It's a broader public sector finance employment issue.”

Whether RGS is seen as a solution or just a stopgap, the problem is undeniable and only worsening, as the coining of “The Great Resignation” and especially the pandemic exodus of underpaid and overworked teachers and health care workers demonstrates.

Ironically, the promise of a pension is one of the draws of a public-sector job.

“It’s supposed to be the light at the end of our career to provide us security so we can enjoy our retirement,” Souza tells me. “Granted, you are giving up economic opportunities, but in exchange, you are getting financial security.”

“This does not feel secure at all. For the agency that's supposed to be representing me and my fellow workers, it's unbelievable.”

“In Your Corner” is a new column that puts watchdog reporting to work for the community. If you have a concern, a tip, or a hunch, you can reach “In Your Corner” Columnist Marisa Endicott at 707-521-5470 or marisa.endicott@pressdemocrat.com. On Twitter @InYourCornerTPD and Facebook @InYourCornerTPD.

Marisa Endicott

“In Your Corner” Columnist, The Press Democrat

Born and raised in Northern California, I'm dedicated to getting to know all its facets and helping track down the answers to tough questions. I want to use my experience as a journalist and an investigator to shine a light on local systems, policies and practices so residents have the information they need to advocate for the changes they want to see. I’m passionate about centering the many voices in the communities I cover, and I want readers to guide my work.

UPDATED: Please read and follow our commenting policy:

  • This is a family newspaper, please use a kind and respectful tone.
  • No profanity, hate speech or personal attacks. No off-topic remarks.
  • No disinformation about current events.
  • We will remove any comments — or commenters — that do not follow this commenting policy.
Send a letter to the editor

Our Network

The Press Democrat
Sonoma Index-Tribune
Petaluma Argus Courier
North Bay Business Journal
Sonoma Magazine
Bite Club Eats
La Prensa Sonoma
Sonoma County Gazette