New Laws Impact Employers' CalPERS Obligations

Lozano Smith Client News Brief
December 2017
Number 79

Governor Jerry Brown has signed three bills that significantly impact local agency obligations to the California Public Employees' Retirement System (CalPERS) and impose penalties on employers running afoul of the law. Each of these bills will take effect on January 1, 2018.

Assembly Bill 1309: CalPERS May Fine Employers for Failing to Report Hiring and Payroll Data when Employing Retired Annuitants

Under Assembly Bill (AB) 1309, CalPERS may now fine employers for failure to report hiring and payroll information for CalPERS members working in retirement.

Existing law allows retired CalPERS members to return to employment with a CalPERS employer under certain limited conditions, without reinstatement from retirement. Generally, a retired member must wait 180 days following retirement before returning to work and may not accrue service credit or make contributions to CalPERS during post-retirement employment. Critically, a retired member must not work more than 960 hours per year, or their retirement allowance may be suspended and the member returned to active service.

AB 1309 adds teeth to current law requiring employers to timely enroll and report retired annuitant hiring and payroll data to CalPERS. Under AB 1309, CalPERS may assess employers a fee of $200 per month, per retired member, for failure to enroll a retired annuitant in the CalPERS administrative system within 30 days of hire. AB 1309 authorizes a separate fine of $200 per month, per retired member, for failure to report monthly payroll data-including pay rate and number of hours worked-for retired members.

AB 1309 makes clear that employers must timely enroll and report data for CalPERS members employed during retirement. Employers may wish to consult legal counsel when considering employment of a retired annuitant, as law in this area is nuanced and small missteps may prove costly.

Assembly Bill 1487: New Limits on Out-of-Class Appointments

Local public agency and school employers sometimes bump an employee to a higher classification on a temporary basis to fill a vacant position while seeking a permanent replacement. AB 1487 places new limits on these temporary out-of-class appointments. Under AB 1487, employers may not place an employee in an upgraded position or higher classification for more than 960 hours in one fiscal year before filling a temporarily vacant position. Employers must also track and annually report to CalPERS the hours worked by all employees in such out-of-class positions. Employers violating these rules may incur stiff penalties including administrative fees and fines equivalent to three times the amount of both the employer and employee contributions on the difference between the compensation paid for the out-of-class appointment and the compensation paid and reported to the system for the member's permanent position. The law prohibits the employer from passing any of the fees or penalties on to the employee.

Under current law, employers may retain employees in out-of-class appointments indefinitely. With AB 1487, the Legislature increases pressure on employers to timely and permanently fill vacancies, while curbing perceived abuses by some employers who use temporary out-of-class appointments as a mechanism to avoid higher pension liability. AB 1487 does not apply to vacancies created by employee leaves of absence.

Senate Bill 525: CalPERS Performs Annual Housekeeping

With Senate Bill (SB) 525, CalPERS makes a series of clarifying changes to the law. Although most of the bill's provisions are technical housekeeping amendments, two changes are significant for employers. First, SB 525 authorizes CalPERS members who are school employees performing creditable service as defined by the Education Code, and who should have been enrolled by their employers in the State Teachers Retirement System (CalSTRS), to continue accruing service in CalPERS or make a one-time election to transfer to CalSTRS. These provisions allowing a transfer of accumulated service credit to CalSTRS may be particularly important to employers that mistakenly enrolled employees into CalPERS when those employees should have been enrolled into CalSTRS. In particular, school districts may want to review the retirement system enrollment of their employees in their preschool and early childhood education programs. Any election to transfer service from CalPERS to CalSTRS must be made prior to June 30, 2018.

Second, SB 525 clarifies that public employers must report special compensation separately from an employee's pay rate. Existing law defines "compensation earnable" by a member, excluding new members subject to the California Public Employees' Pension Reform Act (PEPRA), to mean the pay rate and special compensation, as defined, of the member. Special compensation includes a payment received for special skills, knowledge, abilities, work assignment, workdays or hours, or other work conditions. The law requires special compensation to be for services rendered during normal working hours, and the employer, when reporting this information to CalPERS, is required to identify the pay period in which the special compensation was earned. SB 525 requires the employer, when reporting special compensation to the board, to identify each item of special compensation and the category under which that item is listed, as described in regulations promulgated by CalPERS, and to report each item of special compensation separately from pay rate.

For more information on these new laws or on pension laws in general, please contact the authors of this Client News Brief or an attorney at one of our eight offices located statewide. You can also visit our website, follow us on Facebook or Twitter or download our Client News Brief App.
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As the information contained herein is necessarily general, its application to a particular set of facts and circumstances may vary. For this reason, this News Brief does not constitute legal advice. We recommend that you consult with your counsel prior to acting on the information contained herein.