Who should pay for pension mistakes? California Legislature could make a change
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A proposal aimed at ending surprise pension reductions for California retirees is back, accompanied by old questions over who should be responsible for mistakes that lead to benefit recalculations.
State Sen. Connie Leyva re-introduced the proposal, once vetoed by former Gov. Jerry Brown, as Senate Bill 278.
Under current practice, when CalPERS discovers in routine audits that a retiree is benefiting from an improper pension, the retiree receives a notice in the mail telling them their pension will be reduced, and often, that they must pay some of it back.
Leyva’s proposal would place the responsibility on local governments to pay CalPERS back and would force them to assume responsibility for the difference if CalPERS reduces monthly checks.
In a written summary of the bill, Leyva’s office said there’s a “clear need” for the change, citing the example of a City of Davis firefighter who retired in 2012 after 30 years of service based on CalPERS estimates of what her monthly pension check would be.
Five years later, CalPERS notified the firefighter there had been a mistake. She owed $42,000 and would be receiving a considerably smaller check each month.
Local government representatives have argued that with pensions consuming a growing share of their budgets and with few options to control those costs, they can’t afford new liabilities that could last decades.
Additionally, California’s 1,300-page Public Employees’ Retirement Law, which includes a long list of pensionable pay categories ranging from longevity bonuses to sandblasting stipends, doesn’t always lend itself to clear interpretation.
“You have thousands of local agencies who are expected to understand the nuances and intricacies of CalPERS regulations,” said Dane Hutchings, a lobbyist who fought Leyva’s proposal on behalf of local governments for years and now directs Renne Public Law Group. “And when they agree to these (contracts) in good faith, both on the management and labor side, they believe they’re acting in a lawful manner.”
Hutchings’ preferred solution to the problem of pension mistakes, and one floated by former Gov. Brown in a 2018 veto note, is for CalPERS to review the agreements before they’re finalized to make sure mistakes aren’t missed until years later.
Leyva’s bill as written would allow local public agencies around the state to ask CalPERS to review agreements for consistency with state law, but wouldn’t require the system’s approval.
At the state level, CalHR has sometimes asked CalPERS to review pension language in proposed contracts, said CalPERS spokeswoman Megan White. The retirement system has “offered advice and/or raised concerns if there are issues” in those situations, White said.
Bijan Mehryar, a lobbyist for the League of California Cities, called Leyva’s proposal “unconstitutional,” saying it would “saddle local agencies with extensive fiscal liabilities at a time when cities have spent billions of dollars over the last year fighting the pandemic, protecting public health and delivering critical services.”
Leyva reintroduced the bill after Brown’s 2018 veto. In 2019, after the bill cleared both chambers of the Legislature, it was held from reaching Gov. Gavin Newsom’s desk without explanation, likely signaling Newsom had some reservations.
It’s scheduled for a hearing March 8 before the Senate Labor, Public Employment and Retirement Committee.
This story was originally published March 3, 2021 at 5:00 AM with the headline "Who should pay for pension mistakes? California Legislature could make a change."