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Public Safety Annuitants
The present is a uniquely challenging time for law enforcement agencies. Public discourse, which can tend to be demoralizing, is consistently critical of police. In turn, legislators have set their sights on reform. By the end of the 2020 legislative session, the California Legislature had passed a dozen new bills relating to law enforcement reform or increased public scrutiny over policing, most of which were signed into law by the Governor. On top of all of that, the COVID-19 pandemic has threatened to cause staffing and funding shortages. All of this tumult threatens to lead to a talent drain. Law enforcement faces increasing retirements and reduced recruiting. One strategy law enforcement agencies commonly employ in tackling staffing issues is re-hiring retirees. Caution is advisable.
Many agencies already hire CalPERS retirees for limited post-retirement work to help with overflow or special projects. Often times, these retirees are the agency’s former employees who are familiar with the agency’s operations and inner workings. However, agencies that choose to take this route need to be careful, as post-employment work without reinstatement into active CalPERS membership is only permitted in certain limited circumstances, and with numerous strict requirements that agencies must follow. If these requirements are not followed exactly, then CalPERS may require that the retiree and employer make retroactive pension contributions, and can even require the retiree to give back all the pension payments collected during the post-retirement work for up to three years of retroactive payments. Because of this, seemingly minor violations sometimes result in demands for repayment for hundreds of thousands of dollars!
There are two significant restrictions on postretirement work: First, a CalPERS retiree may only work a combined total of 960 hours for contracting agencies in one fiscal year (July 1-June 30). Second, a retiree must generally have a break in service of at least 180 days before starting postretirement work, although this requirement does not apply where the retiree is a public safety officer or firefighter performing safety-related functions regularly performed by one of those positions. However, if the retiree accepted a retirement incentive on retirement, the 180-day break in service is mandatory.
In addition, for retirees who are below the “normal retirement age” – meaning someone who is not yet eligible to retire or has not reached the highest specified age under their pension benefit formula, there must be a “bona fide separation form service” before they can resume work for a CalPERS agency. This means that the officer must be separated from their employment for at least 60 days with no predetermined agreement to return to work after retirement.
As an illustration of how this rule works in practice, assume a police officer from a CalPERS agency retires at the age of 52. The agency he retires from is a city with a retirement benefit formula of 2% at age 50. However, the officer had also previously worked for an agency with a retirement benefit formula of 3% at age 55. Both formulas are used to calculate the officer’s retirement benefits.
Under this scenario, the officer’s “normal retirement age” is going to be 55 (the highest age from the two retirement benefit formulas above). If this officer wants to work for a CalPERS employer as a special events reserve officer, he does not need to meet the 180-day break in service that is normally required because he is a peace officer. However, because the officer is still below age 55, he must still have a “bona fide separation from service” which means that he must be separated from his employment for at least 60 days before starting to work as a special events reserve officer. Otherwise, the officer would need to be reinstated in CalPERS membership. It is especially important to note that the “normal retirement age” for the officer derives from the pension formulas used by the agency where the officer worked during active membership, and not on the retirement age at the agency, that subsequently hires him for special work.
Another important restriction on postretirement work is that a retiree who is rehired to an “extra help” position, or to an interim appointment in a vacant position, can receive no compensation other than an hourly rate equivalent to the maximum monthly salary paid to other employees performing comparable duties as listed on a publicly available pay schedule (calculated by dividing that monthly salary by 173.333). CalPERS has indicated that overtime pay required by the Fair Labor Standards Act is permissible, but this appears to be the only exception. This means the retiree cannot receive benefits like holiday pay, contract overtime, or shift differentials, even if the retiree works an assignment or a shift that would normally earn those benefits.
In response to the COVID-19 pandemic, Governor Gavin Newsom issued an Executive Order on March 12, 2020. The Executive Order, among other things, suspended certain restrictions applicable to retired annuitants. On March 18, 2020, the California Public Employees’ Retirement System (“CalPERS”) issued Circular Letter 200-015-20, which explains the restrictions that are suspended for the duration of the state of emergency caused by the COVID-19 pandemic. Any hours worked by a retired annuitant to ensure adequate staffing during the state of emergency will not count toward the 960-hour per fiscal year limit. In addition, the 180-day wait period between retirement and returning to post-retirement employment is suspended. Most other retired annuitant restrictions, including the limitations on permissible compensation and the prohibition of any benefits in addition to the hourly rate, remain in effect.
However, although CalPERS has issued guidance confirming that these restrictions are suspended, the language indicates that CalPERS will likely interpret the executive order narrowly. Accordingly, agencies must be cautious when relying on the Governor’s executive order to hire retired annuitants – or have retired annuitants work beyond the 960-hour limit – and should ensure that their duties are directly related in some way to the pandemic.
Agencies must continue to enroll, and report retired annuitants to CalPERS. We anticipate that CalPERS will continue to monitor the work hours for retired annuitants, and particularly those covered by Governor Newsom’s order.
For these reasons, and because the consequences of violating post-retirement work restrictions can be extremely costly – particularly to the retiree – we recommend agencies work closely with trusted legal counsel to ensure compliance with the aforementioned guidelines.
This article was originally published in the Winter 2020 edition of the California Police Chief Magazine.