Article Legal Notes Richard PadillaJoaquin Vazquez

What You Should Know About Hiring CalPERS Retirees

Richard Padilla is a partner at Olivarez Madruga, P.C., and can be reached at rpadilla@omlawyers.com.

Joaquin Vazquez is an attorney with Olivarez Madruga, P.C., and can be reached at jvazquez@omlawyers.com.

The “Great Recession” has forced many cities to undertake significant staffing cuts, often achieved through a combination of layoffs, attrition and early retirement incentives. The departure of employees, especially senior employees, has depleted cities of experienced staff possessing valuable institutional knowledge. To bridge staffing needs while budgets recover, many cities have looked to their recent retirees, the great majority of whom have retired under the California Public Employees’ Retirement System (CalPERS).1 While hiring CalPERS retirees brings continuity and stability, failing to recognize and comply with requirements of the CalPERS statutes can result in unintended adverse consequences for both the city employer and the retiree.

The Public Employees’ Retirement Law2 (PERL) generally prohibits CalPERS employers from hiring retirees unless they are first reinstated from retirement.3 Nevertheless, advantageous exceptions to this rule exist under Government Code Sections 21221(h) and 21224, provided certain key eligibility requirements can be met.4

Violation of the eligibility requirements incurs significant consequences. For the retiree, violation means:5

  • Reinstatement from retirement, dating back to the beginning of the employment;
  • Return of any retirement allowance received from CalPERS during the employment;
  • Payment of employee contributions owed during the period of employment, plus interest; and
  • Reimbursement to CalPERS for the costs of administering reinstatement.

For the city, violation means:6

  • Payment of employer contributions owed during the period of employment, plus interest; and
  • Reimbursement to CalPERS for the costs of administering reinstatement.

Accordingly, getting it right is critical to both the city and the retiree.

Exceptions to the Reinstatement Requirement

The PERL authorizes two types of hiring approaches for retirees. The first is described under Section 21221(h), which deals with vacant positions, and the second is described under Section 21224, which addresses temporary work engagements.

The first hiring approach for retirees allowed under the PERL is described in Section 21221(h), which authorizes appointments to existing yet vacant positions on an interim basis when:

  1. The vacant position requires specialized skill and the effort to recruit a permanent replacement is still pending; or
  2. Appointment to the vacant position is required on an emergency basis to prevent a stoppage of public business.

The second approach, described under Section 21224, authorizes finite but potentially long-lasting work engagements required to address unplanned or irregular work needs under one of the following circumstances:

  1. During an emergency to prevent a stoppage of public business; or
  2. When the services of a retiree possessing specialized skills are needed for a “limited duration.”

People who have retired before reaching the “normal retirement age” are not eligible for employment under Sections 21221(h) or 21224 for a period of 60 days from the date of their bona fide separation of employment. In addition, CalPERS member cities may not hire a retiree under Section 21224 if the retiree has collected unemployment during the 12 months preceding the appointment.

Duration of Appointments

Retirees hired under either Section 21221(h) or 21224 are restricted to a maximum of 960 hours of work per fiscal year. If a retiree is hired by multiple CalPERS member agency employers over the course of a fiscal year, under either Section 21221(h) or Section 21224, the total hours worked for all employers will count cumulatively toward the 960-hour cap.

Although the wording of Sections 21221(h) and 21224 strongly imply that appointments made under their authority are not intended to continue indefinitely, both statutes allow the appointments to be extended for successive fiscal years — subject to the cap of 960 hours per fiscal year — with no clear limit on the number of extensions allowed. Precisely when successive extensions for a specific appointment will cause the appointment to lose its non-permanent character is unclear, even with recent clarifying amendments passed by the California Legislature and attempted clarification by CalPERS in its Circular Letter No. 200-002-12 issued Jan. 26, 2012.7

AB 1028, SB 1021 and Circular Letter No. 200-002-12

The current versions of Sections 21221(h) and 21224 are the product of two legislative “clean-up” efforts carried out via AB 1028 (effective Jan. 1, 2012) and SB 1021 (effective June 28, 2012). The enactment of AB 1028 generated some confusion among member agencies, which CalPERS attempted to address through the circular letter.

SB 1021 added an hourly compensation formula to Sections 21221(h) and 21224. People hired under either statute must now be compensated the equivalent of an hourly rate no more than the maximum monthly base salary paid to other employees performing comparable duties, divided by 173.333 to equal the hourly rate. The base salary used for the calculation must be as listed on a publicly available pay schedule. SB 1021 also clarified that people hired pursuant to either statute may not receive benefits, incentives, compensation in lieu of benefits, or other forms of compensation in addition to the hourly pay rate.

Regarding Section 21221(h), SB 1021 eliminated the 12-month durational limit applied to such appointments, but also eliminated provisions that previously made it possible for a Section 21221(h) appointee to work in excess of the 960-hour cap within a single fiscal year. Before AB 1028, Section 21221(h) contained no prohibitions against making appointments more than once or continuing the engagement after 12 months. Section 21221(h) did not even refer to the appointment as being “interim” nor did it expressly limit its scope to “vacant” positions. With the passage of SB 1021, appointees under Section 21221(h) are now absolutely restricted from working in excess of 960 hours within a fiscal year, but their appointments may once again be extended into subsequent fiscal years.

On the subject of work hours, SB 1021 added language emphasizing that if a retiree works for multiple CalPERS member agency employers over the course of a single fiscal year, the hours worked for each of the various employers will count cumulatively toward the limit of 960 hours per fiscal year.

SB 1021 also deleted the word “temporary” from the text of Section 21224. The word had been added under AB 1028 earlier in the year to emphasize the non-permanent character of Section 21224 appointments, even though the statute already referred to such appointments as being of “limited duration.” Although the circular letter pre-dates SB 1021, its description of the type of work contemplated under Section 21224 remains insightful. In describing “limited duration” engagements of retirees possessing “specialized skills,” the circular letter contemplates situations and assignments such as the elimination of work backlogs, “special projects” and work in excess of what the employer’s permanent employees can do.

Further Clarification Is Needed

While SB 1021 resolved some issues in interpreting Sections 21221(h) and 21224, further clarification of the statutes may still be needed for cities that hire retirees:

  • Although it seems clear that appointments under Section 21221(h) and 21224 are not intended to be permanent, at what point would a continuously renewed appointment under either section lose its non-permanent character?
  • The statutes seem to allow the hiring of non-skilled persons to address emergencies that threaten a stoppage of public business. The circular letter is not as clear on this point and should be modified to reflect the statutes.
  • The circular letter provides that the employer “generally determines what specialized skills are required” in reference to Section 21224. Although the same deference should be afforded under Section 21221(h), the circular letter does not address that point.
  • Can a public agency pay a retiree on a salary basis as long as the salary amount, converted to an hourly wage, does not exceed the maximum converted hourly wage paid to other employees performing comparable duties?
  •  Both statutes require the employer to identify the maximum monthly base salary paid to other employees performing “comparable duties” as listed on a publicly available pay schedule. Does the concept that an employer has employees who perform duties “comparable” to those to be performed by the retiree contradict the notion that the retiree possesses “specialized” skills?
  • With respect to Section 21221(h), SB 1021 deleted the sentence: “The governing body of a contracting agency shall appoint a retired person only once under this subdivision.” Now the sentence reads: “A retired person shall only be appointed once to this vacant position.” Although the two sentences might appear to say the same thing, the appointment limitation under the new wording is tied to the number of times a person can be appointed to the position rather than the number of times the person may be appointed under Section 21221(h). The new wording seems to open up the prospect that a retiree appointed once to fill one vacant position could be appointed later by the same employer to fill another vacant position. Clarification from CalPERS in this regard may be warranted.

The passage of SB 1021 offers some clarity on certain questions raised by AB 1028 and the circular letter but leaves other questions unanswered. Cities will no doubt welcome further guidance from either CalPERS or the Legislature on interpreting Sections 21221(h) and 21224. 

Footnotes:

[1] According to CalPERS 449 of California’s 482 cities contract with CalPERS to manage their employee pensions.

[2] Gov. Code Section 20000 et seq. References are to the Government Code unless otherwise noted.

[3] Gov. Code Section 21220. References are to the Government Code unless otherwise noted.

[4] Similar exceptions applicable to school districts can also be found under Government Code Section 21229.

[5] Gov. Code 21220(b).

[6] Gov. Code 21220(c).

[7] www.calpers.ca.gov/eip-docs/employer/cir-ltrs/…/200-002-12.pdf.

About Legal Notes

This column is provided as general information and not as legal advice. The law is constantly evolving, and attorneys can and do disagree about what the law requires. Local agencies interested in determining how the law applies in a particular situation should consult their local agency attorneys.

This article appears in the August 2012 issue of Western City
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