Employers on the Hook for CalPERS Overpayments

Under a new law, employers in California are responsible for CalPERS overpayments under certain circumstances. 

SB 278, enacted on Sept. 27, 2021, is intended to ensure that a retired CalPERS member is protected from a retroactive clawback of their benefits when alleged misapplication or calculation of compensation occurs because their employer made a mistake in calculating their compensation.

Conditions

When a mistake is made concerning a current employee, the employer is to return all contributions made on an overpayment to the employee.

When the mistake involves a retiree whose final compensation at the time of retirement was predicated upon the disallowed compensation, CalPERS will permanently adjust the benefit of the affected retiree, survivor or beneficiary to reflect the exclusion of the disallowed compensation, as long as all of the following conditions are met:

• The compensation was reported to CalPERS and the contributions were made on that compensation while the retiree was actively employed.
• The compensation was agreed to in a memorandum of understanding or collective bargaining agreement between the employer and the union as compensation for pension purposes and the employer and the union did not knowingly agree to compensation that was disallowed.
• The determination by CalPERS that compensation was disallowed was made after the date of retirement.
• The retiree was not aware that the compensation was disallowed at the time it was reported.

Penalties

If the conditions under which an adjustment must take place are met, the employer or contracting agency that reported contributions on the disallowed compensation must:

• pay to CalPERS the full cost of any overpayment of the prior paid benefit made to an affected retiree, survivor or beneficiary resulting from the disallowed compensation; and
• pay a penalty equal to 20% of the amount calculated as a lump sum of the actuarial equivalent present value representing the difference between the monthly allowance that was based on the disallowed compensation and the adjusted monthly allowance for the duration that allowance is projected to be paid by the system to the retired member, survivor or beneficiary.

Ninety percent of the penalty is to be paid to the retiree, survivor or beneficiary who was affected by disallowed compensation and 10% will be paid to CalPERS.

Notifications 

CalPERS is to provide a notice to: (1) the employer or contracting agency concerning contributions on the disallowed compensation; and (2) the affected retiree, survivor or beneficiary. The notice must include:

• the amount of the overpayment to be paid by the employer or contracting agency to CalPERS;
• the actuarial equivalent present value owed to the retiree, survivor or beneficiary; and
• written disclosure of the employer or contracting agency’s obligations to the retiree, survivor or beneficiary.

If asked to, CalPERS must provide the employer or a contracting agency with contact information regarding retirees and their survivors or beneficiaries to enable them to fulfill their obligations to that those persons.