CalPERS recently circulated a letter to all CalPERS employers regarding “Reportable Pension and Settlement Agreements.” The letter clarifies a confusing aspect of the Public Employee Retirement Law (“PERL”) and explains how a recent amendment to the PERL fixes a loophole that deprived local agency members of a full back pay or make-whole remedy in disciplinary cases.
Local agency employees who successfully appealed an involuntary termination and were reinstated with back pay reasonably believed that CalPERS would credit them with for time they missed as a result of the wrongful termination. Their employers would notify CalPERS that the employee was reinstated with back pay and would make the required pension contributions for the time missed. The CalPERS letter clarifies that local agency employees who successfully challenged an involuntary termination and were awarded a full back pay or make-whole remedy by administrative, arbitration or judicial decision were not necessarily entitled to any service credit for the time they did not work as a result of the wrongful termination. This anomalous and unjust result would leave local agency employees with insufficient service credit to qualify for the retirement benefits they assumed they would receive from CalPERS. The CalPERS letter explains that in the past, only those local agency employees who retired following an involuntary termination that was later overturned and state employees whose terminations were overturned by the State Personnel Board were entitled to receive service credit for the lost time.
The CalPERS letter announces that the closure of this loophole for local agency employees who are involuntarily terminated after January 1, 2017 and the termination is subsequently overturned with back pay by an administrative, arbitration or judicial ruling. Such employees are now entitled to full service credit for the time not worked due to the wrongful termination. The new provisions are found in Government Code section 20969.3.
An important caveat to note is that the new rule only applies when a termination is overturned by an administrative, arbitration, or judicial order, not a settlement agreement or stipulation which includes reinstatement. Therefore, a member should consider the effect that any time off during a period of involuntary termination may have on his or her employment prior to accepting a settlement agreement which includes reinstatement and back pay or salary adjustment.
Members who have previously been involuntarily terminated and subsequently reinstated with back pay should be aware that it is likely they did not receive service credit for the time missed from work and to take this into account when planning for retirement.
It is also important to note that in the event that a back pay or salary adjustment is awarded pursuant to an administrative, arbitration, or judicial ruling, the employer must provide notice of the same to CalPERS within five days of the decision becoming final.
In the event that you have questions regarding the application of the new rule or its application, please feel free to us at Info@RLSlawyers.com.