CalPERS Clarifies Rules for Hiring Retirees

by Best Best & Krieger LLP

Long-Awaited Guidance Details Requirements for Employing CalPERS Retirees

The rules on employing retirees of the California Public Employees’ Retirement System (CalPERS) have been subject to numerous changes in the last two years creating a great deal of ambiguity. But on January 14, 2014, CalPERS released long-anticipated guidance intended to provide clarity. Circular Letter 200-002-14 details the requirements that must be met to employ retirees who are receiving service retirement benefits from CalPERS.

The Circular Letter clarifies that a retiree performing work as an independent contractor, consultant or employee of a third-party employer is not subject to these requirements so long as the retiree is not a common law employee of the CalPERS employer. This represents a significant and positive shift from an earlier position taken by CalPERS, in a circular letter released in the wake of the Public Employees’ Pension Reform Act of 2013 (PEPRA), that all retirees were subject to these rules. As such, it will be extremely important for an employer to ensure that it accurately determines whether it has established a common law employee relationship with a retiree.   

The Circular Letter also confirms that while the PEPRA rules on employing retirees supersede any other conflicting provisions, those provisions of the California Public Employees’ Retirement Law (PERL), i.e., California Government Code Sections 21220-21230, that are not in conflict remain in effect.

For those retirees who are determined to be common law employees, the following requirements apply:

Bona Fide Separation. If the retiree has not reached normal retirement age there must be a bona fide separation from service.

180-Day Waiting Period. The retiree is not eligible to begin work until the 181st day after his or her retirement date unless an exception applies. However, an exception is not available if the retiree received a retirement incentive.

Type of Appointment. The Circular Letter identifies the two most common types of appointments authorized under the PERL: 

o    In accordance with Sections 21224 and 21229, a retiree can be hired to perform work of limited duration. The appointment cannot be indefinite and the retiree cannot be appointed to a regular position. Examples of permissible work include the elimination of backlog, special projects or work in excess of what regular staff can handle. This appointment can be made by anyone with authority to make such an appointment.  

o    In accordance with Section 21221(h), a retiree can be appointed to a vacant position (e.g., city manager, police chief) while the employer is actively recruiting for a permanent appointment. This type of appointment can only be made by the governing body.  

Basis for Appointment. Appointments must be made either during an emergency to prevent stoppage of public business or because the retiree has specialized skills needed in performing the work.  

Length of Appointment

o    An appointment pursuant to Sections 21224 or 21229 can only be of limited duration. While CalPERS concedes that a retiree can work for more than one fiscal year, it cautions that the retiree cannot have an expectation that the appointment is indefinite. It further provides that the appointment must specify an end date.

o    An appointment pursuant to Section 21221(h) is limited to a one-time appointment. However, it can last longer than a single fiscal year so long as the recruitment process is actively underway and an end date to the appointment is specified.   

960-Hour Limit. Retirees may work no more than 960 hours each fiscal year for all CalPERS employers. CalPERS has clarified that the retiree cannot “volunteer” hours for the work to which the retiree has been appointed.  

Rate of Pay. Retirees cannot receive less than the minimum, nor more than the maximum, monthly base salary paid by the employer to other employees performing comparable duties, divided by 173.33 to equal an hourly rate. Retirees may not receive any other compensation or benefit.

Unemployment Insurance Certification. The retiree must certify in writing that he or she has not received unemployment insurance compensation within the last 12 months as a result of any work subject to PEPRA rules on employing retirees.

Enrollment in my|CalPERS. Public agencies and school employers must enroll all retirees that it employs in my|CalPERS.

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