The Corner

Sketchy Overtime at CalPERS

The California Public Employees’ Retirement System (CalPERS) is not doing so hot. Last fiscal year, it saw a return of only 1 percent on its investments—a far cry from its 7.5 percent target.

Its funding shortfall is tough to calculate, but back in 2011, the L.A. Times estimated it was “underfunded by tens of billions of dollars, or about 30%.” This recent study suggests little improvement since. And in California, taxpayers are constitutionally obligated to make up the difference.

With that context in mind, the Sacramento Bee has a fascinating report on how CalPERS managers are finding extra pocket money: “For nearly two years, managers earning fixed salaries at California’s massive public retirement system have been making extra money at second hourly-wage jobs at the agency.”

If that sounds sketchy to you, you’re not alone:

But state personnel experts contacted by The Bee say they’ve never heard of managers taking hourly positions in their own department. The practice, they said, may violate federal labor law.

At the very least, said former state personnel director Dave Gilb, it circumvents the state’s intent to set fixed wages for salaried management jobs. . . .

As in the private sector, state government managers control their own schedules, can receive a full day’s credit for a partial day worked and don’t fill out a time sheet for their hours on the job.

The honor system comes with a condition: Managers must work more than 40 hours in a given week if that’s what the job requires. Unlike rank-and-file employees, state managers don’t receive overtime pay. Instead, they’re supposed to take paid time off when their workload lightens.

That extra income adds up:

CalPERS paid $45,000 in November to a total 50 managers, an average $900 each. It paid the wages at the rank-and-file job overtime rate, time and a half. The money doesn’t count toward pension calculations, the fund said.

A 27-year-old section in a rarely referenced state personnel manual allows employees to take additional appointments, but it specifically says hourly employees are eligible. It doesn’t mention salaried employees.

But it could end up being even more costly for California’s taxpayers:  

Gilb and Yeung, the labor lawyer, suggested the dual appointments could expose CalPERS to lawsuits.

If a judge decided that the salaried manager received hourly wages and the second position wasn’t outside the scope of his or her job, a court could strip the position of its exempt status and order CalPERS to issue back pay for any overtime the salaried manager worked, said Yeung, the labor attorney.

If the manager wasn’t paid at time-and-one-half the hourly equivalent of their salary when they worked more than 40 hours in a given week, a judge could decide CalPERS also violated federal labor law that requires overtime paid at a higher rate than straight time.

“It could get expensive for CalPERS very quickly,” Yeung said, obligating the fund to retroactively pay the affected employees multiple damage penalties and to cover attorney fees.

The CalPERS rank-and-file workers doing jobs similar to those performed by the managers are represented by SEIU Local 1000. Union officials declined to comment.

Jillian Kay Melchior — Jillian Kay Melchior writes for National Review as a Thomas L. Rhodes Fellow for the Franklin Center. She is also a senior fellow at the Independent Women’s Forum.

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