We have discussed in prior blog posts that more and more agencies are being audited by CalPERS. The auditors may find that compensation was not reported correctly or that individuals (such as certain part-time employees or consultants/independent contractors) who were not enrolled as members should have been enrolled. Sometimes the retroactive period can be years or even decades. In addition, we have noticed a trend by former independent contractors to claim employee status for the services provided. Given these trends, it is likely your agency will eventually be faced with having to either make adjustments to previously reported compensation, or will need to enroll a former employee or independent contractor for prior service.
Under the current version of Government Code section 20533, the contributions required on those corrections had to be made at the employer’s current contribution rate. This requirement has been extremely expensive for agencies, as employer rates have grown significantly over the years.
AB 2472 made changes to Government Code section 20533, which become effective on January 1, 2015. From that date, employer contributions in these circumstances will be set at the rate in effect at the time the compensation was earned. CalPERS put out a Circular Letter last week on this issue.
Payroll adjustments and/or enrolling individuals retroactively can be unexpected and expensive. This statutory change should take some of the sting out of these obligations.