By Rebecca Dawn Wu
It is possible that very soon the United States Supreme Court will consider several important issues for a State Teachers Retirement System which may also influence or affect all public employees’ retirement systems. In theory this could affect hundreds or many more people and systems around the U.S. They might take up approval for the parties to file full briefs and have oral arguments leading to a final decision or they may deny the petition for review and not look at it at all.
Retirement systems under Employee Retirement Income Security Act (ERISA) are private retirement systems that are required or mandated to do an audit if a member complains, including a complaint of improper reporting by their employer based on a Collective Bargaining Agreement (CBA), the salary, what is a day of service based on set hours for a position, and even if they are being properly classified if a member complains. The law under ERISA says they have to do a review or audit when there is a complaint they are not being paid per their employment status or properly paid under a CBA, but that is not the case for public retirement systems.
In Public Retirement systems like California State Teachers Retirement System (CalSTRS) , or Public Employee Retirement System (PERS) they do not require it but I would argue they all should be in harmony and the members around the United States should have the same equal protections and, if not more, for public systems. In California it is spelled out in the Retirement System laws and in the California Constitution which are based on the Model Act that makes its recommendation. However, recently, here in California in the Third Court of Appeals they ruled CalSTRS does not have to start a review or audit when someone claims the employer is reporting improperly because the public employee is misclassified. This would benefit the employee in the long run if he or she is reclassified but does not necessarily help the system because they pay out more or less as was given to invest in the past. They do not like to go after these types of complaints but the law says they have to in the California Constitution and STRS law.
“ERISA requires plans to provide participants with plan information including important information about plan features and funding; provides fiduciary responsibilities for those who manage and control plan assets” -U.S. Department of Labor. https://www.dol.gov/general/topic/health-plans/erisa
Is this unequal protection of the laws? Is that still a violation of the laws when the retirement system has a Fiduciary Responsibility to the members and the members are in most states written into the laws as coming first? I ask why should private companies have to have stricter oversight than public retirement systems and is that a disservice to the public, The People?
I ask why should private companies have to have stricter oversight than public retirement systems and is that a disservice to the public, The People?
One issue could require the court to require STRS and or public retirement systems to audit an employer when there is a complaint that the reporting is accurate based on the Collective Bargaining Agreement or CBA based on what would be the proper credits and salary. These are all spelled out in detail in STRS retirement laws. They already do Audit this with two different Auditing departments or divisions as it is and have been doing this for decades or who knows how long but they have been going after employers or individuals who are overreporting improperly, which is known as spiking.
This is where, for example, someone has been created at top position where the pay is drastically different, or the overtime is not accurate, and it is not in alignment with a CBA or the duties. STRS does an audit and makes the person or agency pay out any overpayment they have done. There is an internal procedure for members to challenge the findings and take things on a path to an administrative law judge who makes a decision and then the STRS board can agree or not. After that a member has a right to challenge it in superior court.
But there is a problem. That problem comes when the retirement system is hand picking who gets audited even if they know there are inaccuracies. They can cherry pick in a most unbecoming way. Another problem occurs when the Retirement System circumvents the rights of a member to challenge the wrong reporting by Simply not doing a required First Step in a review or or decision that puts a member on the Path to an internal hearing with an administrative law judge that can also be appealed in superior court.
The best way to circumvent and prevent that process is simply not to do it. I have found internal audits that show they do not database these complaints or know when they have gotten to that first step of a determination or review. The review just does not get done for years or never and it could be thousands of people out there.
I have found internal audits that show CalSTRS are failing at tracking and accounting for their complaints made by members who want that first step in the process of getting a hearing for inaccurate reporting. I know because I am one of them. I had the top person in the Compensation and Review Unit or CRU agree with me on the issues but it took forever to start a audit and then when the school attorney told the payroll director not to talk to him [Auditor] it was stopped and no decision or review was done that I could take to the next step if I did not agree. Can’t move up.
That is they can ignore the underreporting by a district that is inaccurate. This provides less funds or credits that are required but then in the end when the person retires the system does not have to pay out as much. The unsaid issue is the money contributed by the employer grows exponentially over years that they get to invest.
If smaller funding comes in and then decades later it gets fixed to reflect the legally accurate amounts then they pay out when the person retires exponentially more than if they had that money to invest with originally. Years later they will have to pay out what should have grown exponentially. What is important is fixing things when they can.
Previously, decades ago STRS in California or CalSTRS would do the credits calculations based on an employee like a substitute and a salary or hourly pay they would get that is reported by the district. This changed a while back, and now they just take and accept the reporting of a district for what they calculate the hours are to equal one day. Credit or a day of service will factor into the retirement calculations when the employee retires. One year of credit will be a total number of days required to be worked for a school year in the CBA or basically number of school days will be one year of credit but less is then a percentage of the year based on the days reported that were worked. There are some variables as well.
In my own situation, the reporting of the days was inaccurate based on what a regular person would be working or Full Time Equivalent.(FTE) This is in many codes including Education Code § 22138.5. This is inaccurate because the hours of a FTE were calculated as the hours I worked each day based on more hours than what real FTE regular employees worked. Thus the days or what would be a credit for a day is not correct and the total for the year percentage of days is inaccurate. Eventually years later STRS Compensation Review Unit or CRU top manager agreed to start an audit on my retirement system after years of complaining. Then I got an email back from the manager that the attorney for Human Resources in the employment district told them not to provide information. This is a crime but it would appear that in California the public employer is not scrutinized like in some other states and not at all in comparison to private sector agencies. My complaints to the Attorney Generals and the California Department of Education were basically ignored.
An employer or district would, for example, report one day of credit is this many hours for a substitute who works for a regular teacher who works a longer day in elementary, or a little shorter in high school teaching hours. The substitute will be counted for their credit of one day based on that they are substituting for a teacher who is out.
But if the district, or an employer for a public retirement system, is not reporting correctly because they are paid inaccurately, or misclassified and really not a substitute, then they can complain to the retirement system about the inaccurate reporting. There is a process that is muddy with non transparency in STRS and possibly PERS or other retirement systems.
There is a first step in the process of a complaint by a member of a retirement system like STRS. This step is a complaint and REQUEST for a review or analysis of what their retirement will be if they retire soon or at any time they make the request. However, if a person makes such a complaint about improper credits and pay based on a CBA and class of employee they can choose to do the audit or not. This is not transparent and its own internal review audit shows that there is no accountability in making a determination if it is inaccurate or not.
In my situation, I asked STRS for a review or determination of my calculations and requested them to be based on what should have been correct based on the CBA or my retirement system law definition of class of employee. They did not do it but they did not create any statement of determination—but then years later they refused to do so because they claim that I had a misclassification suit.
I contacted PERS or Public Employment Retirement System, which takes care of the majority of public employees, and asked them about their process for a long time and claimed I wanted to know for public reasons and I was not a member. They would reroute me to someone else and again and again, through divisions to eventually get back with a letter that basically they don’t know. But they do, they just do not want to. This is not an excuse.
There cannot be two pay scales of pay structures, one hourly and one on a CBA salary schedule for the exact same position, as was in my case. My CBA, like all others like me within an entire district, is based on a salary schedule I was not on. The courts determined I was misclassified but failed to address the damages that were, in contradiction, asked for as I was told by the top excellent union attorney, Maggie Giddes, before she filed my case and retired the next day. I believe she retired the next day knowing the union did not want her to file it, and may have hung in her job just to do it, but that is my opinion.
The top person was also by law the one who did the determination or review that gets you in the process of the first step of legal right to a path to a hearing. The internal audit on the system claims the CRU needs to have a tracking program to determine the decision of the Manager or director (top person) of the CRU.
The California Courts do not require CalSTRS to audit for a misclassification. It also claims that CCR 27100-27103 does not require a review for a step to get an administrative review but only definitions and yet even CALSTRS own title to the law is contradictory to what the courts—3rd District Court—has tried to claim.
PAGE 5 https://www.calstrs.com/files/5f39d4621/internal_appeal_tab_a.pdf (p.5)
https://www.calstrs.com/member-s-right-to-internal-informal-appeal-of-a-determination-by-calstrs-staff-of-a-right-to-a-benefit-or-obligation (notice of proposed rulemaking)
“The proposed regulations provide guidelines for a member, former member, participant, former participant, beneficiary, or entity to exhaust CalSTRS administrative remedies …
Proposed Sections [Calif Code of Regulations] 27100 through 27103 describe and implement procedures for a member, former member, participant, former participant, beneficiary, or entity to follow when making a request or disputing a decision. The regulations also articulate what information is required to move the informal process forward to the next internal level which provides transparency and predictability.“– Notice of PRoposed Rulemaking
CalSTRS must do an audit for a complaint and very limited exceptions exist. Mostly they must do it but like to claim they do not or do not address it in violation of its own policy. They were also found to be non transparent with the time frame of when a complaint or request for an audit is done and what the result was. It is murky at best.
EDC 22206 (a) “as often as the board determines necessary it may audit or cause to be audited the records of any public agency.(b) the board may excuse any audit finding provided All the following conditions are met”
“The doctrine of fair procedure also has been applied in the context of other private professional organizations. Courts originally appealed to a basic concept of fairness in an effort to protect individuals from arbitrary exclusion from unions and other professional associations. Otto v. Tailors P. & B. Union (1888) 75 Cal. 308; Von Arx v. San Francisco G. Verein (1896) 113 Cal. 377.”
Steele v. Louisville & N. R. Co. (1944) 323 U.S. 192
CCR 5 T5 11700 Independent studies a Day is based on the hours worked in comparison to full time teachers.
Ed Code§ 22112.5. “Class of employees” (a) “Class of employees” means a number of employees considered as a group because they are employed to perform similar duties, are employed in the same type of program, or share other similarities related to the nature of the work being performed. (c) The board shall have the right to override the determination by an employer as to whether or not a group or an individual constitutes a “class of employees” within the meaning of this section. EDC§27600. (B) Commensurate compensation earnable for other employees performing similar duties for the same employer or other employers.
Ed code 22119.2. (a) “Creditable compensation” means remuneration that is paid In cash by an employer to all persons in the same class of employees…. (b). (d) An employer or individual who knowingly or willfully reports compensation In a manner inconsistent with subdivision (a) or (c) may be subject to prosecution for fraud, theft, or embezzlement In accordance with the Penal Code. The system may establish procedures to ensure that compensation reported by an employer Is In compliance with this section. Ed code 22002 (b) …creditable compensation …
Ed code 22119.3(a) – Creditable. Service…. Paid to all in the class of employees. Ed code and EDC 22138.5 (a) (1) “Full time” means the days or hours of creditable service the employer requires to be performed by a class of employees…. Ed code 22455 (a)…. employing agencies shall furnish any further Information…
This is a transparency issue of a government agency. I brought this all, all the laws and statutes, with all the documents including the internal audit, to the board with no response. They still will not address it but from the internal review it’s clear I am not the only one. PERS is no different.
BOARD SUMMARY REPORT AUDITS AND RISK MANAGEMENT COMMITTEE September 2016. The Compensation and Review Unit was not processing or any records of the Request for Review or Determination. CRU [ the kind top manager of the CRU, Jody Cozad, told me he was afraid of those above}
Recommended database and standard measurements. “Room for improvement in processing the CRU
In time and adequately.” page 4 September 15, 2016.
https://www.calstrs.com/sites/main/files/file-attachments/rulemaking_internal_appeals_regulations.pdf (“the intent of the new policies was to help the member get relief and to get access to the administrative process not to hinder”
STRS did its own audit and found issues with TRUSD with the Extra Duty timesheets but does not explain the details in 2017
The Way to not have to audit is to ignore the complaint with no transparency. My complaint after dozens of emails and in person visits to try to start my statutory right to a review decision so I could Then take the next step to challenge in steps to an Administrative Law Judge was circumvented so I could not challenge it by not making a decision and no report shows the end result.
Finding #2- There is room for improvement in processing the CRU cases timely and
adequately:
- Establish a systematic reminder methodology to follow-up cases timely.
- Set up a benchmark to start a case from date received.
- Prepare a report showing the trending of cases received.
- Develop case tracking mechanisms to monitor the timeliness of case completion in order
to increase the number of cases reviewed.
- Establish a procedure to allow documentation of management approval prior to closing
out cases.
- EstabLIsh procedures to inform staff what actions to follow if a conflict of interest
an incident occurs.
Recommendation
- The CRU should establish a systematic reminder methodology by procuring a case
management tool. If procuring a case management tool is not successful, the CRU
should insert a ‘”Next Action Date” column in the Case Tracking file and monitor the
status via an aging report review. The CRU should set up a benchmark and track the case
from date received until date started; The CRU should prepare a report showing the
trending of cases received. The CRU should develop case tracking mechanisms to
monitor the timeliness of case completion in order to increase the number of cases
reviewed.
- The CRU should establish a procedure to allow documentation of management approval
prior to the closing of the reviewed cases.
- The CRU should establish procedures to inform staff what actions to follow if a conflict
of interest occurs. [p.4]
ARM 57
Attachment 2
Audits and Risk Management Committee – Item 7
September 15,2016
Page 5
Management’s Response
- CRU is identifying requirements for the new Pension Solution which includes a more
robust case management tool. As part of the quarterly performance report metrics
management will include case completion.
I ponder – How many thousands of us are out there?
IN Private Sector under ERISA this would not happen. ERISA requires review of the position if one complaints and requests it or requests a review of future retirement analysis and it shows the wrongful reporting based on a class in the Collective Bargaining Agreement. If the private retirement system does not do it can be taken to court. In California, the 3rd Court of Appeal that makes case law when it is claimed precedent and they ruled that no State Teachers Retirement Systems do not have to review for a position in the CBA. Yet, they did not publish the precedent decision, possibly leading to the State Supreme Court to ignore the petition for review. Was that another circumventing method?
Well it left California, potentially an island or one of few islands in this crazy interpretation of the laws. It sailed off to the U.S. Supreme Court in July this year, a good time to sail in calmer water or hopefully to leave the island and find solid ground. It is accepted as filed for now but it will be a month or so before it is determined it can port and unload with an accepted petition for full briefing.
The laws usually are parallel with the Public Employees Retirement Systems and PERB members could take to court the same issue if it was ruled in STRS the other way and allowed for a review of a CBA.
Private sector retirements can face grave consequences for their horrors and sinister actions to their employees.
The private sector company presidents can go to prison for doing so much less crimes like in Minnesota but public school districts do not get in real trouble for doing far worse. In Yolo County a teacher was teaching as a full time substitute for four years teaching Native American students in her classroom for Native Americans, per what her husband and also my past coworker told me in Starbucks when we met to go over what was happening at my district, and he said Yolo county Office of Education (COE) came in and said she was misclassified for four years. They reclassified her that day. Yet, in TRUSD, they knew in HR in 2013, per transcripts in a case, but did nothing until summer of 2016.
The Fiscal Crisis Assistance and Management Team (FCMAT) is a government organization that is meant to come in and do a review of Fiscal issues but they do not go deep into their semi transparent reports of exactly how these vacancies and, or require the changes because COE Superintendent Gordan was in on the corruption. I thought this for years but it was actually around the end of 2019 the president of the local union for Twin Rivers Unified School District told me herself in a public meeting on the closure of schools of what she saw as corruption with Bill Mcguire wanting to improperly closed schools so they could get some funding for construction and the COE superintendent was in on it for both another district and TRUSD.
I remember filling out the Other Pay timesheets and putting student names down for whom I substituted for but no matter whom I complain to including the Attorney General and a dozen other places then some no actions are done. Granted, the president of the company did actually steal and that was a little different because he owns the company and thus financially benefited by the wrong pay and wrong retirement reporting and contributing vs this same or similar action by a school district they do not gain money- or so we know. But what do we know when there are no details reported or overview.
“MINNEAPOLIS – Late yesterday afternoon in federal court in St. Paul, the owner and
the president of Franklin Drywall, a union sheet-rocking company based in Little Canada, was sentenced on one count of providing a false statement to two labor union pension and benefit funds as part of a scheme to underpay employees for overtime and underpay the union for pension and benefit contributions required by collective bargaining agreements. [CBA] United States District Court Judge Donovan W. Frank sentenced Philip Joseph Franklin, age 49, of Leesburg,Virginia, to 24 months in prison. .”
“..To evade reporting and paying fringe benefits for the number of hours actually worked,
Franklin directed that employees who worked more than 40 hours (a) be paid for excess hours on a separate paycheck at the straight hourly rate, rather than the overtime rate; or (b) be paid for excess hours at the straight hourly rate on paychecks marked as “other pay.” From January through December of 2006, Franklin evaded payment of at least $190,000 owed to the pension and benefit funds. Moreover, he knew the information he provided to the union pension and benefit funds would be used by the funds to compile reports required by the Employee Retirement Security Act of 1974 (“ERISA”), and that by submitting reports to the funds that falsely reported employee work hours and pension and benefit fund contributions, the reports required by ERISA would be false.”
“This case was the result of an investigation by the U.S. Department of Labor-Office of
Inspector General and the Employee Benefits Security Administration of the U.S. Department of Labor. It was prosecuted by Assistant U.S. Attorney Tim Rank.”
Office of the United States Attorneys Minnesota. News and Press Release
President Of Drywall Company Sentenced For Misappropriating Employees’ Wages, Pension And Benefit Funds November 4, 2011
https://www.justice.gov/archive/usao/mn/franklinsentenced.html
In comparing Franklin Drywall and TRUSD one big difference is the president of Franklin actually benefited and kept more money that he would have had to otherwise pay his employees, and the retirement system . He kept the money. TRUSD did not individually keep any money and possibly more went to students.
Or did it? – so let’s get into that but be warned, it’s murky. Or is it the perfect crime?
It’s not that simple.
Complaints to agencies were ignored; it became a theme for complaints in California. I am not sure this is the case for other states but it is for California- maybe an island state.
Though I had complained to the California Department of Education, they claimed it was not their jurisdiction for violations of the California Williams Act for misclassification or vacancy issues and even their brochure claimed it as well – it goes to the school board and stops there for a Williams Act complaint. The California AG office, the Legislature, even the grand jury never saw many of my complaints or any of them over the years and one person who oversaw the Sacramento informed me my form was the wrong size and it was not given to the jury. I had complained with the federal Department of Education and on their website they bring you to the Department of Education’s Office of Inspector General OIG Hotline. A Los Angeles field officer for the Department of Education or its investigations unit told me that he could see the record that I had made complaints and did not know why they were not investigated.
I called the Public Employees Retirement System or PERS about their process and for the ongoing communcation the end result was they would not be able to tell me about a process for a complaint and a timeline for a determination on the same issues I see in STRS. They represent the biggest percentage of public employees in PERS yet they cannot nor will they provide such information even after receiving emails and notices they are looking into my inquiry and will get back to me as I narrow it down as I talk to one person and another higher up. It was a public information request and they did take the question seriously but it was sad how it was clear they have no process for transparency or tracking and I fully believe that is intentional.
Neither STRS or PERS are transparent and that system represents much of the public retirement systems which all have to follow the California Constitution on public retirement systems. California’s Constitution (Cal. Const., art. XVI, § 17) is very similar to a Model Act that was created to guide the states in how to run a public retirement system. Yet, unlike the Federal law on private retirement systems, the laws among the states are not uniform but public systems should have at least a higher standard in the laws than no laws or guidance.
There are few issues they may take up or may be petitioned to be reviewed. It may decide if it wants to take up whether or not STRS has the right to refuse to do an audit based on classification or misclassification. Several issues were in the original complaint not addressed but requested in a Rehearing and in the state Supreme Court and this refusal to address the issues by the whole state of California is not transparent nor healthy.
A public district entity – a thing by itself- will naturally do whatever it can to protect itself but it is the laws, and rulings of overseeing agencies that provide the Hand which helps it stay in the light. The Hand must repel its own agenda and guide. The Hand must not allow an expanding, barely seen from above, pollution to grow in the steel blue waters. It is not an iceberg, it is something far from natural in the still water. We do not want to see with our own eyes and witness the unnatural illness of the pollution spreading like a jellyfish actually harming the sensitive ecosystem and extraordinary life of the world underneath. It’s time for change and flowing water guided by a good Hand.
Written by Rebecca Wu
Fiduciary Duty of Care: the “Prudent Expert” • Skill required of trustees – In Howard, the court scrutinized an Employee Stock Ownership Plan (ESOP) that plaintiffs challenged and concluded self interested fiduciaries of an ERISA plan may not blindly rely on an appraisal of the ESOP provided by a Big Eight accounting firm, but rather they must be certain – particularly in the context of their own self-interest in the transaction – that such reliance is reasonable. • Howard, supra, 100 F.3d at p. 1488.
https://www.calpers.ca.gov/docs/board-agendas/202001/full/presentation-fiduciary-ed_a.pdf [p.9] Fiduciary Principles to Guide Public Retirement System Trustees CalPERS Board of Administration Fiduciary Training
Ashley K. Dunning. January 1, 2020
The duty to monitor and to take corrective action when reasonably appropriate is fundamental to a trustee’s exercise of the duty of care. Rest. 3d Trusts, § 227, p. 14 (1992), [p.18 on slides]
“The retirement board of a … retirement system shall have the sole and exclusive fiduciary responsibility…to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries…” – Cal. Const., art. XVI, § 17(a) CALIFORNIA CONSTITUTION
“The members of the retirement board . . . shall discharge their duties with respect to the system solely in the interest of, and for the exclusive purposes of providing benefits to, participants and their beneficiaries, minimizing employer contributions thereto, and defraying reasonable expenses of administering the system. A retirement board’s duty to the system’s participants and their beneficiaries shall take precedence over any other duty.” – Cal. Const., art. XVI, § 17(b)
Taken from the website on California Public Employment Retirement System https://www.calpers.ca.gov/docs/board-agendas/202001/full/presentation-fiduciary-ed_a.pdf “California court recently noted that the duty of loyalty requires retirement system fiduciaries to put the overall best interest of members and beneficiaries ahead of the interest of employers, if those interests conflict: – “An abuse of discretion occurs when a trustee acts from an improper even though not dishonest motive, such as when the act is undertaken in good faith but for a purpose other than to further the purposes of the trust or, more specifically, the purposes for which the power was granted.” O’Neal, supra, 8 Cal.App. 5th at p. 1209 [citing Rest. 3d. Trusts, §87, com. c, p. 244.].
Traditional fiduciary duties apply to public retirement system trustees; Claypool v. Wilson, 4 Cal.App.4th 646, 676-7 (1992) (Cal. Const., art. XVI, sec. 17 imports the existing law of trusts). [p.52] Fiduciary Principles to Guide Public Retirement System Trustees CalPERS Board of Administration Fiduciary Training Ashley K. Dunning Partner, Co-Chair of Public Pensions & Investments Group January 21, 2020
https://www.calpers.ca.gov/docs/board-agendas/202001/full/presentation-fiduciary-ed_a.pdf
Fiduciary Duty of Loyalty: U.S. Supreme Court in NLRB v. AMAX • Under traditional employee benefit trust law, even though the pre-ERISA statute: “requires an equal balance between trustees appointed by the union and those appointed by the employer, nothing in the language of [the provision] reveals any congressional intent that a trustee should or may administer a trust fund in the interest of the party that appointed him, or that an employer may direct or supervise the decisions of a trustee he has appointed.” 453 U.S. at 331 [p.53] Fiduciary Principles to Guide Public Retirement System Trustees
Fiduciary Duty of Loyalty: Employer Contributions? • California authorities have, however, permitted public retirement system fiduciaries to take actions that result in reduction in employer contributions so long as: • Those actions do not compromise competency of assets of the retirement system to pay promised benefits; • No conflict of interest arises in doing so; and • The action is in the overall best interest of members and beneficiaries as that interest relates to matters of proper concern to the retirement system. – Bandt v. Board of Retirement (2006) 136 Cal.App.4th 140; see also Claypool v. Wilson (1992) 4 Cal.App.4th 646. [p.55]Fiduciary Principles to Guide Public Retirement System Trustees
News Channel Abc10 “Wild Wild West of Education.” Nowhere to go: A lack of oversight by local and state agencies, Update: CA legislators call for audit And Profits over student success?
https://www.abc10.com/article/news/local/abc10-originals/wild-west-of-education-an-investigation-into-highlands-community-charter-and-technical-schools/103-9cf5ca57-9441-4f0c-853a-6e3061989d46 by: Andie Judson, Mike Bunnell, Rachel Kim, Sabrina T. Sanchez, Gonzalo Magaña, Vanessa Bozzuto, Tyler Horst.
Twin Rivers in a Capital Town: Local Control and Ultimate Power Rebecca Wu https://www.davisvanguard.org/2024/05/twin-rivers-in-a-capital-town-local-control-and-ultimate-power/
