C.A. Rejects Retroactive Pension Benefits for ‘Safety’ Workers

Thursday, January 27, 2011

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C.A. Rejects Retroactive Pension Benefits for ‘Safety’ Workers

By KENNETH OFGANG, Staff Writer

A bargained-for change in pension rules, expanding the number of state “safety members” eligible for higher benefits, cannot be applied retroactively without express legislative approval, the Third District Court of Appeal ruled yesterday.

Retired Presiding Justice Arthur Scotland, sitting on assignment, noted that “millions of dollars are at stake.” He said it would be contrary to public policy to apply the change retroactively because the legislation approving the agreement between the state and the California State Law Enforcement Association was silent on the issue and the Legislature never considered the cost of retroactivity.

“At issue is the process by which a public employee labor union and the Governor negotiate benefits for state employees and then present their collective bargaining agreement to the Legislature for approval and funding,” Scotland explained. “Such agreements, which have been under the public’s radar in the past, are now coming to light due to the massive budget deficit the State is facing.”

The court’s ruling came the same day that this district’s Court of Appeal rejected a challenge to a retroactive increase in pension benefits for safety employees in Orange County. In that case, however, the retroactivity was expressly agreed to by county supervisors.

Sworn Personnel

The litigation ruled on by the Third District grew out of an agreement reached in 2002 between CSLEA, which represents a combination of sworn personnel—police officers, firefighters, and correctional officers—and regulatory officers, such as Department of Motor Vehicles investigators, who enforce administrative rules.

The agreement designated most of a bargaining unit represented by CSLEA as safety members of the retirement system, entitling them to more generous pensions than other state workers, known as “miscellaneous members.” The Legislature, which under the Ralph C. Dills Act must approve the monetary provisions of collective bargaining agreements between the state and its workers, gave its approval by passing SB 183.

A dispute between the DPA and the union, over whether those employed as of the agreement’s July 1, 2004 implementation date were entitled to credit as safety members for prior years of service, went to arbitration after the First District Court of Appeal rejected the department’s contention that the dispute was not embraced by the agreement’s arbitration clause.

Arbitrator’s Finding

An arbitrator, relying on extrinsic evidence, found that the parties intended such retroactivity and ruled in favor of the union. Sacramento Superior Court Judge Shellyanne Chang confirmed the award.

Scotland, however, writing for the Court of Appeal, said that while the arbitrator’s factual conclusion that retroactivity was intended is entitled to deference, that conclusion cannot be effectuated without express legislative approval.

He rejected the argument that such approval was obtained by the passage of SB 183.

Scotland cited an analysis which estimated the cost of the additional benefits at $17.1 million per year, with a total present value of “at least $174.3 million,” assuming “that the transfer from the State miscellaneous retirement category to the State safety retirement would apply prospectively.” The analysis added that if members were given safety member credit retroactively, “the cost of this bill would increase significantly.”

Legislative Approval

The department’s authority to negotiate retirement benefits, Scotland went on to say, “cannot be construed to negate the Dills Act requirement that a collective bargaining agreement involving the expenditure of money must be submitted to the Legislature for its approval or disapproval.”

Nor, Scotland wrote, did testimony before the arbitrator—by representatives of the union and the DPA—prove either that there was an established practice of approving retroactive reclassification or that the Legislature intended to approve retroactive reclassification in this instance.

The representatives who testified, the retired jurist explained, “were not members of the Legislature and did not discuss anything pertaining to the Legislature’s awareness of its own prior history.”

The witnesses “simply discussed their assumption that the benefits would be retroactive, and the fact that, during negotiations, no one ever mentioned that the benefits would be prospective,” Scotland wrote. “The matter was not discussed one way or the other. In any event, that such benefits are ‘almost always’ transferred retroactively does not mean it is necessarily so in all cases, including this one.”

The jurist elaborated:

“Simply stated, it is not sufficient that the Legislature was aware DPA could agree with CSLEA to make the safety member retirement credit retroactive. The Legislature had to (1) be informed explicitly that DPA and CSLEA did enter into such an agreement, (2) be provided with a fiscal analysis of the cost of retroactive application of the agreement, and (3) with said knowledge, vote to approve or disapprove the agreement and expenditure.”

In the Orange County case, this district’s Div. One, in an opinion by Justice Jeffrey W. Johnson, rejected a constitutional challenge to the 2002 agreement which applied an increase in the benefits for deputy sheriffs, sergeants, and district attorney investigators to all such employees who were in service on June 28 of that year, from the beginning of their service.

The increase, which the county granted under the County Employees Retirement Law, raised the maximum benefit to “3% at 50,” meaning employees retiring at age 50 would receive an annual pension of three percent of salary times years of service. The county previously gave safety employees a maximum benefit of “2% at 50.”

Facing an estimated $187 million liability based on the retroactivity of the increase, county supervisors adopted a unanimous resolution three years ago, declaring that the application of the increase to pre-2002 service was unconstitutional, and instructing the county’s lawyers to seek an injunction prohibiting the pension system from continuing to pay retroactive benefits.

The board voted not to seek recovery of any amounts already paid out under the enhanced benefit formula.

Los Angeles Superior Court Judge Helen Bendix denied the injunction, saying the earlier action did not violate Art. VI, Sec. 18(a) of the state Constitution, which prohibits a county from incurring any debt that it cannot pay within the same year, absent two-thirds voter approval. Nor, the judge ruled, was there a violation of Art. VI, Sec. 10 prohibiting an award of “extra compensation” to a public employee “after service has been rendered.”

The Court of Appeal agreed, saying the “unfunded actuarial accrued liability” incurred by the county does not, under precedent or existing accounting standards, constitute a debt within the meaning of Sec. 18(a). Nor does an increase in benefits to be paid to current employees as they retire in the future constitute the payment of additional compensation within the meaning of Sec. 10, Johnson wrote.

The justice acknowledged that the county may face a difficult financial situation as a result of what it called the “ruinous fiscal irresponsibility” of the prior supervisors. “Imprudence, however, is not unconstitutional,” he wrote.

The case attracted a number of amici, including the Pacific Legal Foundation, Fullerton Association of Concerned Taxpayers, California Foundation for Fiscal Responsibility, and a group of accountants on the side of the county. Also supporting the county was the Center for Constitutional Jurisprudence headed by law professor John C. Eastman, who made public pension reform a cornerstone of his unsuccessful campaign for state attorney general last year.

CalPERS, as well as a group of state and local government employees, appeared as amicus in support of the Association of Orange County Deputy Sheriffs.

The cases are California Statewide Law Enforcement Association v. California Department of Personnel Administration, 11 S.O.S. 511, and County of Orange v. Association of Orange County Deputy Sheriffs, 11 S.O.S. 502.