Monday, July 14, 2003
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Supreme Court’s 1997 Ruling on Pension Calculation Held Retroactive by First District Court of Appeal
By a MetNews Staff Writer
A 1997 state Supreme Court ruling requiring all compensation paid in cash to county employees to be included in calculating pension benefits should be applied retroactively, the First District Court of Appeal ruled Friday.
The ruling in a consolidated case involving five counties tried before San Francisco Superior Court Judge Stuart R. Pollak could cost the jurisdictions as much as $500 million in underpaid benefits, lawyers involved in the litigation told the MetNews.
The Court of Appeal’s Div. Two upheld Pollak’s ruling that the application of Ventura County Deputy Sheriffs’ Assn. v. Board of Retirement 16 Cal.4th 483, is not limited to employees who retired after that case became final on Oct. 1, 1997.
Before Ventura, many counties had excluded compensation in calculating benefits if it was not earned by all employees in the same grade or class, relying on the Court of Appeal’s 1983 decision in Guelfi v. Marin County Employees’ Retirement Assn., 145 Cal.App.3d 297. The court in Guelfi said night shift differentials and extra pay for such specialized assignments as helicopter observer, desk duty, or investigative work did not have to be counted in determining “compensation earnable” and “final compensation” under the County Employees Retirement Law of 1937, codified in 1947 beginning at Government Code Sec. 31450.
Justice James Lambden, whose Friday opinion was joined by Justices Ignazio Ruvolo and Paul R. Haerle, rejected arguments by retirement boards in Los Angeles, Sacramento, San Mateo, Stanislaus, and Tulare counties that Ventura changed existing law and should be applied only prospectively.
Lambden conceded that the state high court in Ventura “refused to decide whether its decision applied retroactively to any other county” than the one involved in that case, though it did require Ventura Country to pay increased benefits retroactively. But, citing County of Los Angeles v. Faus (1957) 48 Cal.2d 672, the justice said it was “well settled that that the general rule in California is that ‘a decision of a court of supreme jurisdiction overruling a former decision is retrospective in its operation and that the effect is not that the former decision was bad law but that it never was the law.’”
He explained:
“Essential to counties’ position, and repeatedly asserted by them in their briefs and at oral argument, is that plan members received pensions calculated in accordance with the law then in effect and they cite Guelfi. However, as stressed throughout this opinion, the law in effect at the time the plan members received their pensions was CERL, and plan members agreed to have their ‘compensation earnable’ and ‘final compensation’ calculated pursuant to CERL. The calculations made for plan members may have complied with the holding in Guelfi, but they were calculated incorrectly under CERL. Guelfi misstated the law; it did not establish any law.”
Attorney Elwood Lui of Jones, Day, Reavis & Pogue in Los Angeles, who served as liaison counsel for the counties in the case, said a petition for rehearing on the retroactivity issue would be filed and suggested the case could wind up before the state Supreme Court. He said that the Court of Appeal had treated the issue as one of first impression, noting that Lambden wrote the court was “not aware of any California case that has addressed the specific issue of retroactivity and pensions.”
Lui added that he was pleased to have prevailed on several issues involving specific types of compensation which Pollak had found did not need to be included in calculating benefits. He also noted that Pollak had ruled, and the Court of Appeal had agreed, that it was within the discretion of retirement boards to collect arrears contributions from beneficiaries.
Such contributions, Lui said, would partially offset the financial impact of the ruling if it stands.
Lui said he could not estimate to what extent arrears could reduce the estimated $500 million in possible costs associated with the ruling, which included $190 million for Los Angeles County.
Over $200 million of the potential liability estimate is for Orange County, but that county’s retirement board—which was not involved any of the underlying consolidated cases—supported the arguments for retroactivity as an amicus. Ashley K. Dunning of Steefel, Levitt & Weiss, who represented that board, said Friday it decided soon after the Ventura ruling that it had a “mandatory fiduciary obligation” to apply the decision retroactively.
Stephen H. Silver of Silver, Hadden & Silver, the liaison counsel for the beneficiaries of the retirement plans, said he had not yet seen the decision but expressed doubt that rehearing or Supreme Court review was likely.
The case is In re Retirement Cases, 03 S.O.S. 3657.
Copyright 2003, Metropolitan News Company