In San Diego County Employees Retirement Association v. County of San Diego, (— Cal.Rptr.3d —, 2007 WL 1633610, Cal.App. 4 Dist., June 7, 2007), a California Court of Appeal considered the legality of a county’s resolution that restricted its obligation to pay for the cost of retroactive increases in retirement benefits to only those employees who were employed on a certain date. The court held that, under the law in effect when the resolution was passed, the resolution was legal, and the county does not have to pay the higher costs for employees whose dates of employment excluded them from the retroactive increase.
Facts
In 2002, the County of San Diego (“County”) adopted Resolution 2-44, providing for higher pension benefits – referred to as “Tier A” – for all County employees who were employed on, or hired after, the effective date of the resolution, March 8, 2002. County limited the retroactive effect of the increase, however, to only those individuals who were employed on March 8, 2002. The San Diego County Employees Retirement Association (“Association”), an independent entity which administers County’s retirement system, sued County on behalf of two groups of employees who were not employed on March 8, 2002: (1) persons employed before March 8, 2002, who left County employment before that date, did not withdraw their retirement contributions, and were rehired after March 8, 2002; and (2) persons employed before March 8, 2002, who left County employment before that date, withdrew from the retirement system, then were rehired and redeposited their retirement contributions with interest after that date. Association sought a declaratory judgment that members of the two employee groups were entitled to the higher Tier A benefits for their entire period of eligible service, rather than just the service occurring after their rehire date.
The parties filed cross-motions for summary judgment. The trial court granted judgment in favor of Association and against County, holding that the County Employees Retirement Law of 1937, Gov. Code §§ 31450 et seq. (“CERL”), precluded County from enforcing Resolution 2-44 as written, in part because excluding the returning employees from the retroactive increase to Tier A created an inequity. The trial court therefore ordered County to calculate pension benefits at the Tier A level for all members of the two groups of rehired employees for their entire period of service, both before and after March 8, 2002. County appealed.
Decision
The Court of Appeal disagreed with the trial court’s conclusion. Although Resolution No. 2-44 provided for the highest level of statutory benefits then permitted under CERL, County expressly intended to exclude retroactive benefit increases to rehired employees. County’s reason for doing so was to control its pension costs: County had agreed, under its collective bargaining agreements, to pay for the full cost of the increased contributions for retroactive benefit increases needed to fund the retirement system (with employees to bear the cost of higher contributions prospectively).
At the time Resolution 2-44 was enacted, counties clearly were permitted under CERL to make pension benefit increases retroactive and to select different retirement benefit levels for retirement system members in order to achieve desired financial and employment objections, “unless the distinctions were specifically prohibited,” the court stated. Nothing in the language or legislative history of the retirement law suggested the California Legislature intended to require a county to extend retroactive benefit provisions to rehired employees, or to prohibit a county from excluding individuals who were not employed on a specific date. Rather, the court held, the legislative history indicated that supporters of the law wanted to provide counties with “maximum local control” in determining the proper retirement formula, and to require counties to engage in collective bargaining on the issue.
The primary statutes on which Association relied, CERL §§ 31642 and 31652, did not prohibit County from providing a retroactive benefit increase to only those employees employed on a specific date, the court said. Though both statutes allow rehired employees to count their years of earlier service for purposes of determining total years of service at retirement, the statutes do not suggest that the Legislature intended for rehired workers to be treated as though they were always employed for all purposes. Though service and employment are related, they are not necessarily the same, the court said; had the Legislature intended for rehired workers to always be treated as though they were continuously employed, it could have said so.
The court also rejected Association’s argument that County was required, by the holding of Aquilino v. Marin County Employees’ Retirement Association, (1998) 60 Cal.App.4th 1509, to offer the retroactive increase to rehired employees. The Aquilino case was distinguishable in that it dealt with the rights of rehired employees to be returned to their prior retirement benefits tier. In contrast, County had not attempted to deprive its rehired employees of their prior status, or to base entitlement to retroactive increases on status or tier membership; rather, rehired workers were given the full benefit of their prior tier membership status, with the only condition imposed by County for entitlement to a retroactive increase being employment on a certain date. The Aquilino case did not reach the latter issue, and thus did not control the court’s decision here, it held.
The court held that Association failed to sustain its burden of demonstrating Resolution 2-44’s retroactive benefit provision was improper. Because CERL, at the time County enacted Resolution 2-44, did not prohibit counties from limiting retroactive pension benefit increases to only those persons who were employed on a particular date, County had discretion to limit the increases in the manner that it did, and its decision to do so was legal. The court therefore reversed the trial court’s judgment in favor of Association and ordered the lower court to enter judgment in favor of County.