Several years ago, the California Supreme Court ruled that under the County Employees’ Retirement Law, counties have to include all types of monetary compensation-such as cash payments for bilingual premium pay, a uniform allowance, or cashed-out accrued vacation-when determining the amount on which an employee’s pension will be based.But some plan members took their counties back to court, arguing that the corrected calculations of their pension benefits for cash compensation should include amounts earned before the Supreme Court’s ruling on Oct. 1, 1997.
Retroactive Calculation
Now, in a development that will require counties to dig deep into their coffers, a California Court of Appeal has said the Supreme Court’s ruling must be applied retroactively to include cash payments made before the court’s decision. The court of appeal, however, also ruled that county retirement boards may choose to fund the retroactive pension increases, plus interest, by requiring plan members to make arrears contributions.
400+ pages of state-specific, easy-read reference materials at your fingertips—fully updated! Check out the Guide to Employment Law for California Employers and get up to speed on everything you need to know.
In-Kind, Not Cash
The court of appeal also held that the following types of cash payments should not be included when calculating pensions because they are akin to an employee’s receiving an in-kind benefit:
- Termination pay for accrued but unused leave.
- Employer’s payment of insurance-related premiums. This includes cash payments into members’ flexible benefit plans used to pay insurance premiums for the member and cash payments to insurers to satisfy the members’ obligation to pay insurance premiums.
- Portions of a member’s contribution to the retirement system that are paid or “picked up” by the employer.
Impact of Case
This new ruling will translate into huge financial costs for many county employers, with estimates ranging from $40 million to $211 million depending on the county. And, it remains to be seen whether counties will require retirees to make retroactive employee contributions.