Betts v. Board of Administration

• Decision Date: 17 August 1978
• Docket Number: S.F. 23803
• Citation: 148 Cal.Rptr. 158,582 P.2d 614,21 Cal.3d 859
• Court: California Supreme Court
• Parties: , 582 P.2d 614 Bert A. BETTS, Petitioner, v. BOARD OF ADMINISTRATION OF the PUBLIC EMPLOYEES' RETIREMENT SYSTEM et al., Respondents.

Page 158

148 Cal.Rptr. 158

21 Cal.3d 859, 582 P.2d 614

Bert A. BETTS, Petitioner, v. BOARD OF ADMINISTRATION OF the PUBLIC EMPLOYEES' RETIREMENT SYSTEM et al., Respondents.

S.F. 23803.

Supreme Court of California, In Bank.

Aug. 17, 1978.

As Modified Sept. 14, 1978.

Barbara Lang Betts, Sacramento, for petitioner.

Loren E. McMaster and Michael D. Stump, Sacramento, as amici curiae on behalf of petitioner.

Donald M. Pach, Sacramento, for respondents.

RICHARDSON, Justice.

Petitioner, who served as Treasurer of the State of California from 1959 to 1967, seeks a writ of mandate directing respondent Board of Administration (Board) of the Public Employees' Retirement System to compute his retirement benefit on the basis of the salary payable to the present Treasurer, rather than on the basis of the highest salary received by petitioner during his term of office. The principal issue involves the effect of 1974 amendments to the Legislators' Retirement Law (Gov.Code, § 9350 et seq.) which replaced a "fluctuating" system of computing retirement benefits with a "fixed" system. We conclude that petitioner is entitled to the relief he seeks and will therefore issue a peremptory writ of mandate. (All statutory references are to the Government Code unless otherwise indicated.)

Petitioner held the office of Treasurer from January 5, 1959, to January 2, 1967. As an elected constitutional officer, being eligible, he chose to participate in the Legislators' Retirement Fund (Fund) while holding office (§ 9355.4).

At all times during petitioner's incumbency, the basic retirement benefit available to retired members of the Fund was governed by section 9359.1, subdivision (b), which then provided, in pertinent part: "The retirement allowance for (a nonlegislative member) . . . is an annual amount equal to five percent (5%) of the compensation payable at the time payments of the allowance fall due, To the officer holding the office which the retired member last held prior to his retirement, Or five percent (5%) of the highest compensation Fixed for such office during the member's last term or any subsequent term prior to his retirement, whichever is greater, multiplied by (years of service credit) . . . ." (Italics added.) Under this "fluctuating" system, a retired member's monthly allowance would be adjusted periodically throughout the term of the pension to reflect changes in the salary payable to the Current incumbent of the elective office the member had previously held.

In 1974, after petitioner had left office but before his retirement and application for benefits, the Legislature changed the method of benefit computation. Under amended section 9359.1, the basic benefit allowance became "an annual amount equal to five percent (5%) of the highest compensation received By the officer while serving in such (nonlegislative elective) office," multiplied by years of service credit. An additional allowance was provided in certain cases for persons with 24 or more years of credited service; these provisions do not apply to petitioner. (§ 9359.1, subd. (b).) The amendment was expressly made inapplicable to members who had "retired" on its effective date.

The effect of the 1974 amendment was to substitute a "fixed" system of benefit computation for the prior "fluctuating" system. Under the new law, the basic benefit payable to a member retiring after October 7, 1974, is computed only on the basis of the highest salary he himself received while serving in a constitutional office covered by the Fund.

The highest annual salary received by petitioner as Treasurer was $21,499. In 1969, after petitioner left office, the Treasurer's salary was raised to $35,000 per year, the current level.

In 1976, petitioner retired on the basis of total disability and applied for his benefits from the Fund. He was advised that his allowance would be computed under the 1974 amendment, on the basis of petitioner's highest salary in office, $21,499. Petitioner requested an administrative hearing. The administrative judge found that petitioner was entitled to benefits computed on the basis of the current $35,000 salary, under the law as it existed in 1967, when petitioner left elective office. The Board reversed the determination of the administrative judge and this petition followed.

Petitioner's principal contention is that application of the 1974 amendment to him interferes with his vested contractual right to an earned pension. We agree.

A long line of California decisions has settled the principles applicable to the problems herein presented. A public employee's pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment. Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity. (Kern v. City of Long Beach (1947) 29 Cal.2d 848, 852-853, 179 P.2d 799.) The employee does not obtain, prior to retirement, any absolute right to fixed or specific benefits, but only to a "substantial or reasonable pension." (Wallace v. City of Fresno (1954) 42 Cal.2d 180, 183, 265 P.2d 884.) Moreover, the employee's eligibility for benefits can, of course, be defeated "upon the occurrence of a condition subsequent." (Kern, supra, at p. 853, 179 P.2d at p. 802.)

However, there is a strict limitation on the conditions which may modify the pension system in effect during employment. We have described the applicable principles as follows: "An employee's vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system. (Citations.) Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change. To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, And changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages. (Citations.) . . ." (Allen v. City of Long Beach (1955) 45 Cal.2d 128, 131, 287 P.2d 765, 767, italics added.) We recently reaffirmed these principles in Miller v. State of California (1977) 18 Cal.3d 808, 816, 135 Cal.Rptr. 386, 557 P.2d 970.

In Allen, supra, we explained why the substitution of a "fixed" system of benefit computation for a "fluctuating" system constitutes a disadvantage to affected employees: "Payment of a fixed amount freezes the benefit at a figure which is based on salary scales preceding retirement, thus the longer an employee is retired on a fixed pension the more likely it is that the amount of his pension will not accurately reflect existing economic conditions, whereas a retired employee receiving a fluctuating pension based on the salaries that active employees are currently receiving can maintain a fairly constant standard of living despite changes in our economy." (45 Cal.2d at p. 132, 287 P.2d at p. 767.) In inflationary times, we observed, the resulting disadvantage of a "fixed" system is obvious; but the very unpredictability of economic cycles also "indicates the advantage of a plan for fluctuating benefits which attempts, however roughly, to reflect the actual purchasing power of the dollar. . . ." (45 Cal.2d at p. 132, 287 P.2d at p. 768; see also Abbott v. City of Los Angeles (1958) 50 Cal.2d 438, 448, 326 P.2d 484; Chapin v. City Commission (1957) 149 Cal.App.2d 40, 44-45, 307 P.2d 657.)

Judicial attention has also been given to the subject of "comparable new advantages." The comparative analysis of disadvantages and compensating advantages must focus on the particular employee whose own vested pension rights are involved. (Abbott v. City of Los Angeles, supra, 50 Cal.2d at pp. 449-453, 326 P.2d 484; Frank v. Board of Administration (1976) 56 Cal.App.3d 236, 245, 128 Cal.Rptr 378; see Abbott v. City of San Diego (1958) 165 Cal.App.2d 511, 518, 332 P.2d 324.) It has been said that the offsetting improvement must also "relate generally to the benefit that has been diminished." (Frank, supra, 56 Cal.App.3d at p. 244, 128 Cal.Rptr. p. 384; Stork v. State of California (1976) 62 Cal.App.3d 465, 471, 133 Cal.Rptr. 207.)

The Board urges that 1963 amendments to the pension plan provide the necessary offsetting advantage in this case. In that year, the Legislature added section 9360.9, which requires automatic annual adjustment of pension benefits to reflect upward changes in the cost of living. Each January 1, under this statute, the previous year's benefit is multiplied by that year's average increase in the Bureau of Labor Statistics cost-of-living indices for San Francisco and Los Angeles, respectively, using 1954 as the base year. The product of this calculation becomes the basis of the benefit payable for the ensuing year.

Thus, the Board argues, one "cost of living" formula was simply replaced by another; petitioner, it urges, had no reasonable expectation when he left office that he would enjoy the "double windfall" of the cost-of-living index formula provided by section 9360.9 Plus the "fluctuating" benefit adjustment, the increasing salary scale, mandated by the pre-1974 version of section 9359.1. Under the circumstances of this case, the Board's contention cannot be sustained.

In asserting that termination of the "fluctuating" system was reasonable here, the Board relies heavily on Lyon v. Fournoy (1969) 271 Cal.App.2d 774, 76 Cal.Rptr. 869. The Court of Appeal in Lyon faced an unusual fact situation which was historically unique. Petitioner's decedent in that case had retired from the Legislature in 1955 and commenced drawing a monthly allowance from the Fund. At the time of decedent's retirement and for more than 10 years thereafter,...