Hudson v. Board of Admin. of Public Employees' Retirement System

• Citation: 69 Cal.Rptr.2d 737,59 Cal.App.4th 1310
• Decision Date: 11 December 1997
• Docket Number: No. E018521,E018521
• Court: California Court of Appeals
• Parties: , 97 Cal. Daily Op. Serv. 9331, 97 Daily Journal D.A.R. 15,009 Dewayne HUDSON et al., Plaintiffs and Appellants, v. BOARD OF ADMINISTRATION OF THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM et al., Defendants and Respondents.

Page 737

69 Cal.Rptr.2d 737

59 Cal.App.4th 1310, 97 Cal. Daily Op. Serv. 9331,

97 Daily Journal D.A.R. 15,009

Dewayne HUDSON et al., Plaintiffs and Appellants, v. BOARD OF ADMINISTRATION OF THE PUBLIC EMPLOYEES' RETIREMENT SYSTEM et al., Defendants and Respondents.

No. E018521.

Court of Appeal, Fourth District, Division 2, California.

Dec. 11, 1997.

Certified for Partial Publication. ^*

Review Denied March 11, 1998. ^**

[59 Cal.App.4th 1315] Silver, Hadden & Silver and Stephen H. Silver, Santa Monica, for Plaintiffs and Appellants.

Kayla J. Gillan, General Counsel, and F. Javier Plasencia, Senior Staff Counsel, Franscell, Strickland, Roberts & Lawrence, Barbara A. Roberts, Priscilla F. Slocum and Ann M. Maurer, Sacramento, for Defendants and Respondents.

OPINION

RICHLI, Associate Justice.

Appellants are the former Fire Chief, Division Fire Chief, Police Chief, and Substation Superintendent of the Electric Utility Division of the City of Colton (City). The City permitted appellants to convert employer-paid benefits, such as health and life insurance, to salary increases if they agreed to retire within 12 months. The purpose of the conversions was to increase appellants' final year compensation so they would receive greater retirement benefits under the Public Employees' Retirement System (PERS).

PERS, however, refused to include the salary increases in calculating appellants'

pensions, taking the position the benefit conversions were not "compensation" under the Public Employees' Retirement Law (PERL). In the published part of this opinion we conclude the lower court correctly determined the benefit conversions were excluded from compensation under the then-applicable provisions of PERL.

I FACTUAL AND PROCEDURAL BACKGROUND

PERL (Gov.Code, § 20000 et seq.) establishes PERS, a retirement system for employees of the state and participating local public agencies. PERS determines employees' retirement benefits based on their years of service, final compensation, and ages at retirement. The system is funded by employer and employee contributions calculated as a percentage of employee compensation. (See generally Oden v. Board of Administration (1994) 23 Cal.App.4th 194, 198, 28 Cal.Rptr.2d 388.)

PERS determines employer contribution rates based on compensation figures and actuarial assumptions. PERS periodically adjusts employers' rates of contribution to compensate for any inaccuracy in those assumptions. Employee contribution rates, in contrast, are fixed by statute.

A. Facts

Appellants were members of PERS pursuant to a 1945 agreement between PERS and the City. (See Gov.Code, § 20460, formerly § 20450.) ¹ In September 1989, at the suggestion of one or more appellants, the City passed Resolution No. R-118-89. The resolution noted that because retirement income for City employees was "based totally on salary, with no credit included for benefits," employees often would "delay their retirement past the appropriate point in time in order to increase the salary amounts used in the calculation of retirement income." Accordingly, the resolution authorized the City Manager "to convert premiums paid by the City for specified benefits to salary, in instances where employees are eligible, and agree, to retire within a twelve month period." The benefits eligible for conversion were PERS retirement contributions, health, dental, life and long term disability insurance premiums, deferred compensation, and automobile allowances.

Appellants Dewayne Hudson, Ronald E. Gemmell and Paul J. Connolly submitted their resignations in December 1989, effective December 31, 1990. Appellant Herbert C. Conaway submitted his resignation in July 1990, effective July 13, 1991. Each appellant stated in writing his desire to convert to salary for his final year of employment all benefits that could be converted under Resolution No. R-118-89. Subsequently, each appellant's benefits were reduced, and his salary was increased by a corresponding amount. ² As a result of the conversions, Hudson's monthly salary, as reported by the City to PERS, went from $3,915 to $6,311, Gemmell's from $5,090 to $8,000, Connolly's from $5,193 to $7,960, and Conaway's from $4,810 to $6,078.

Each appellant then retired on the effective date of his resignation, Hudson at age 54, Gemmell at 56, and Connolly at 55. The record does not reflect Conaway's age at retirement.

In November 1990, the City requested that PERS update the final compensation figures for Hudson, Gemmell and Connolly, to include the converted benefits. In June 1991, after reviewing Resolution No. R-118-89, PERS advised the City that only a portion of the increased salaries resulting from the converted benefits could be included in calculating appellants' pensions. ³

In August 1991, the City rescinded Resolution No. R-118-89. The rescinding resolution stated PERS had "notified the City of its intent not to allow for conversion of benefits in its calculation of retirement allowances for former Colton employees."

B. Procedural Background

Appellants commenced an administrative appeal of PERS' determination and the matter was heard before an administrative law judge (ALJ). The ALJ issued a proposed decision denying relief, which PERS later adopted. Appellants petitioned for a writ of administrative mandamus requiring PERS to include the converted benefits in calculating their pension benefits. In the alternative, appellants sought a writ of mandate requiring the City to pay amounts equal to the additional pension amounts they would have received had PERS included the converted benefits. For reasons discussed, post, the lower court entered judgments for PERS and the City.

II DISCUSSION

A. Liability of PERS

1. Relevant Code Provisions

When appellants retired, "compensation" for purposes of calculating retirement benefits was defined in former section 20022. Subdivision (a)(1) of that section defined compensation generally to include "remuneration paid in cash" plus the monetary value of any "other advantages of any nature furnished a member by his or her employer in payment for his or her services...."

Subdivision (b) enumerated specific items which were not to be considered compensation. These included "the provision by an employer of any medical or hospital service or care plan or insurance plan ... for its employees, any contribution by an employer to meet the premium or charge for such plan, or any payment into a private fund to provide health and welfare benefits for its employees." (former § 20022, subd. (b)(1).) Also excluded from compensation was "special compensation for additional services outside regular duties, such as ... allowance for automobile...." (Id., subd. (b)(10).) Finally, section 20022 excluded from compensation "final settlement pay," which was defined to mean "any pay in excess of salary granted or awarded in connection with a separation from employment, including severance pay, bonuses, retroactive adjustments to salary, payment of the value of retroactive adjustment to benefits, and any other grant or award that the [PERS] board may determine is 'final settlement pay.' " (former § 20022, subd. (b)(8).)

The lower court concluded the converted insurance benefits could be excluded under subdivision (b)(1), and the car allowances under subdivision (b)(10). However, the court ruled that all the disallowed amounts were excluded under subdivision (b)(8) as final settlement pay. Because we agree with the lower court that the payments at issue were excludable as final settlement pay, we do not address whether certain payments also were excludable under the other provisions cited by the court.

2. Statutory Interpretation

"[O]ur primary task in construing a statute is to determine the Legislature's intent." (Brown v. Kelly Broadcasting Co. (1989) 48 Cal.3d 711, 724, 257 Cal.Rptr. 708, 771 P.2d 406.) "If the language is clear and unambiguous there is no need for construction, nor is it necessary to resort to indicia of the intent of the Legislature...." (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735, 248 Cal.Rptr. 115, 755 P.2d 299.) When, on the other hand, a statute is ambiguous, "we typically consider evidence of the Legislature's intent beyond the words of the statute...." (Watts v. Crawford (1995) 10 Cal.4th 743, 751, 42 Cal.Rptr.2d 81, 896 P.2d 807.) And, in fact, even where the language is clear, "the 'plain meaning' rule does not prohibit a court from determining whether the literal meaning of a statute comports with its purpose...." (Lungren v. Deukmejian, supra, 45 Cal.3d at p. 735, 248 Cal.Rptr. 115, 755 P.2d 299.) "The intent prevails over the letter, and the letter will, if possible, be so read as to conform to the spirit of the act." (Ibid.; Provigo Corp. v. Alcoholic Beverage Applying these principles, we conclude the lower court correctly determined the Legislature intended that conversions of the type at issue here be excluded from compensation as final settlement pay. We find that intent reflected in the various exclusionary provisions of former section 20022 as they existed when appellants retired, and in the Legislature's subsequent amendment of PERL in 1993 explicitly to exclude from compensation, as final settlement pay, converted benefits granted in connection with retirement.

Control Appeals Bd. (1994) 7 Cal.4th 561, 567, 28 Cal.Rptr.2d 638, 869 P.2d 1163.)

a. Exclusionary Provisions of Former Section 20022

As already noted, when appellants retired, former section 20022, subdivision (b)(8), defined final settlement pay generally to include "any pay in excess of salary granted or awarded in connection with a separation from employment." Appellants do not appear to dispute that the converted amounts were "granted or awarded in connection with a separation from employment," but argue that because the benefits were converted to salary, the additional amounts paid could not be "in excess of salary" as required for final settlement pay. ⁴...