Mason v. Retirement Bd. City & County S.F.

• Decision Date: 10 September 2003
• Docket Number: No. A098756.,A098756.
• Citation: 111 Cal.App.4th 1221,4 Cal.Rptr.3d 619
• Court: California Court of Appeals Court of Appeals
• Parties: Raymond J. MASON et al., Plaintiffs and Appellants, v. RETIREMENT BOARD OF the CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Respondents.

4 Cal.Rptr.3d 619

111 Cal.App.4th 1221

Raymond J. MASON et al., Plaintiffs and Appellants, v. RETIREMENT BOARD OF the CITY AND COUNTY OF SAN FRANCISCO et al., Defendants and Respondents.

No. A098756.

Court of Appeal, First District, Division 5.

September 10, 2003.

Review Denied December 10, 2003.

Davis & Reno, Duane W. Reno, Ronald Yank, Gregg McLean Adam, Carroll, Burdick & McDonough, San Francisco, for plaintiffs and appellants.

Arthur A. Hartinger, Mountain View, Andrea J. Saltzman, Meyers, Nave, Riback, Silver & Wilson, San Leandro, for defendants and respondents.

JONES, P.J.

Appellants in this action are individuals who are classified as "miscellaneous employees"¹ under three retirement plans set forth in the charter of the City and County of San Francisco. They and labor organizations representing some of them filed lawsuits challenging the methodology used by the San Francisco Retirement Board to calculate their retirement benefits. The trial court granted summary judgment to the board, ruling it had determined appellants' benefits correctly. Appellants contend the trial court misinterpreted San Francisco's charter and related city ordinances. We disagree and will affirm the judgment in favor of the board.

I. FACTUAL AND PROCEDURAL BACKGROUND

San Francisco, like many public employers, offers its employees a pension plan. The plan is structured as a defined benefit plan under which San Francisco promises to pay retiring employees a certain sum of money each month for life. The precise amount is determined by a formula that takes into account the number of years the employee worked, his or her age at retirement, and the employee's "average final compensation."² Under this formula, "average final compensation" is critical when determining the amount to which an employee is entitled.

As San Francisco is a charter city, many of the laws that govern its retirement plan are set forth in the city's charter. Over the years, San Francisco has amended the charter's retirement provisions several times and has changed the way in which "average final compensation" and related terms are defined.

Three versions of the San Francisco charter's retirement provisions are at issue in this case. The first, described by appellants as the "old plan"³ applies to workers hired prior to November 1, 1976. (See S.F. Charter, Appendix, § A8.509 (hereafter Charter.)) Under that plan, the term "average final compensation" is defined as, "the average monthly compensation earned by a member during any five consecutive years of credited service in the retirement system in which his average final compensation is the highest, unless the board of supervisors shall otherwise provide by ordinance enacted by three-fourths vote of all members of the board." (Charter, § A8.509.) Under the old plan, the term "compensation" is defined as "all remuneration whether in cash or by other allowances made by the city and county, for service qualifying for credit under this section." (Charter, § A8.509.)

The second plan is known as the "new plan."⁴ (Charter, § A8.584.) It applies to workers who were hired after November 1, 1976 and through November 6, 2000. As is relevant here this plan defines "average final compensation" essentially the same as in the old plan, but specifies a different measuring period of credited service. Average final compensation is "the average monthly compensation earned by a member during any three consecutive years of credited service in the retirement system in which his average final compensation is the highest." (Charter, § A8.584-1.) The new plan defines "compensation" slightly differently from the definition in the old plan; "compensation" is "all remuneration whether in cash or by other allowances made by the city and county, for service qualifying for credit under this section, but excluding remuneration for overtime." (Charter, § A8.584-1.)

The third plan was adopted by San Francisco voters in the November 2000 election. (Charter, § A8.587.) Described by appellants as the "new-new-plan"⁵ it covers employees who were hired after November 1, 1976, but who had not retired prior to November 7, 2000. Other than stating a third measuring period for credited service, the "new-new-plan" defines average final compensation similarly as "the average monthly compensation earned by a member during any one year of credited service in the retirement system in which his or her average final compensation is the highest." (Charter, § A8.587-1.) The plan expands the exclusions in the term "compensation" in setting forth yet a third definition of "compensation." In the new-new-plan, compensation is defined as "all remuneration whether in cash or by other allowances made by the city and county, for service qualifying for credit under this section, but excluding remuneration for overtime and such other forms of compensation excluded by the board of supervisors pursuant to Section A8.500 of the charter." (Charter, § A8.587.1.)

In addition to a pension, San Francisco offers its employees a vacation benefit. (Charter, § A8.440.) Employees may elect not to take their entire vacation allotment in any one year and may accumulate unused vacation up to a maximum of 30 days. (Charter, § A8.440.) When an employee retires, he or she may request a "cash payment" in lieu of unused vacation. (S.F.Admin.Code, § 16.13.) Payments under this provision are and may only be made after an employee retires.

San Francisco also offers its employees sick leave. As a general rule, unused sick leave terminates automatically when an employee retires. However, there is an exception for sick leave that was earned prior to December 1978. Under San Francisco's complex civil service rules, sick leave accrued prior to that date is defined as "vested" and it may be exchanged for cash when an employee retires. As with vacation, payments for vested sick leave are and may only be made after an employee retires.

San Francisco's retirement system is operated by the San Francisco Retirement Board (the Board), which is authorized to determine the benefits to which retired employees are entitled. (Charter, § 12.100.) For decades, the Board has followed a policy of not including payments made for unused vacation or sick leave (which the Board describes as "terminal pay") in its retirement calculations. This policy is motivated, at least in part, by a desire to avoid "spiking" i.e., attempts by an employee to inflate a component of the retirement formula in order to receive higher retirement benefits over his or her lifetime. It seeks to avoid undermining the viability of the retirement trust fund, which could occur when a component of the formula is suddenly increased at the conclusion of an employee's service, thereby subjecting the retirement fund to unfunded liabilities.

The Board's policy of not including payments for unused vacation and sick leave from its retirement calculations was unchallenged for many years. That changed when our Supreme Court decided Ventura County Deputy Sheriffs' Assn. v. Board of Retirement (1997) 16 Cal.4th 483, 66 Cal.Rptr.2d 304, 940 P.2d 891 (Ventura). The issue in Ventura was whether the retirement board of Ventura County had properly calculated the retirement benefits of county employees under the County Employee Retirement Law of 1937 (CERL). (See Gov.Code, § 31450 et seq.) (Ventura, supra, at p. 487, 66 Cal.Rptr.2d 304, 940 P.2d 891.) The court analyzed the various sections of the law in question and ruled the retirement board had calculated benefits incorrectly.

Relying on the Ventura decision, appellants filed the complaints that are at issue in the present appeal. Three class action suits were filed. The first, entitled Mason, et al. v. Retirement Board of the City and County of San Francisco, et al., sought relief on behalf of employees and retirees covered by the old plan. The second, entitled Municipal Attorney's Association, et al. v. The Retirement Board of San Francisco, et al. was filed on behalf of attorneys employed by San Francisco. The third, entitled Aldana, et al. v. The Retirement Board of the City and County of San Francisco, et al., sought relief on behalf of Municipal Railway employees. Each of the three actions is framed as a petition for writ of mandate and complaint for declaratory relief. The primary thrust of all three is the same. As amended, each complained the Board erred when calculating the employees' retirement benefits because it did not include cash payments for unused vacation and sick leave.

The trial court consolidated all three actions under the Mason number and title in March 2000. In November 2000, the voters of San Francisco amended the city's charter and adopted the "new-new-plan" that we have described above. By stipulation and order filed on March 7, 2001, the court certified the case as a class action covering potential claimants under all three plans.

The parties filed cross-motions for summary judgment. Appellants argued the Board was obligated to include the amount of cash paid for unused vacation and sick leave when calculating retirement benefits under the plain language of all three plans and under the reasoning of the Ventura decision. The Board countered that its long-term interpretation of the plans was entitled to substantial deference. The Board also argued its interpretation was supported by a series of ordinances that had been adopted by the San Francisco's Board of Supervisors which specifically excluded sick and vacation pay from retirement calculations. Finally, the Board submitted a declaration from its executive director, who stated that the additional benefits appellants were seeking would cost the retirement system more than $750 million dollars. According to the director, this additional unfunded liability would "impair the integrity and financial viability of the Retirement System, and could in turn affect the financial stability of thousands of retirees and...