San Diego City Firefighters, Local 145, AFL-CIO v. Bd. of Admin. of the San Diego City Employees' Ret. Sys.
| Citation | 206 Cal.App.4th 594,141 Cal.Rptr.3d 860 |
| Decision Date | 25 May 2012 |
| Docket Number | Nos. D057437,D058835.,s. D057437 |
| Court | California Court of Appeals |
| Parties | SAN DIEGO CITY FIREFIGHTERS, LOCAL 145, AFL–CIO, et al., Plaintiffs and Appellants, v. The BOARD OF ADMINISTRATION OF the SAN DIEGO CITY EMPLOYEES' RETIREMENT SYSTEM, et al., Defendants and Respondents. |
206 Cal.App.4th 594
141 Cal.Rptr.3d 860
SAN DIEGO CITY FIREFIGHTERS, LOCAL 145, AFL–CIO, et al., Plaintiffs and Appellants,
v.
The BOARD OF ADMINISTRATION OF the SAN DIEGO CITY EMPLOYEES' RETIREMENT SYSTEM, et al., Defendants and Respondents.
Nos. D057437, D058835.
Court of Appeal, Fourth District, Division 1, California.
May 25, 2012.
[141 Cal.Rptr.3d 864]Glaser, Weil, Fink, Jacobs, Howard & Shapiro, Los Angeles, Joel N. Klevens and Lisa M. Zepeda for Plaintiffs and Appellants.
Kirby Noonan Lance & Hoge, San Diego, David J. Noonan and Steven W. Sanchez for Defendant and Respondent The Board of Administration of the San Diego City Employees' Retirement System.
Jan I. Goldsmith, City Attorney, and Walter C. Chung, Deputy City Attorney, [141 Cal.Rptr.3d 865]for Defendant and Respondent City of San Diego and its City Council.
BENKE, Acting P.J.
[206 Cal.App.4th 599]
This lawsuit involves two facets of the San Diego City Employees' Retirement System (the SDCERS) that defendant and respondent City of San Diego (City) 1 retroactively repealed after the Internal Revenue Service (IRS) issued a compliance statement under its Voluntary Correction Program identifying certain aspects of the SDCERS as noncompliant with section 401(a) of the Internal Revenue Code ( 26 U.S.C. § 401(a)), which sets forth requirements for qualified retirement plans.2
Plaintiff and appellant San Diego City Firefighters, Local 145, IAFF, AFL–CIO (Local 145), a union, and individual plaintiffs and appellants
[206 Cal.App.4th 600]
Michael Ditomaso, Leslie Gallo, Adolfo Gonzales, Timothy Harris, Glen Mackie, Jon McDonald, Matthew Praizner, Don Rock and Steve Willcuts (Firefighter Plaintiffs), a group of city firefighters and Local 145 members impacted by City's repeal of the SDCERS program that allowed them to convert their annual leave to service credit for the purpose of calculating retirement benefits, asserted claims against City and defendant and respondent The Board of Administration of the San Diego City Employees' Retirement System (the SDCERS Board), including for breach of contract, unconstitutional impairment of contract and declaratory relief. They also sought a writ of mandate compelling City and the SDCERS Board to reinstate their benefits under the repealed program.
Plaintiff and appellant Ronald Saathoff is a retired city fire captain who, until 2008, served as president of Local 145. Saathoff also was impacted by City's repeal of the SDCERS program that calculated retirement benefits of incumbent presidents of municipal employee unions (including Local 145) based on a combination of their salary from the city and their salary from serving as union president. Saathoff and Local 145 asserted claims against City arising from the repeal of that program, including for breach of contract, unconstitutional impairment of contract and declaratory relief, and sought a writ of mandate compelling City and the SDCERS Board to reinstate the program and Saathoff's benefits under it.
Saathoff, Local 145 and Firefighter Plaintiffs (together, appellants) contend that the trial court erred in sustaining without leave to amend the demurrers of City and the SDCERS Board. As we will explain, we disagree and conclude the trial court properly sustained the demurrers [141 Cal.Rptr.3d 866]without leave to amend. Judgment affirmed.3
“San Diego is a charter city. It maintains a pension plan for its employees, the [SDCERS]. (San Diego City Charter, art. IX, § 141; San Diego Mun.Code, § 24.0101.) The SDCERS is a defined benefit plan in which benefits are based upon salary, length of service, and age. (San Diego Mun.Code, §§ 24.0402–24.0405.) The plan is funded by contributions from both City and its employees. (San Diego City Charter, art. IX, § 143; San Diego Mun.Code, § 24.0402.) Membership is compulsory. (San Diego Mun.Code, § 24.0104, subd. (a).)”
[206 Cal.App.4th 601]
( Lexin v. Superior Court (2010) 47 Cal.4th 1050, 1063, 103 Cal.Rptr.3d 767, 222 P.3d 214.) As noted ante, this lawsuit concerns two aspects of the SDCERS that City repealed by ordinance, which we will detail below.
A. Incumbent President ProgramOn October 21, 2002, the city council adopted Resolution No. R–297212. It provided that the retirement benefit formula for each of the incumbent presidents of three unions that represent municipal employees would be based on each of those individual's highest one-year combined salaries from their city employment and their union employment, not to exceed the annual base salary of City's labor relations manager (the Incumbent President Program). At the time, Saathoff was the incumbent president of one of those unions, namely, Local 145.
Consistent with Resolution No. R–297212, in October 2003 City entered into a written agreement with Saathoff stating that effective July 1, 2001, Saathoff's salary for purposes of calculating his retirement benefits would be based on his combined City and Local 145 salary, not to exceed the annual base salary of the city labor relations manager, and providing for employer and employee contributions to the SDCERS to be based on that salary amount (the Saathoff Agreement). According to Saathoff, he made lump-sum and biweekly contributions to the SDCERS based on the Saathoff Agreement.
In December 2007, the IRS issued a compliance statement (the IRS Compliance Statement) pursuant to its Voluntary Correction Program,4 which identified several aspects of the SDCERS that did not comply with Internal Revenue Code section 401(a).5 The IRS Compliance Statement [141 Cal.Rptr.3d 867]identified the Incumbent President Program, among others, as a noncomplying aspect of the SDCERS.
[206 Cal.App.4th 602]
Specifically, the IRS Compliance Statement stated: “[T]he terms of the [SDCERS] provided special retirement benefits to past and current union presidents ... that were not permitted by the [Internal Revenue] Code. Under [Internal Revenue Code] section 401(a), retirement benefits in a qualified plan can only be provided to employees of an employer and such benefits are generally based solely on service with and compensation paid by such employer. Specifically, the following problems were noted: [¶] ... [¶] (c) Starting in 2002, the Incumbent President Program allowed compensation that was paid to the union presidents by the Unions to be counted in the determination of retirement benefits under the [SDCERS], and such amounts would be combined with any other compensation paid by the [City] subject to a specified dollar cap.”
The IRS Compliance Statement also described the corrective action to be taken regarding the Incumbent President Program, including that “[City] will amend the [SDCERS] retroactively to remove any provisions relating to ... the Incumbent President Program” (italics added) and “[t]he resulting changes to the [SDCERS] will indicate that ... retirement benefits would be based solely on paid compensation and service associated with [City] or other participating employers.”
Under the terms of the IRS Compliance Statement, the IRS would not pursue the sanction of disqualification of the SDCERS based on the qualification failures described therein, conditioned on “the completion of all corrections described” within 150 days.
By affixing their representatives' signatures to the IRS Compliance Statement, both City and the SDCERS Board indicated their agreement to its terms on December 20, 2007.
In April 2008, the city council passed Ordinance No. O–19740 to implement the corrections outlined in the IRS Compliance Statement. Among other things, Ordinance No. O–19740 retroactively terminated the Incumbent President Program and provided that a union president's base compensation for purposes of retirement benefits “will not include any amounts paid by the labor organization.”
B. Annual Leave Conversion ProgramA July 2002 memorandum of understanding between Local 145 and City (the 2002 MOU) specified certain changes to the SDCERS, including that employees in the bargaining unit (i.e., the city firefighters represented by Local 145) “will be allowed to convert annual leave cash equivalent to retirement service credit on a pre-tax basis.” The 2002 MOU also provided
[206 Cal.App.4th 603]
that “[e]mployees in the bargaining unit will no longer be eligible to exercise any cash out feature of annual leave accrued from July 1, 2002 prospectively” (the Annual Leave Conversion Program).
The Annual Leave Conversion Program was codified in former section 24.1310, subdivision (c) of the San Diego Municipal Code by Ordinance No. O–19126 adopted by the city council in December 2002.6
[141 Cal.Rptr.3d 868]Ordinance No. O–19126 stated that “[a]ny aspect of this ordinance affecting the retirement benefits shall take effect upon approval by the Membership of the Retirement System pursuant to [City] Charter section 143.1....” The city charter, in turn, provided that “[n]o ordinance amending the retirement system which affects the benefits of any employee under such retirement system shall be adopted without the approval of a majority vote of the members of said system.” (Former San Diego City Charter, art. IX, § 143.1.) In December 2002, a vote of the SDCERS members was held to approve the Annual Leave Conversion Program and other changes to the SDCERS. Out of a total of 10,311 persons eligible to vote, 2,228 persons responded, with 2,193 persons voting in favor of the changes and 35 persons voting against them.
The Annual Leave Conversion Program was put into effect, and Firefighter Plaintiffs each participated in the program. Specifically, Firefighter Plaintiffs each completed and signed a form indicating that he or she wished to convert his or her eligible annual leave hours as payment for the purchase of retirement service credit.7
The IRS Compliance Statement identified the Annual Leave Conversion Program as noncompliant with section 401(a) of the Internal Revenue Code. As described in the IRS Compliance Statement...
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