Alameda Cnty. Deputy Sheriff's Ass'n v. Alameda Cnty. Employees' Ret. Assn.
This text of 227 Cal. Rptr. 3d 787 (Alameda Cnty. Deputy Sheriff's Ass'n v. Alameda Cnty. Employees' Ret. Assn.) is published on Counsel Stack Legal Research, covering California Court of Appeal, 5th District primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
Opinion
REARDON, J.
*75This consolidated action arises out of the tension between two undeniably valid, and yet fundamentally opposed, public interests: the interest of the government in maintaining the flexibility to alter statutes to conform to current needs and the interest of public employees in a stable and predictable pension, earned through years of public service. On September 12, 2012, Governor Brown-faced with a statewide crisis involving the significant underfunding of public pension systems-signed into law the Public Employee Pension Reform Act of 2013 and related legislation (interchangeably, PEPRA, the Pension Reform Act, or AB 197) in an attempt to curb what were seen as pervasive abuses in public pension systems throughout California, including those governed by the County Employees Retirement Law of 1937 (CERL), Gov. Code, § 31450 et seq.1 ( § 7522 et seq. ; Stats. 2012, chs. 296 & 297; see *792Marin Assn. of Public Employees v. Marin County Employees' Retirement Assn. (2016)
A. Some History of CERL and Section 31461
The Three Counties are among the 20 counties that maintain employee retirement plans under CERL. (See Irvin v. Contra Costa County Employees' Retirement Assn. (2017)
In order to calculate the specific amount of employee pensions under CERL, the administering retirement board is " 'required to determine whether items of remuneration paid to employees qualify as "compensation" under section 31460 and "compensation earnable" pursuant to section 31461, and therefore must be included as part of a retiring employee's "final compensation" (§ 31462 or § 31462.1).' " ( Marin , supra , 2 Cal.App.5th at p. 680,
Section 31460 defines " 'compensation' " as "the remuneration paid in cash out of county or district funds, plus any amount deducted from a member's wages for participation *793in a deferred compensation plan ..., but does not *77include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to a member."3 Under the pre-PEPRA version of section 31461, " 'compensation earnable' " for a CERL member "means the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and at the same rate of pay." (§ 31461, subd. (a).) In making this calculation, "[t]he computation for any absence shall be based on the compensation of the position held by the member at the beginning of the absence." (Ibid. ) Moreover, "[c]ompensation, as defined in Section 31460, that has been deferred shall be deemed 'compensation earnable' when earned, rather than when paid." (Ibid .)
Once a member's "compensation earnable" is established by the retirement board, section 31462 defines " 'final compensation' " as "the average annual compensation earnable by a member during any three years elected by a member at or before the time he or she files an application for retirement, or, if he or she fails to elect, during the three years immediately preceding his or her retirement." (§ 31462, subd. (a).) Section 31462.1 is substantially the same as section 31462, differing only in that it sets the relevant time period as any single year elected by a member. (§ 31462.1, subd. (a)(1).)4
1. Relevant Statutory Amendments and Judicial Interpretations pre-PEPRA .
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REARDON, J.
*75This consolidated action arises out of the tension between two undeniably valid, and yet fundamentally opposed, public interests: the interest of the government in maintaining the flexibility to alter statutes to conform to current needs and the interest of public employees in a stable and predictable pension, earned through years of public service. On September 12, 2012, Governor Brown-faced with a statewide crisis involving the significant underfunding of public pension systems-signed into law the Public Employee Pension Reform Act of 2013 and related legislation (interchangeably, PEPRA, the Pension Reform Act, or AB 197) in an attempt to curb what were seen as pervasive abuses in public pension systems throughout California, including those governed by the County Employees Retirement Law of 1937 (CERL), Gov. Code, § 31450 et seq.1 ( § 7522 et seq. ; Stats. 2012, chs. 296 & 297; see *792Marin Assn. of Public Employees v. Marin County Employees' Retirement Assn. (2016)
A. Some History of CERL and Section 31461
The Three Counties are among the 20 counties that maintain employee retirement plans under CERL. (See Irvin v. Contra Costa County Employees' Retirement Assn. (2017)
In order to calculate the specific amount of employee pensions under CERL, the administering retirement board is " 'required to determine whether items of remuneration paid to employees qualify as "compensation" under section 31460 and "compensation earnable" pursuant to section 31461, and therefore must be included as part of a retiring employee's "final compensation" (§ 31462 or § 31462.1).' " ( Marin , supra , 2 Cal.App.5th at p. 680,
Section 31460 defines " 'compensation' " as "the remuneration paid in cash out of county or district funds, plus any amount deducted from a member's wages for participation *793in a deferred compensation plan ..., but does not *77include the monetary value of board, lodging, fuel, laundry, or other advantages furnished to a member."3 Under the pre-PEPRA version of section 31461, " 'compensation earnable' " for a CERL member "means the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and at the same rate of pay." (§ 31461, subd. (a).) In making this calculation, "[t]he computation for any absence shall be based on the compensation of the position held by the member at the beginning of the absence." (Ibid. ) Moreover, "[c]ompensation, as defined in Section 31460, that has been deferred shall be deemed 'compensation earnable' when earned, rather than when paid." (Ibid .)
Once a member's "compensation earnable" is established by the retirement board, section 31462 defines " 'final compensation' " as "the average annual compensation earnable by a member during any three years elected by a member at or before the time he or she files an application for retirement, or, if he or she fails to elect, during the three years immediately preceding his or her retirement." (§ 31462, subd. (a).) Section 31462.1 is substantially the same as section 31462, differing only in that it sets the relevant time period as any single year elected by a member. (§ 31462.1, subd. (a)(1).)4
1. Relevant Statutory Amendments and Judicial Interpretations pre-PEPRA .
For many years, the most important case interpreting CERL's definition of compensation earnable was Guelfi v. Marin County Employees' Retirement Assn. (1983)
With the Guelfi decision as a backdrop, the Legislature enacted several statutes in the early 1990s that impacted CERL's definitions of compensation and compensation earnable. First, in 1990, the Legislature added section 31460.1 to CERL, which provided that " '[c]ompensation' shall not include employer payments, including cash payments, made to, or on behalf of, their employees who have elected to participate in a flexible benefits program, where those payments reflect amounts that exceed their employees' salaries." (Stats. 1990, ch. 142, § 1.) The section was only operative for counties in which the board of supervisors resolved to make it applicable. (Ibid .) Shortly, thereafter, however, in 1992, the Legislature repealed this statute, stating that it had been misconstrued by some retirement boards to require inclusion of flexible benefits in compensation absent a board of supervisors' election to the contrary. (Stats. 1992, ch. 45, § 3.) In making its decision to repeal section 31460.1, the Legislature cited Guelfi , stressed the role of county retirement boards in determining which items of compensation are includable in compensation earnable, and acknowledged the "long-standing practice of the Legislature of not intruding into the county decisionmaking process regarding compensation determinations with respect to those county retirement systems." (Stats. 1992, ch. 45, § 3.)
Next, in 1993, the Legislature made several changes to the definition of compensation earnable applicable only to counties of the first class-i.e., Los Angeles County. (Stats. 1993, ch. 396.) That legislation amended the definition of compensation earnable in section 31461 by including the concept (solely for Los Angeles) that "compensation that has been deferred shall be deemed 'compensation earnable' when earned, rather than when paid." (Id. , § 3.) It also added section 31461.1 to CERL, which allowed the Los Angeles County Board of Supervisors, at its election, to exclude from compensation and compensation *79earnable cafeteria or flexible benefit plan contributions, transportation allowances, car allowances, and/or security allowances. (Id. , § 4.; see also § 31461.1, subd. (b).) Section 31461.1 was made applicable only to employees who became members after the effective date of the board of supervisors' resolution opting into the statute. (Stats. 1993, ch. 396, § 4; see also § 31461.1, subd. (c).) Memorandums of understanding executed prior to the effective date of the legislation, as well as retirement board determinations made before that date, were also expressly excluded from the statute's purview. (Stats. 1993, ch. 396, § 4; see also § 31461.1, subds. (e) & (f).) According to the Governor's signing message, this legislation was enacted to allow Los Angeles County to curb pension abuse based on the inclusion of flexible *795benefits and allowances in pensionable compensation. (Governor's signing message to Assem. on Assem. Bill 1659 (Sept. 7, 1993) Stats. 1993, ch. 396.) Although the Governor urged clean-up legislation to make the exclusion applicable uniformly, this was never done. (Ibid. ; see § 31461.1.)
Finally, in 1995, the Legislature amended section 31461 to make its statement about deferred compensation applicable to all counties. (Stats. 1995, ch. 558, § 1.) As detailed above, this sentence has remained part of section 31461, and applicable to all counties, up to and through the enactment of PEPRA. According to the legislative history, this change was made to ensure proper funding for deferred benefits under CERL by requiring the funding for that benefit to commence when it is first earned by a member. (Sen. Pub. Employees & Retirement Com., Analysis of Sen. Bill No. 226 (1995-1996 Reg. Sess.), p. 3.)
After these relatively minor legislative tweaks, the CERL pension landscape was dramatically altered in 1997 by the Supreme Court's landmark decision in Ventura , supra ,
In Ventura , the county had argued that it would face practical problems in adequately funding its retirement system if the Supreme Court departed from the certainty of Guelfi's narrow construction of section 31461. ( *796Ventura , supra , 16 Cal.4th at p. 507,
Because Ventura County was the only county before the Supreme Court, the Ventura decision expressly left open the question of whether its holding applied "retroactively to any other county." ( Ventura , supra , 16 Cal.4th at p. 507,
In re Retirement Cases is also notable for determining whether three specific types of employee-related payments were required to be included in final compensation under CERL. ( In re Retirement Cases , supra , 110 Cal.App.4th at pp. 472-482,
2. Post-Ventura Changes to Compensation Earnable in the Three Counties .
In the years after Ventura , and before the appellate court decisions in In re Retirement Cases and Salus , CERL counties scrambled to determine how compensation earnable should be calculated to include the many items of premium pay that had previously been excluded from pensionable compensation under a Guelfi analysis, but were now required to included under Ventura' s construction of CERL. "Retirement boards began to include a variety of cash payments in their computations for 'compensation earnable' that they *82had not included earlier, but they restricted these modified calculations to 'compensation' earned on or after October 1, 1997, the date the Supreme Court declined to rehear Ventura ." ( In re Retirement Cases , supra , 110 Cal.App.4th at p. 436,
Thus, for example, in 1999, Contra Costa County, CCCERA, various cities and districts, and representatives of a class of members who retired on or before September 30, 1997, entered into a court-approved settlement agreement pursuant to which compensation earned by all retired and active members prior to September 30, 1997, would be subject to specific agreed upon inclusions in, and exclusions from, compensation earnable. While the settlement was being negotiated, CCCERA had, by resolution in 1998, applied the same inclusions and exclusions to all active members. Compensation items deemed pensionable included on-call pay; the annual sale of vacation leave; and terminal pay, to the extent accrued in the final compensation period. Thereafter, effective for all new members of CCCERA on or after January 1, 2011, new limitations on compensation earnable were adopted. Specifically, pensionable in-service leave cash-outs and terminal pay were limited to amounts that were both earned *798and cashable in the final compensation period. In addition, any conversion of in-kind benefits to cash during the final compensation period was excluded from pensionable compensation.5
In a similar fashion, in June 1999, Alameda County, ACERA, representative of active and retired members, and several employee organizations entered into a court-approved settlement agreement establishing "new definitions" of compensation earnable and final compensation in the wake of Ventura , applicable to all retired members and all active members whose effective dates of retirement occurred on or after October 1, 1997. Pursuant to the terms of the settlement, compensation earnable was defined as "all items of remuneration paid ... in cash for services rendered or special skills,"
*83including, among other things, "pay premiums that recognize special duties" and "leave paid as salary or as lump sum(s) in lieu of paid leave." However, the definition of final compensation was expressly limited such that "vacation leave and/or sick leave paid as a lump sum shall be recognized as final compensation only to the extent that it is earned during the final compensation period and, in the case of a three-year final compensation period, shall be the annual average of the leave earned."
Finally, MCERA, Merced County, a local district, and several employees-"on behalf of all other individuals who are current, future, retired, or deferred retirement members" of MCERA-entered into a court-approved settlement agreement in June 2000 which, among other things, allowed for the inclusion in compensation earnable of a maximum of 160 hours of terminal pay. For a number of years thereafter, MCERA staff included in compensation earnable both terminal pay up to 160 hours and certain annual in-service leave sell backs occurring during members' final compensation periods. MCERA ultimately repudiated this practice, arguing that its settlement agreement capped all pensionable leave cash-outs at 160 hours, whether cashed out in service or at termination. Litigation ensued, and the trial court concluded that, under the terms of the settlement, up to 160 hours of terminal pay was pensionable in addition to any authorized in-service leave sell backs permitted during a member's final compensation period. (Board of Retirement v. Baker (Super. Ct. Merced County, 2007, No. 149970) (Baker ).) While it acknowledged the holding in Salus , the court found its construction of the agreement to be consistent with Ventura and the intent of the parties at the time of the settlement. (Baker , supra , Super. Ct. of Merced County, 2007, at pp. 5-6.)
For purposes of this opinion, we refer to all of the settlements described above as Post- Ventura Settlement Agreements.
B. The Pension Reform Act (PEPRA)
After resolution of the many issues involved in applying the Ventura holding to CERL pension calculations, pension practices in the Three Counties remained essentially stable for over a decade, as the corresponding CERL Boards determined *799pensionable compensation in accordance with the Post- Ventura Settlement Agreements. However, during this same timeframe, the unfunded pension liability crisis became increasingly significant at both the state and national level. (See Marin, supra, 2 Cal.App.5th at pp. 680-687,
1. Statutory Changes .
For purposes of the dispute here at issue, the most important change to CERL effected by the Pension Reform Act was that legislation's amendment of CERL's long-standing definition of compensation earnable. The Pension Reform Act took the old version of that definition and made it subdivision (a) of section 31461. It then added a new subdivision (b) to the statute, expressly delineating the many things "compensation earnable" is not. Specifically, according to new subdivision (b) of section 31461, as enacted by PEPRA, " 'compensation earnable' does not include, in any case, the following:
"(1) Any compensation determined by the board to have been paid to enhance a member's retirement benefit under that system. That compensation may include:
"(A) Compensation that had previously been provided in kind to the member by the employer or paid directly by the employer to a third party other than the retirement system for the benefit of the member, and which was converted to and received by the member in the form of a cash payment in the final average salary period.
*800"(B) Any one-time or ad hoc payment made to a member, but not to all similarly situated members in the member's grade or class.
"(C) Any payment that is made solely due to the termination of the member's employment, but is received by the member while employed, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period regardless of when reported or paid.
"(2) Payments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off, however denominated, whether paid in a lump sum or otherwise, in an amount that exceeds that which may be earned *85and payable in each 12-month period during the final average salary period, regardless of when reported or paid.
"(3) Payments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise.
"(4) Payments made at the termination of employment, except those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid."
2. Implementation by the Boards .
In the wake of PEPRA, the Boards in the Three Counties all took action to conform their retirement systems to the new law, excluding certain previously included pay items from compensation earnable. These changes were made not just for new hires-which no party disputes is permissible-but also for employees retiring after PEPRA's January 1, 2013, effective date. CCCERA, for instance, adopted a new policy excluding from compensation earnable and final compensation-for all members retiring after January 1, 2013-terminal pay that was not both earned and payable during the member's final compensation period. Additionally excluded were payments for being on call or on standby.
Similarly, ACERA adopted a number of exclusions from compensation earnable, including any vacation or sick leave sold back at termination; on-call and call-back pay; pay for performance benefits; recruitment bonuses and other one-time payments; and various in-lieu payments. MCERA determined, based on the new law, that terminal pay could only be included in compensation earnable to the extent it was earned and payable during a *86legacy member's final compensation period. In addition, MCERA excluded on-call pay from compensation earnable for legacy members.
C. Litigation in the Trial Court
Disagreeing with the Boards' application of PEPRA's new rules to the calculation of retirement benefits for legacy members, various employee-members of CERL systems and impacted employee associations in each of the Three Counties (petitioners) filed writs of mandate challenging the Boards' implementation actions as an unlawful impairment of legacy members' constitutionally protected pension rights. States are prohibited by the United States Constitution from passing a law "impairing the obligation of contracts." (U.S. Const., art. I, § 10.) Article I, section 9 of the California Constitution states a parallel proscription: "A ... law impairing the obligation of contracts may not be passed." Thus, petitioners specifically alleged that legacy members had acquired a "vested" right to pension benefits based on the pre-PEPRA state of the law, which could not be altered to their detriment *801without running afoul of both state and federal contract clauses.8 After numerous parties intervened-including the State to defend the constitutionality of AB 197-the litigation involving the Three Counties was eventually consolidated into this action.
In addressing the many issues raised by the consolidated cases, the trial court decided to handle the litigation in phases. Thus, the court limited the "Phase One" briefing to purely legal issues focused on whether the pay items expressly excluded from compensation earnable by AB 197 were includable under prior CERL law and whether, if not, legacy members could nevertheless obtain a vested right to such inclusion. Given the trial court's conclusions as described in detail below, the litigation never advanced beyond this initial phase.
Rather, after seven hearings held from October 2013 through April 2014, the trial court issued its final statement of decision with respect to the Phase One issues on May 12, 2014 (SOD), resolving the matter. The court identified the overarching question presented in this case as whether legacy members-generally all active employees who were employed prior to the effective date *87of AB 197 (January 1, 2013)9 -have a vested right to have their pensions calculated upon their retirements in accordance with the pre-PEPRA version of section 31461. After detailing the history of "compensation earnable" under CERL, the specifics of each County's implementation of section 31461, and the procedural posture of the case, the court made legal determinations with respect to three distinct issues.
The trial court first addressed what it dubbed the "timing issue"-whether compensation must have been both earned and payable in the final compensation period under the pre-PEPRA version of CERL in order to be included in compensation earnable. As stated above, section 31461, as amended by AB 197, currently excludes from compensation earnable all leave cash-outs, whether paid in the final compensation period or at termination, other than those "that do not exceed what is earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid." (§ 31461, subd. (b)(2) & (4).) If-as the State asserts and as we discuss further below-leave cash-outs were always so limited, it is difficult to argue that members hoping to include larger leave accruals in compensation earnable possess a vested right to take advantage of what was, in essence, an illegal practice.
The trial court determined that cash-outs of leave that were not earned in the final compensation period could not lawfully be included in a calculation of compensation earnable, even before AB 197's express statements to that effect. Next, relying on In re Retirement Cases and Salus , the trial court further opined that *802compensation that is not payable in the final compensation period (so-called terminal pay) was also not a proper component of compensation earnable under the pre-PEPRA version of section 31461. However, although it concluded that, even before PEPRA, compensation had to be both earned and payable in a member's final compensation period to be included in compensation earnable, the trial court nevertheless determined that-for certain subsets of legacy employees in Contra Costa and Merced-principles of equitable estoppel required the relaxation of this rule in the context of both in-service leave cash-outs and terminal pay.
The second legal issue addressed by the trial court involved the effect on CERL of AB 197's amendment excluding from compensation earnable "[p]ayments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise." (§ 31461, subd. (b)(3).) This would, of course, exclude overtime pay from any calculation of compensation earnable, a state of affairs that all seem to agree was in existence prior to PEPRA. ( Ventura , supra , 16 Cal.4th at pp. 487, 500, fn. 20,
*88Guelfi , supra , 145 Cal.App.3d at pp. 306-307,
With respect to such on-call pay, although the trial court never expressly analyzed the vested rights issue, it appears to have concluded that legacy employees do have a limited vested right to the continued inclusion of certain types of on-call pay in compensation earnable. Specifically, the trial court directed the Boards to continue to include on-call compensation in compensation earnable for legacy members "in those limited circumstances where the pay category was previously included and the amount to be included was both earned and required of the employee during his or her final compensation period."10 The trial court further limited legacy members' vested rights with respect to this form of compensation to situations "regularly applicable to the class of employees" and not designed "to 'enhance' the pension."
The third change to CERL effected by AB 197 which was considered by the trial court in its SOD was new subsection (b)(1) of section 31461 which, as stated above, excludes from compensation earnable "[a]ny compensation determined by the board to have been paid to enhance a member's retirement benefit." According to the trial court, the parties did not dispute that this subsection represents new law for purposes of a vested rights analysis. Rather, petitioners argued that the Boards could not categorically exclude certain one-time payments on this basis without complying with new section 31542, which requires each Board to establish a procedure for determining whether an element of compensation was paid to enhance a member's retirement benefit, including a process for the presentation of contrary evidence by the employer or member. The trial court denied any relief on this basis "without prejudice," concluding it was *803"pure speculation" to assume that any issues would ever even come up under this general enhancement provision, given the other express exclusions added to CERL by AB 197.
On the same day it filed its SOD, the trial court entered judgments specific to each of the Three Counties (Judgments) and ordered issuance of related writs of mandate to CCCERA, ACERA, and MCERA (Writs). Based on the analysis in the SOD, all three Judgments denied petitioners' request to have new section 31461 declared an unconstitutional impairment of the vested *89rights of legacy members, except to the extent the revised statute excluded the value of certain types of on-call payments from such legacy members' compensation earnable. The Contra Costa and Merced Judgments further established an "Estoppel Class," the members of which must be allowed to include in their compensation earnable certain leave cash-outs in excess of those permitted by new section 31461. Finally, the Three Judgments all established 60-day "Stay Periods" following the entry of the Judgments during which legacy members who retired would be entitled to have their compensation earnable calculated in accordance with pre-PEPRA policies and practices. The Writs then commanded each of CCCERA, ACERA, and MCERA to implement their policies and practices in a manner consistent with their applicable Judgment.
Notices of Appeal were subsequently filed by a number of the petitioner employee organizations and member-employees representing each of the Three Counties. In addition, both the State and the Central Contra Costa County Sanitary District (Sanitary District) filed their own notices of appeal and cross-appeal. After briefing by these litigants-as well as by CCCERA, ACERA, and MCERA-numerous challenges to the trial court's decision below are now before us for resolution.
II. DISCUSSION
A. Standards of Review and Board Discretion
1. Standards of Review .
As a general matter, the many issues presented in this appeal involve questions of law subject to our de novo review. ( Ghirardo v. Antonioli (1994)
When construing statutes on appeal, our function " 'is simply to ascertain and declare what is in terms or in substance contained therein, not to insert what has been omitted, or to omit what has been inserted; and where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all.' " ( Ventura , supra , 16 Cal.4th at p. 492,
On the other hand, since appellants here claim that the application of AB 197 to the calculation of their retirement benefits violates their vested contractual rights under both state and federal contract clauses, they have the burden of " 'mak[ing] out a clear case' " that such a constitutional violation has occurred. ( Deputy Sheriffs' Assn. of San Diego County v. County of San Diego (2015)
2. Board Discretion .
As an additional matter, we cannot ignore the fact that the pension determinations here at issue are the result of the implementation of CERL by the Boards, who have been vested with the authority to manage each of their respective pensions systems. (§ 31520; see also Cal. Const., art XVI, § 17 *91["the retirement board of a public pension or retirement system shall have ... sole and exclusive responsibility to administer the system in a manner that will assure prompt delivery of benefits and related services to the participants and their beneficiaries"].) Both CCCERA and ACERA assert on appeal that it is their responsibility to determine which items of compensation are pensionable under CERL; that they are entitled to judicial deference with respect to their interpretation of AB 197; and that the trial court should not have ordered them to change their implementation of the new law without finding that they had abused their *805discretion in taking the actions that they did. Under these circumstances, they argue, we should conclude that the trial court erred in substituting its interpretation of AB 197 for that of the Boards.
In Irvin , this District recently considered at length the extent to which our review of board decisions interpreting CERL should be deferential. ( Irvin , supra , 13 Cal.App.5th at pp. 171-173,
Importantly, the Irvin Court went on to note that "it is not entirely clear that Yamaha applies at all. That decision was concerned with interpretive annotations in a business tax law guide published by the Board of Equalization, a state agency with exclusive regulatory authority over the laws concerned. The [CERL board], in contrast, does not have an exclusive grant of authority; it is but one of 20 county retirement boards, all of which have responsibility for administering CERL within their jurisdictions." ( Irvin , supra , 13 Cal.App.5th at p. 172,
Before we proceed, however, we must also address another issue regarding Board discretion which is fundamental to our resolution of the questions presented in this case-that is, appellants' repeated and strenuous assertion, based on section 31461 and Guelfi , that the Boards have broad discretion to include additional pay items in compensation earnable, over and *806above those that are required to be included under the definitional parameters found in CERL. According to section 31461, " '[c]ompensation earnable' by a member means the average compensation as determined by the board ..." (italics added). (§ 31461, subd. (a).) As discussed above, this District considered in Guelfi whether overtime, educational incentive pay, and uniform allowances were required to be included in compensation earnable under section 31461. ( Guelfi , supra ,
Admittedly, no case or legislative action since Guelfi has expressly debunked this notion. And, indeed, through its language, the Legislature has, at times, encouraged it. Thus, for instance, when the Legislature repealed section 31460.1 in 1992, as discussed above, it noted that, since its enactment in 1937, CERL has "conferred upon the county retirement boards the duty and power to determine which of the items of compensation paid to county employees who are members of the county retirement associations or systems would constitute 'compensation earnable,' which, in turn, generally determines the amounts of the retirement allowances of retiring members." (Stats.
*931992, ch. 45, § 3.) In making this statement, the Legislature expressly cited to specific sections of Guelfi , including footnote 6. (Ibid. ) Thus, this Legislative action could certainly be viewed as an endorsement of the type of Guelfi discretion advocated by appellants.
Several years later, in 1997, the Ventura court further muddied the waters with respect to the possible existence of Guelfi discretion. In summarizing Guelfi's analysis and holdings regarding the benefits at issue in that case, Ventura expressly referenced the statement in footnote six that "[t]he retirement board was free to include those benefits in its retirement calculation if it elected to do so, but CERL did not require that they be included." ( Ventura , supra , 16 Cal.4th at p. 492,
Subsequent appellate court decisions construing section 31461- In re Retirement Cases and Salus - also did nothing to dispel the idea that CERL boards have the ability to include otherwise excludable pay items in compensation earnable "should [they] decide to do so." ( Guelfi , supra , 145 Cal.App.3d at p. 307, fn. 6,
Initially, we point out that the language in footnote six of Guelfi was completely unnecessary to the resolution of the issues in that case, and is therefore nonbinding. ( San Diego Deputy Sheriffs , supra , 233 Cal.App.4th at p. 580,
As Guelfi itself acknowledged, CERL "set[s] out a clear sequence for computing retirement benefits, beginning with a fairly broad definition of 'compensation' (§ 31460) and progressing through the narrowing definition of 'compensation earnable' (§ 31461) to arrive at 'final compensation' (§ 31564.1)." ( Guelfi , supra , 145 Cal.App.3d at p. 303,
Similarly, the inclusion of overtime in compensation earnable, as suggested by Guelfi's footnote six, would, as all parties seem to agree, run afoul of the express language of section 31461, which bases compensation earnable off of "the average number of days ordinarily worked by persons in the same grade or class of positions during the period." (§ 31461, subd. (a).) And, as a final example, In re Retirement Cases held, based on the unambiguous language of CERL, that terminal pay cannot be deemed compensation earnable because it does not meet the definition of final compensation. ( In re Retirement Cases , supra , 110 Cal.App.4th at pp. 473-476,
Moreover, if CERL boards did possess some undefined discretion to include additional pay items in compensation earnable, it is hard to see where that seemingly limitless discretion would end. Could a board, for instance, decide to include the monetary value of in-kind advantages provided to members in compensation earnable, despite the language of section 31460? Or items of compensation earned many years before the final compensation period just because it wanted to? The answer seems, obviously, to be no. In the end, we believe that the correct understanding of board discretion under CERL lies somewhere *809in between the expanded notion of Guelfi discretion espoused by appellants and the constrained, arithmetical approach endorsed by the trial court. Indeed, an appropriate formulation of this more limited board discretion under CERL is located in the body of Guelfi , itself, where, in response to the argument that section 31461 "merely calls upon the [b]oard to make a rudimentary calculation of average compensation based on the year selected by the retiree," the appellate court opined: "appellant's argument must be rejected and section 31461 be read as vesting the [b]oard with authority to determine, according to the guiding language contained therein , which elements of compensation constitute 'compensation earnable' for purposes of inclusion or exclusion from the calculation of 'final compensation.' " *96Guelfi , supra , 145 Cal.App.3d at pp. 304-305,
For all of these reasons, we reject appellants' argument that the Boards possess Guelfi discretion-that is, the ability to include additional pay items in compensation earnable, unmoored by the language of CERL. An item of compensation is either includable in compensation, compensation earnable, and final compensation under the CERL statutes, or it is not. If it fails to satisfy any one of these statutory litmus tests, it may not be included in a member's pensionable compensation under CERL.
Cognizant that our appellate review of this matter must necessarily be colored by all of the many standards here articulated, we next turn to the issues of statutory interpretation before us.
B. Interpretation of Section 31461
As all of the parties to this dispute acknowledge, whether the changes to section 31461 effected by AB 197 unconstitutionally impair the vested pension rights of legacy members of CCCERA, ACERA, and MCERA depends, at least as an initial matter, on whether those changes actually modified CERL, or were merely clarifying amendments and thus declarative of existing law. If no substantive changes were made, it is difficult to argue that the legislation impermissibly impacted vested rights. This is the position of both the State and the Sanitary District on appeal. Appellants, in contrast, argue that AB 197 drastically altered the existing CERL landscape. As set forth above, the four statutory amendments at issue are all contained in separate subdivisions of new subsection (b) of section 31461, and each expressly excludes a particular type of employee benefit from compensation earnable. We therefore address the impact of each new exclusion in turn.
1. Leave Cash-Outs Under Subdivision (b)(2) .
We first consider PEPRA's treatment of in-service leave cash-outs as a component of compensation earnable. Under AB 197's amended version of section 31461, compensation earnable expressly excludes "[p]ayments for unused vacation, annual leave, personal leave, sick leave, or compensatory time off, however denominated, whether paid in a lump sum or otherwise, in an amount that exceeds that which may be earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid." (§ 31461, subd. (b)(2).) The State argues, and the trial court below agreed, that the addition of subdivision (b)(2) to section 31461 does not constitute a change in the law because, under the prior version of the *97statute, compensation earnable was always limited to compensation that was both *810earned and payable in the final compensation period. Appellants, unsurprisingly, strongly disagree. On appeal, they argue that the trial court erred in its interpretation of the pre-PEPRA version of section 31461 because: (1) under Guelfi , supra ,
As the State argues on appeal, the essential elements of CERL's definition of compensation earnable have remained unchanged since its codification in 1947-that is, that compensation earnable means "the average compensation as determined by the board, for the period under consideration upon the basis of the average number of days ordinarily worked by persons in the same grade or class of positions during the period, and at the same rate of pay." And that "[t]he computation for any absence shall be based on the compensation of the position held by the member at the beginning of the absence." (§ 31461, subd. (a).; cf. § 31461 as added by Stats. 1947, ch. 424, § 1.) In Ventura , our high court interpreted this language to mean "the average pay of the individual retiring employee computed on the basis of the number of hours worked by other employees in the same class and pay rate-that is the average monthly pay, excluding overtime, received by the retiring employee for the average number of days worked in a month by the other employees in the same job classification at the same base pay level." ( Ventura , supra , 16 Cal.4th at p. 504,
Although the Ventura court described compensation earnable as a narrowing of the broader definition of compensation ( Ventura , supra , 16 Cal.4th at pp. 493-494,
This basic tenet is made even clearer when one considers the wording of the predecessor to section 31461 contained in the original 1937 Act. Section 8.5 of article 1 of CERL as it was enacted in 1937 defines " '[c]ompensation earnable' by a member" to mean: "the compensation as *811determined by the retirement board, which would have been earned by the member had he worked throughout the period under consideration , the average number of days ordinarily worked by persons in the same grade or class of positions as the positions held by him during such period, and at the rates of compensation attached to such positions, it being assumed that during any absence he was in the position held by him at the beginning of such absence." (Stats. 1937, ch. 677, § 8.5, pp. 1898-1899, italics added.) As the Ventura court noted with respect to the 1947 codification of the 1937 Act: "The 1947 statute was enacted as part of Senate Bill No. 1117 (1947 Reg. Sess.) which codified and consolidated laws related to counties. A Legislative Counsel's report on Senate Bill No. 1117 advised that the bill 'makes no substantive changes in existing law, but rearranges and restates in simplified language the substance of existing laws, and repeals obsolete and superseded statutes.' " ( Ventura , supra , 16 Cal.4th at p. 502,
This determination, however, does not end our analysis of the in-service leave cash-outs here at issue. Rather, the question remains whether in-service leave cash-outs are earned when the leave at issue is accrued or when the employee earns the right to sell that leave in return for cash. The trial court below concluded that a leave benefit is earned when the employee accrues the leave time-that is, at the point when the employee earns the right to be paid without work, and the State endorses this position on appeal. Appellants, in contrast, cite both Ventura and In re Retirement Cases for the proposition that such leave cash-outs are only earned for purposes of CERL when an employee earns the right to receive cash in-lieu of accrued time.
As stated above, Ventura holds that, in addition to base pay, premiums paid to employees in cash "even if not earned by all employees in the same grade or class" are items of compensation that must be included in compensation earnable and thus in final compensation under CERL. ( Ventura , supra , 16 Cal.4th at p. 487,
It is true that Ventura did not squarely address the timing issue presented in this case. Indeed, given the limited facts disclosed, it is not impossible that a Ventura employee could have accrued the maximum number of annual leave hours permitted to be converted into cash in the same final compensation period as the actual cash-out. However, we find the high court's underlying analysis of the issue telling. The Ventura court first noted that CERL differs from PERL in its exclusion of in-kind benefits from pensionable compensation. ( Ventura , supra , 16 Cal.4th at p. 497,
*100Applying these general tenets regarding in-kind benefits in the context of annual leave accrual, the Ventura court acknowledged that annual leave that is received as time off does not qualify as either compensation or compensation earnable under CERL. ( Ventura , supra , 16 Cal.4th at p. 497,
Thus, in the end, we endorse the trial court's conclusion that new subdivision (b)(2) of section 31461 does not change existing law with respect to in-service leave cash-outs, while at the same time rejecting its conclusions regarding when such cash-outs are earned for purposes of CERL. In sum, leave cash-outs must be included in a member's pensionable compensation-regardless of when the leave time was accrued-to the extent that member exercises his or her employer-granted option to convert the leave into cash during the final compensation period. In reaching this conclusion, we are aware that the trial court appeared very concerned that permitting leave cash-outs to be pensionable would improperly distort a member's final compensation. For instance, the court characterized the question before it not as whether public employers could allow multiple years of accrued leave to be cashed out in a single year, but instead as "whether or not the law allows that entire cash-out payment to be 'spiked' into the employee's lifetime *101retirement payment." Similarly, the court opined that section 31461 was unambiguous and that a "clear purpose of both the full statute and its last sentence is to prevent the 'spiking' that is here at issue."
However, as the Supreme Court made clear in Ventura , CERL anticipates variation in final compensation based on the inclusion of earned premiums and incentives in an individual member's compensation earnable, even when those cash payments are "not earned by all employees in the same grade or class." ( Ventura , supra , 16 Cal.4th at p. 487,
2. Terminal Pay Under Subdivision (b)(4) .
We next address PEPRA's express exclusion of so-called terminal pay from compensation earnable. As set forth above, AB 197 added subdivision (b)(4) to section 31461, which excludes from compensation earnable "[p]ayments made at the termination of employment, except *102those payments that do not exceed what is earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid." The trial court concluded that this provision did not amount to a change in existing CERL law, because-contrary to ongoing practice in both Contra Costa and Merced-CERL has always required that compensation must be payable during the final compensation period to be included in compensation earnable.16 We agree. Indeed, under prior CERL precedent, we find the exclusion for terminal pay relatively straightforward.
Specifically, in the wake of the Supreme Court's decision in Ventura , this District addressed the issue of terminal pay as a component of compensation earnable in In re Retirement Cases , supra ,
Appellants nevertheless argue that, because the rights of legacy members to *816include terminal pay in compensation earnable are contained in the Post- Ventura Settlement Agreements, which pre-dated the appellate decisions in In re Retirement Cases and Salus, they must be judged by judicial precedent existing at the time those rights were created. Moreover, appellants assert, since making terminal benefits pensionable was "plainly legal" at the time the relevant contract rights were created, subsequent precedent cannot eliminate those rights. As the trial court correctly recognized, however, the weight of authority is contrary to appellants' claims.
Indeed, although the shoe was essentially on the other foot, the court in In re Retirement Cases considered and rejected a similar argument. In that case, the counties and the CERL boards argued that applying Ventura retroactively would unconstitutionally impair their contract expectations, *104given that counties and plan members had "entered into employment arrangements based on pre- Ventura rules of law." ( In re Retirement Cases , supra , 110 Cal.App.4th at pp. 446-447,
In addition, appellants cannot successfully argue that the characterization of terminal pay as compensation earnable pursuant to the Post- Ventura Settlement Agreements created a vested right under those contracts to treat such pay as pensionable. Indeed, it is fairly clear that a contract that attempts to characterize an item of compensation in a manner contrary to statute cannot, itself, create a vested right. Oden v. Board of Administration (1994)
Similarly, in Medina v. Board of Retirement (2003)
3. Pay "Outside of Normal Working Hours" Under Subdivision (b)(3).
The third express exclusion from compensation earnable articulated by the AB 197 amendments is found in subdivision (b)(3) of section 31461, which establishes that "[p]ayments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise" may not be included in compensation earnable. No party argues that overtime pay was ever a permissible component of compensation earnable under CERL. However, the parties strongly dispute whether on-call, standby and similar pay items-designed to compensate employees for time outside of their regular working hours during which they must remain *818available to be called back to work-should be included in pensionable compensation. Once *106again, this question hinges on whether such payments were properly included in compensation earnable under the pre-PEPRA version of CERL (and are therefore subject to a vested rights analysis), or whether they have always been, and continue to be, properly excluded from pensionable compensation under that statute.
The trial court appears to have concluded that a limited vested right does exist with respect to certain on-call payments, because, although it did not engage in a vested rights analysis, it directed the Boards to continue to include these types of compensation in compensation earnable for legacy members to the extent that: the pay category at issue was previously included in compensation earnable; the amount to be included was both earned and required of the employee during his or her final compensation period; the form of compensation was "regularly applicable to the class of employees"; and the payment was not designed "to 'enhance' the pension." In order to determine the appropriateness of the trial court's order, we must first articulate what was permissible under the prior version of section 31461 with respect to on-call pay. We must then consider whether AB 197 effected a change in that law. As will become apparent, the answer to both of these questions is not entirely clear.
We start with Ventura , as one of the premiums and incentives at issue in that case was a form of on-call pay ($60 biweekly) used to compensate certain deputy sheriffs, senior deputy sheriffs, pilots, and crew chiefs for remaining subject to call during meal periods. ( Ventura , supra , 16 Cal.4th at p. 488 & fn. 5,
In the end, although Ventura's discussion of CERL's pre-PEPRA treatment of *819on-call pay is helpful as far as it goes, we believe a more comprehensive treatment of the issue is necessary in order to resolve the present dispute. In this regard, we find this District's decision in Shelden v. Marin County Employees' Retirement Assn. (2010)
The Shelden court concluded that the overtime hours at issue were properly excluded from compensation earnable. The court acknowledged that Shelden performed the work "regularly (once a week) and for a long period of time (about four years)." ( Shelden , supra , 189 Cal.App.4th at p. 464,
Indeed, our own reading of the pre-PEPRA version of section 31461-as informed by both Ventura and Shelden -leads us to the conclusion that on-call, standby and similar payments were includable in compensation *108earnable prior to AB 197 to the extent that they constituted remuneration for on-call services provided by an employee as part of his or her regular work assignment. Thus, if an employee was required to be on-call for a certain number of hours each work period as part of his or her normal duties, any premium pay received in connection with that assignment was includable in compensation earnable under CERL as it existed prior to AB 197. If, in contrast, an employee volunteered for additional on-call hours, any payments received in connection with that extra work would be akin to overtime premium pay and excludable from compensation earnable on that basis. This appears to have been CCCERA's position pre-PEPRA and, in fact, the State has not really challenged it, focusing instead-in both the trial court and on appeal-on the problem of compensation for voluntary on-call shifts. Moreover, although this matter was not directly addressed in Ventura , it *820seems highly likely that the employees at issue in that case were receiving on-call pay because they were required to remain subject to call during lunch as part of their regularly scheduled work assignment. Thus, our holding does not conflict with that precedent.
The harder question is whether, prior to AB 197, CERL only permitted on-call payments to be pensionable to the extent that they were received by others in the same grade or class. The trial court concluded that any vested right of legacy members to treat on-call payments as pensionable was limited to situations where such pay was "regularly applicable to the class of employees." PERS contains a similar restriction. (See § 20636, subd. (c)(2) [for purposes of compensation earnable "[s]pecial compensation" is limited to "that which is received by a member pursuant to a labor policy or agreement or as otherwise required by state or federal law, to similarly situated members of a group or class"].) Nevertheless, based on Ventura , we must reach the opposite conclusion. In short, the Ventura court was clearly focused on compensation earned by the individual employee, not the class; it expressly held that compensation paid in cash, other than overtime, was compensation earnable "even if not earned by all employees in the same grade or class"; and it included in compensation earnable the on-call pay received by the deputy sheriffs at issue in that case, even though the benefit was apparently not furnished uniformly to all deputy sheriffs. ( Ventura supra , 16 Cal.4th at pp. 487-488 & fn. 5, 499-505,
*109Since we have concluded that legacy members were previously entitled to the inclusion of on-call pay in the calculation of their pension benefits (to the extent the related on-call duty was part of their regular work assignment), we must next determine whether AB 197's addition of subdivision (b)(3) to section 31461 changed the law with respect to the treatment of on-call premium pay. The trial court implicitly concluded that it did, as there would otherwise have been no reason to recognize a vested right in this area for legacy members. And, indeed, it is difficult to argue that the amendment of section 31461 to expressly exclude from compensation earnable "[p]ayments for additional services *821rendered outside of normal working hours" was not intended to exclude all on-call pay from pensionable compensation under CERL. (§ 31461, subd. (b)(3).)
In fact, the "normal working hours" language of new subdivision (b)(3) was lifted directly from the corresponding definition of compensation earnable under PERL. (See § 20636, subd. (c)(7)(B) [defining special compensation for purposes of compensation earnable as expressly excluding "[p]ayments made for additional services rendered outside of normal working hours, whether paid in lump sum or otherwise"]; see also §
Were we writing on a clean slate, we believe an argument could be made that the "normal working hours" language now contained in both PERL and CERL should be read broadly enough to permit the inclusion of on-call pay that is part of an employee's required work assignment in compensation earnable. Although perhaps rendered outside of a standard 40-hour workweek, on-call pay for services required to be provided as part of a particular job would seem to be akin to additional salary-albeit salary that is calculated at a rate which recognizes that being on-call, while restrictive, is not as onerous as being fully on duty. (But see City of Pleasanton , supra , 211 Cal.App.4th at p. 539,
4. Enhancement Payments Under Subdivision (b)(1) .
The final subdivision of new subsection (b) of section 31461 at issue in this *822appeal is subdivision (b)(1), which excludes from compensation earnable "[a]ny compensation determined by the board to have been paid to enhance a member's retirement benefit." The subdivision goes on to provide a number of non-exclusive examples of possible enhancement benefits, including: cash payments made during the final compensation period for benefits previously received in kind (§ 31461, subd. (b)(1)(A)); one-time payments received by a member, but not by others in that member's class (§ 31461, subd. (b)(1)(B)); and payments made solely due to termination of employment, even if received while still employed, to the extent they are greater than amounts earned and payable during the final compensation period (§ 31461, subd. (b)(1)(C)). According to the trial court, there was no dispute below that subdivision (b)(1) is new law "insofar as it places upon the board of CER[L] retirement associations the obligation to determine whether specific compensation has been paid to a new retiree 'to enhance a member's *111retirement benefit.' " Moreover, the trial court found that at least one Board had proactively changed its policies in response to this new requirement, uniformly excluding certain one-time payments from compensation earnable.20 Despite these circumstances, however, the trial court refused to find that legacy members had a vested right to calculation of their retirement benefits free from the impact of subdivision (b)(1). Instead, it took a wait-and-see attitude, opining that it was unclear that any issues would ever even come up under this new statute.
Predictably, appellants now challenge on appeal the trial court's refusal to reach the merits of the vested rights issue with respect to subdivision (b)(1). They further claim that the trial court should have ordered, at least for legacy members, the restoration of any one-time payments prematurely excluded from compensation earnable in response to this new statutory requirement. In contrast, the State makes a relatively strained argument on appeal that payments made to enhance pension benefits as described by subdivision (b)(1) have always been excluded from compensation earnable under CERL. In particular, the State appears to maintain that, since pension enhancements were always required to be excluded from pensionable compensation, subdivision (b)(1) merely places on CERL boards the express obligation to ferret out any of these unlawful inclusions.
We have little difficulty determining that appellants have the better argument here with respect to subdivision (b)(1). Clearly, prior to PEPRA, there was no provision in CERL allowing a CERL board to look behind an employer's provision of compensation to its employees to determine that employer's subjective intent, much less was any such intent ever considered dispositive when determining whether a particular item of compensation was pensionable. Rather, as emphasized in Ventura , with the exception of overtime, items of compensation paid in cash, "even if not earned by all employees in the same grade or class, must be included in the 'compensation earnable' and 'final compensation' on which an employee's pension is based." ( Ventura , supra , 16 Cal.4th at p. 487,
*823While this is obviously not the forum for an exhaustive examination of every possible item of compensation potentially subject to subdivision (b)(1) to determine whether that item was properly included in compensation earnable under the pre-PEPRA version of CERL, several examples are telling. For instance, Ventura clearly holds with respect to in-kind payments that, "[w]hen paid in cash , the payment is remuneration and, as it is not excluded, it is 'compensation' under section 31460." ( *112Ventura , supra , 16 Cal.4th at p. 497,
Additionally, we agree with appellants that, should they possess a vested right to have their pensions calculated without reference to subdivision (b)(1), this includes the right to inclusion in compensation earnable of any one-time or other "enhancement" payment previously authorized by CERL, irrespective of whether a Board has subsequently adopted a wholesale exclusion of such payments based on its interpretation of the new statute. Indeed, new section 31542, which details the procedure to be followed when making an enhancement determination under subdivision (b)(1)-including the right to present contrary evidence and judicial review of individual enhancement decisions-argues against the automatic exclusion of any particular type of compensation under subdivision *824(b)(1), even for new hires who are clearly subject to PEPRA. (See § 31542, subds. (a) & (b); see also Marin , supra , 2 Cal.App.5th at pp. 692-693,
The trial court may ultimately be correct that, going forward, pension disputes based on the addition of subdivision (b)(1) to CERL will be rare. At least as an initial matter of statutory interpretation, however, we believe that this new requirement has the potential for broad application to many different types of compensation. Indeed, an argument can be made that every item of compensation received by a CERL employee is paid, at least to some extent, to enhance that member's pension. Thus, in theory, subdivision (b)(1) could significantly impair the stability and predictability of a member's anticipated pension benefit, as any particular item of compensation received during that member's final compensation period could be subject to an after-the-fact re-characterization as an impermissible enhancement. We believe that the trial court erred in refusing to determine whether legacy members have a vested right to be free from this uncertainty. In sum, since we conclude that subdivision (b)(1) represents a change to prior CERL law, it must be subjected to a vested rights analysis to determine whether legacy members have the right to have their pensions calculated without reference to its new prescriptions.
*114C. Vested Rights
Having concluded that AB 197 did in fact make some substantive changes to CERL (with respect to on-call pay and so-called pension enhancements), we are faced squarely with the question of whether *825those changes constitute a reasonable modification to prior CERL law or whether their effect is to impair the vested contractual rights of CCCERA, ACERA, and MCERA legacy members. Recently, our colleagues in Division Two addressed this same issue with respect to legacy members of the Marin County Employees' Retirement Association (Marin CERA) and concluded that the amendment of section 31461 did not amount to an unconstitutional impairment of vested pension rights. ( Marin , supra , 2 Cal.App.5th at pp. 693-709,
1. Supreme Court Jurisprudence on Vested Pension Rights .
In California, the modern law of public pensions begins with Kern v. City of Long Beach (1947)
In reaching this conclusion, the Kern court noted that, where services are rendered under a pension statute, " 'the pension provisions become part of the contemplated compensation for those services and so in a sense a part of the contract of employment itself.' " ( Kern , supra , 29 Cal.2d at p. 852,
The Kern court acknowledged, however, that "pension systems must be kept flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system and carry out its beneficent policy." ( Kern , supra , 29 Cal.2d at pp. 854-855,
Over the next 60 years, the high court was forced to address the question it had left unanswered regarding the permissible scope of pension modifications. In doing so, it fleshed out its own particular views on the parameters of the vested public pension rights it had recognized in Kern . Thus, for example, in Packer v. Board of Retirement (1950)
In 1955, the Supreme Court revisited Long Beach's retirement obligations in Allen v. City of Long Beach (1955)
*116After offering no pension benefits to policemen or firemen hired between March 29, 1945, and 1950, Long Beach had contracted with the State to make these post-1945 employees members of the State's retirement system. Thereafter, in 1951, Long Beach amended its charter to alter the pension rights of the policemen and firemen employed prior to March 29, 1945 (pre-1945 employees). ( Id. at p. 130,
The Allen I court acknowledged that vested contractual pension rights may be modified prior to retirement "to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system." ( Allen I , supra , 45 Cal.2d at p. 131,
Abbott v. City of Los Angeles (1958)
*117In 1977, the Supreme Court considered a change in the mandatory retirement age for state employees from 70 to 67. ( Miller v. State of California (1977)
A year later, the high court clarified that a public employee is entitled to the benefits resulting from positive changes to the pension system made at any time during employment-such benefits become a part of the vested rights of employees when conferred. ( Betts v. Board of Administration (1978)
*828After Betts , the high court considered vested pension rights again in Allen v. Board of Administration (1983)
Thereafter, in Legislature v. Eu (1991)
Before applying these teachings to the case at hand, we consider our colleagues recent vested rights discussion in Marin .
*8292. Vested Rights Analysis in the Marin Case .
As stated above, Division Two recently concluded that the changes to CERL's definition of compensation earnable effected by PEPRA did not amount to an unconstitutional impairment of the vested pension rights of the legacy members of Marin CERA. (Marin , supra , 2 Cal.App.5th at pp. 693-709,
*119Id. at p. 686,
In response to the board's actions, several individual employee members of Marin CERA, together with a number of affected employee organizations, brought suit challenging the retirement board's implementation of PEPRA-in particular, as in this case, its application to legacy members, those employees who were hired prior to January 1, 2013. ( Marin , supra , 2 Cal.App.5th at pp. 679, 687, 689-690,
The trial court ultimately granted Marin CERA's demurrer without leave to amend. ( Marin , supra , 2 Cal.App.5th at p. 689,
In reviewing the trial court's demurrer decision, the Marin court eschewed analysis of the many issues of statutory construction with which we have wrestled here, instead conducting a purely constitutional inquiry into the *120vested rights implications of AB 197. ( Marin , supra , 2 Cal.App.5th at pp. 690-693 & 691, fn. 14,
Applying this analysis to the facts before it, the Marin court had little difficulty concluding that the changes effected by AB 197 did not unconstitutionally impair the vested rights of Marin CERA's legacy members. ( Marin , supra , 2 Cal.App.5th at pp. 700-709,
Much of Marin 's vested rights analysis-including its rejection of the absolute need for comparable new advantages when pension rights are eliminated or reduced-is not controversial, and we do not disagree with it. However, we must respectfully part ways with our colleagues in Division Two when it comes to their application of the law to this specific dispute. Part of the problem may be the difference in procedural posture between our litigation and Marin 's. As the Marin court acknowledged, since its case never cleared the pleading stage, the court was "in effect deciding an odd hybrid-whether the Pension Reform Act is unconstitutional on its face as it applies to the claimed vested contractual rights of [Marin CERA] employees. That is a limited issue of legislative power considered in an undisputed factual context." ( Marin , supra , 2 Cal.App.5th at p. 708,
*122Nevertheless, we believe that the Marin court improperly relied on its general sense of what a reasonable pension might be, rather than acknowledging that the *832Supreme Court has expressly defined a reasonable pension as one which is subject only to reasonable modification. Thus, an employee's right to a reasonable pension can only be judged in the context of the balancing analysis established by Allen I. This error appears to have been compounded when, in considering the disadvantages imposed on legacy members by AB 197, the Marin court-once it determined that comparative new advantages must not absolutely be provided-too quickly dismissed what could amount to significant financial disadvantages to legacy members as "quite modest." ( Marin , supra , 2 Cal.App.5th at p. 704,
Admittedly, total pension system collapse may be a sufficiently weighty concern to meet this standard. However, there is no indication in the Marin decision that, in considering the fiscal justification for application of the pension modifications at issue to legacy members, the court specifically weighed the financial implications for Marin CERA if legacy members were exempted from those modifications, rather than impermissibly focusing on the unfunded pension liability crisis in general. (Cf. Abbott , supra , 50 Cal.2d at pp. 445, 455,
3. Vested Rights in this Case .
We have concluded that AB 197 modified CERL and therefore potentially impacted the vested pension rights of legacy members in two distinct ways-by removing certain on-call and related payments from pensionable compensation and by allowing CERL boards to look to the intent behind particular items of compensation that would otherwise be deemed compensation earnable to determine whether they nevertheless constitute impermissible "enhancement" benefits. Applying our view of the Supreme *123Court's vested rights jurisprudence as described above, we believe that the reasonableness of these PEPRA amendments must be judged independently in each of the Three Counties, so that the impact of applying the changes to legacy members can be evaluated in the context of each county's particular CERL system. Although it implicitly found a vested rights violation with respect to on-call pay, the trial court below never conducted the systematic vested rights analysis needed. Nor did it consider the impact of both detrimental changes we have identified. Moreover, the parties have not had the opportunity to brief and argue these issues. We are therefore without sufficient information to resolve these vested rights disputes on appeal and must remand the *833matter for further consideration in light of the guidance provided in this opinion.
When considering whether the vested rights of legacy member in each of CCCERA, ACERA, and MCERA have been unconstitutionally impaired, the trial court should recognize that-since no corresponding new advantages have been provided with respect to the detrimental changes to compensation earnable effected by PEPRA-the application of the detrimental changes to legacy members can only be justified by compelling evidence establishing that the required changes "bear a material relation to the theory ... of a pension system," and its successful operation. ( Allen II , supra , 34 Cal.3d at p. 120,
*124D. Estoppel
As a final matter, we must determine whether the trial court erred in concluding with respect to leave cash-outs that certain legacy members-while failing to prove impairment under a vested rights analysis-nevertheless are entitled to relief based on principles of equitable estoppel. Since we have opined that, even under AB 197, all leave cashed out during the final compensation period must be included in compensation earnable, regardless of when the underlying leave accrued, we need not address the trial court's estoppel treatment of in-service leave-cash-outs. In contrast, we have confirmed that terminal pay was never pensionable under CERL. Thus, the application of estoppel to this type of compensation remains at issue. Below, the trial court generally refused to apply estoppel principles to permit continued treatment of terminal pay as compensation earnable for legacy members because it found that a member's expectation that such pay would be pensionable did not "rise to the level necessary to establish an 'injury' sufficient to bring the doctrine of *834equitable estoppel into play." With respect to Merced members only, however, the trial court made an exception because it was convinced that reliance on the litigated judgment in Baker -which interpreted the Merced Post- Ventura Settlement Agreement as including in compensation earnable up to 160 hours of terminal pay-was sufficient to trigger the application of equitable estoppel for those members. On appeal, the State and the Sanitation District contend that the trial court's estoppel determination is too broad, while appellants aver it is too narrow.
We recently had occasion to review the law relating to estoppel in the public pension context and summarized it as follows: "The doctrine of equitable estoppel is founded on notions of equity and fair dealing and provides that a person may not deny the existence of a state of facts if that person has intentionally led others to believe a particular circumstance to be true and to rely upon such belief to their detriment. [Citation.] ' "Generally speaking, four elements must be present in order to apply the doctrine of equitable estoppel: (1) the party to be estopped must be apprised of the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; (3) the other party must be ignorant of the true state of facts; and (4) he must rely upon the conduct to his injury." ' " ( City of Oakland v. Oakland Police & Fire Retirement System (2014)
*125see Long Beach v. Mansell (1970)
Both the State and the Sanitary District argue strenuously on appeal that the trial court's estoppel order was improper because CERL boards never had the authority to treat terminal pay as pensionable. Thus, they claim, allowing the continued inclusion of terminal pay in compensation earnable for legacy members on estoppel grounds would impermissibly force a governmental agency to act outside of its statutory authority. (See *835Longshore v. County of Ventura (1979)
It is undeniably true, as we have discussed at length, that CERL boards do not have the power to include terminal pay in compensation earnable as a matter of discretion. However, under both statutory and constitutional law, such boards have plenary authority with respect to the administration of their respective CERL systems. (§ 31520 ["the management of the retirement system is vested in the board of retirement"]; Cal. Const., art. XVI, § 17 [retirement board of a public pension system has "plenary authority and fiduciary responsibility for investment of moneys and administration of the system"];
In the wake of Ventura, CERL boards were faced with a somewhat unprecedented situation, which included: a Supreme Court ruling greatly expanding the types of pay items that they had previously understood to be includable in compensation earnable; litigation by CERL members statewide, seeking to reap the benefits of the Ventura decision; the prospect of significant and ongoing costs of litigation; the lingering (albeit incorrect) notion that CERL boards possessed discretion under Guelfi to include additional pay items, over and above those mandated by Ventura , in compensation earnable; and the constitutional requirement that they promptly and efficiently deliver benefits to their members. In light of these myriad factors, we believe the CERL boards acted within their statutory powers to settle the claims against them. The critical distinction here is between a CERL board's ability, by contract, to create a vested pension right contrary to statute (they cannot as discussed above), and the power of that same board to settle a pension dispute in such a way that the board may be equitably estopped from denying the impacted employees the benefit of their bargain. Under such circumstances, any pension amounts to be paid to members that were later determined to be in excess of specific statutory authority, would simply be costs of achieving certainty in the administration of the system. We therefore conclude that estoppel is not barred in this case based on a lack of statutory authority for the CERL boards to do what they did.26
Moreover, after weighing the interests at stake in this case, we conclude *836that "the injustice which would result from a failure to uphold an estoppel is of sufficient dimension to justify any effect upon public interest or policy which would result from the raising of an estoppel." ( Mansell, supra , 3 Cal.3d at pp. 496-497,
Arguments raised on the other side of this balancing analysis, in contrast, are not persuasive. The State and the Sanitary District, for instance, suggest that allowing the continued inclusion of terminal pay in compensation earnable for legacy members constitutes an impermissible gift of public funds. But public agencies are clearly allowed to expend settlement monies without running afoul of this constitutionally-enshrined public policy. (See Cal. Atty. Gen. No. 99-907, 83 Ops.Cal.Atty.Gen. 45, 46-47 (2000) [early retirement annuities offered in exchange for releases of employment-related claims which would allow for litigation expense savings not a gift of public funds].) The State additionally argues that "invoking estoppel would allow for the known and continued spiking of employee pensions, contravening the purpose of CERL." However, all new members will be governed by the restrictions on spiking imposed by AB 197, and we are not convinced that this "anti-spiking" intent was evident in CERL prior to PEPRA. Rather, we think the legislative history before the enactment of AB 197 more reasonably evinces a "long-standing practice of the Legislature of not intruding into the county decisionmaking process regarding compensation determinations with respect to [CERL] retirement systems." (Stats. 1992, ch. 45, § 3(4).) In addition, the terminal pay authorized in the Three Counties by the Post- Ventura Settlement Agreements is fairly circumscribed. As *837stated above, any such terminal pay for CCCERA and ACERA legacy members is limited to the amount of leave accrued in the final compensation period, while MCERA's terminal benefit is limited to 160 hours. Further, these benefits have reportedly been recognized and actuarially accounted for by all three CERL systems. We therefore conclude that the equities in this case tip decidedly in favor of allowing an estoppel claim to proceed.
Finally, with respect to the specific elements needed to support equitable estoppel, the Sanitary District argues that these requirements have not been proven on an individual basis by each legacy member as required, while the *128State focuses on an alleged lack of justifiable reliance by legacy members based on the Board's promises. Appellants dispute these claims, and additionally argue that the trial court erred by selectively applying estoppel to only certain legacy members, due to a too-narrow view of the injury required under the estoppel doctrine. Again, we believe that appellants have the stronger argument. Legacy members in all Three Counties entered into and remained in employment based, at least in part, on the promise that they would receive a pension as authorized by CERL. ( In re Retirement Cases , supra , 110 Cal.App.4th at pp. 453-454,
III. DISPOSITION
The Judgments are affirmed in part and reversed in part, the related Writs are vacated to the extent inconsistent with this decision, and the matter is remanded for determinations, in accordance with the analysis set forth herein, as to the reasonableness of PEPRA's detrimental changes when applied to the vested rights of legacy members in each of CCCERA, ACERA, and MCERA. Each party to bear its own costs.
We concur:
RUVOLO, P.J.
RIVERA, J.
Related
Cite This Page — Counsel Stack
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