The California Supreme Court issued an opinion on July 30 in what is known as the “Alameda” case (Alameda County Deputy Sheriffs Association et al v. Alameda County Employees Retirement Association and Board of Retirement of ACERA (S247095).

The issues in the Alameda case date back to changes in the definition of pay items that must be excluded from Final Average Salary as provided in Public Employees’ Pension Reform Act (PEPRA) effective January 1, 2013.  Specifically, the Supreme Court decision said that PEPRA amounted to a change in the law with respect to the pay items that may be included in the calculation of retirement benefits on and after January 1, 2013; and further, that retirement systems like OCERS have no authority or discretion to calculate pension benefits in a manner inconsistent with the CERL, as amended by PEPRA.

OCERS has long identified members’ pay items as pensionable or non-pensionable, depending on how employers report them to OCERS through pay codes.  OCERS’ preliminary review indicates that only a few pay items may have been affected by PEPRA.  These are generally denominated “on-call pay” or “stand by pay”, and “canine pay.”  In light of the decision in Alameda, all three items need to be put through the new PEPRA test that applies to work performed outside normal working hours.  The PEPRA test is set forth below, with a comment how OCERS determines whether the pay and services meet the test.

PEPRA TEST:  Compensation for services rendered outside normal working hours is not “compensation earnable.”  

COMMENT:  OCERS has determined that “normal working hours” are hours (1) the employer requires the employee to work in their position on a full time basis; and (2) that are ordinarily worked by others in the same grade or classification as the employee.  “Normal working hours” are customarily identified in the MOU or employment agreement.  “Normal working hours” does not include time or services for which the employee volunteers.

The OCERS Board of Retirement met on Monday, August 17, 2020 and heard an informational presentation from its fiduciary counsel as to what  Alameda means for OCERS members.

First, if you retired before January 1, 2013, or you are a retiree and your Final Average Salary did not include any excluded pay items such as standby, on-call or canine pay, then you will not be affected by the Alameda decision.

Second, for retirements that will have a first benefit pay date of October 1, 2020 or later (this effectively means anyone who retires on or after Monday, August 17 because it takes OCERS more than 45 days to get out the first benefit payment), OCERS staff will, as an administrative action, exclude from Final Average Salary any pay items that OCERS believes are pay for services rendered outside normal working hours.  Whether this exclusion is permanent or temporary depends on OCERS’ further review of each pay code as described below.

In addition, as of the September 11, 2020 pay period, OCERS will direct the County of Orange (there may be other dates depending upon other employers’ pay schedules) to stop collecting pension contributions from active members on any excluded pay items.  The OCERS Board will decide at a later date as to the refund of contributions previously paid on those excluded amounts.

Next, OCERS staff, working closely with both employer and labor representatives, will conduct a thorough review of each of the pay items that may have been associated with services rendered outside normal working hours to determine whether each item of pay meets the PEPRA test set forth above in order for the pay to be included in Final Average Salary.

If this review results in the conclusion that an excluded item of pay was included in the Final Average Salary of a member who retired between January 1, 2013 and August 16, 2020, OCERS will be required to adjust the future benefits of those retired members to remove any portion of his or her monthly benefit that was attributed to that pay item.  On the other hand, if this review results in the conclusion that a pay item meeting the PEPRA test stated above should have been included in the Final Average Salary of a member who retired on or after August 17, 2020, OCERS will adjust the benefit prospectively and issue a lump sum payment in the amount of the underpayment plus interest to each member whose benefit was underpaid.

Finally, the OCERS Board will have to determine what action is required regarding any amounts overpaid to retirees.

We are acutely aware that this issue is creating anxiety for some of you and want to assure you that we will keep your rights and concerns in full consideration while we take any legally necessary actions to conform with the Court’s ruling.