RICHMAN, J. —
The practice known as "pension spiking," by which public employees use various stratagems and ploys to inflate their income and retirement benefits, has long drawn public ire and legislative chagrin. Effective January 1, 2013, the Legislature amended Government Code
After an extensive independent review, we reach the same conclusion and affirm, holding that the Legislature did not act impermissibly by amending
The County Employees Retirement Law of 1937 (CERL; see Stats. 1937, ch. 677, p. 1898), as codified in 1947 (§ 31450 et seq.) allows, but does not require, a county to establish and operate a retirement plan for its employees. Twenty of the state's 58 counties have elected to do so. Each county plan is administered by a retirement board, which, as we previously characterized it, 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) for purposes of calculating the amount of a pension." (In re Retirement Cases (2003) 110 Cal.App.4th 426 [433, 1 Cal.Rptr.3d 790].)
In the aftermath of the severe economic downturn of 2008 and 2009, public attention across the nation began to focus on the alarming state of unfunded public pension liabilities. (E.g., Congressional Budget Off., U.S. Cong., The Underfunding of State and Local Pension Plans (May 2011) p. 1 [estimating unfunded liabilities as of 2009 at "between $2 trillion and $3 trillion"]; State Budget Crisis Task Force, Rep. of the State Budget Crisis Task Force, Full Rep. (2012) p. 2 ["Pension funds for state and local government workers are underfunded by approximately a trillion dollars according to their actuaries and by as much as $3 trillion or more if more conservative investment assumptions are used"]; Novy-Marx & Rauh, Public Pension Promises: How Big Are They and What Are They Worth? (2011) 66 J. Fin. 1206, 1211 [estimating "state employee pension liabilities as of June
As so often occurs, California was in first place: "The state with the biggest absolute level of underfunding is California, with underfunding of approximately $475 billion." (Novy-Marx & Rauh, The Liabilities and Risks of State-Sponsored Pension Plans (2009) 23 J. Econ. Persp. 191, 197-199.) In 2010, the Stanford Institute for Economic Policy Research, studying only the Public Employees' Retirement System, the State Teachers' Retirement System, and the University of California Retirement System, estimated "the current shortfall at more than half a trillion dollars." (Bornstein et al., Going for Broke: Reforming California's Public Employee Pension Systems, Stanford Institute for Economic Policy Research Policy Brief (April 2010) p. 2; see also Nation, The Funding Status of Independent Public Employee Pension Systems in California, Stanford Institute for Economic Policy Research Policy Brief (Nov. 2010) pp. 1, 13 [examining 24 systems operating under CERL which "account for approximately 91 percent of the total assets and liabilities for independent systems" and estimating their "aggregate unfunded liability ... at nearly $200 billion in June 2008"].) "The magnitude of the problem in California ... is staggering" and "is without peer." (Hylton, Combating Moral Hazard: The Case for Rationalizing Public Employee Benefits (2012) 45 Ind. L.Rev. 413, 444.)
In 2011, the Little Hoover Commission advised the Governor and the Legislature: "California's pension plans are dangerously underfunded, the result of overly generous benefit promises, wishful thinking and an unwillingness to plan prudently. Unless aggressive reforms are implemented now, the problem will get far worse, forcing counties and cities to severely reduce services and layoff employees to meet pension obligations." (Little Hoover Com., Public Pensions for Retirement Security (Feb. 2011) [cover letter of Chairman Daniel Hancock].) The commission urged a number of "structural changes that realign pension costs and expectations of employees, employers and taxpayers." (Ibid.) The situation was described as "dire," "unmanageable," a "crisis" that "will take a generation to untangle," and "a harsh reality" that could no longer be ignored: "The money coming in is nowhere near enough to keep up with the money that will need to go out." (Id., at pp. v, 38, 12, 21, 25.)
"The state must exercise its authority — and establish the legal authority — to reset overly generous and unsustainable pension formulas for both
One feature of the system that drew the commission's critical attention was "pension spiking," which the commission defined as follows: "The practice of increasing [an employee's] retirement allowance by increasing final compensation or including various non-salary items (such as unused vacation pay) in the final compensation figure used in the [employee's] retirement benefit calculations, and which has not been considered in prefunding of the benefits." (Little Hoover Com., Public Pensions for Retirement Security, supra, at p. 73.) The commission found the practice had become "widespread throughout local government," and had generated "public outrage [that] ... cannot continue to be ignored."
The Legislature heard, and agreed.
There is no dispute that the purpose of this change was to curtail pension spiking.
Reaction to the change in policy was almost immediate. On January 18, 2013, less than three weeks after the Pension Reform Act took effect, five recognized employee organizations and four individuals (collectively plaintiffs) commenced this action against MCERA.
Plaintiffs further alleged:
Plaintiffs also complained about the generalized way in which MCERA had changed its policy: "In addition to impairing MCERA members' vested rights," MCERA "also decided to exclude certain pay items from compensation earnable without making a determination that such compensation has been paid to enhance MCERA members' retirement benefits, as required by AB 197. To the extent any determination has been made that these pay items have been paid to enhance retirement benefits, such determinations are incorrect and constitute an abuse of discretion."
Plaintiffs further alleged that they "relied on MCERA and participating employers' commitment to include these pay items in the calculation of final compensation, and they agreed to accept employment and remain employees of their respective employers based on the promised pension benefit"; and that "[t]he elimination of these various pay items from the calculation of
Plaintiffs prayed for declaratory and injunctive relief that Assembly Bill 197 and MCERA's "actions are unconstitutional impairments of vested rights and therefore unenforceable." Plaintiffs also prayed for issuance of a writ of mandate "to compel [MCERA] to continue to calculate the pensions of its members in a manner consistent with its policies in effect before December 18, 2012 and in a manner consistent with binding promises made to MCERA members."
The State of California was granted leave to intervene, as expressly directed by the Governor, in order that it could defend the constitutionality of Assembly Bill 197. Shortly thereafter, MCERA interposed a general demurrer on the sole ground that, because "AB 197 ... [is] constitutional," and MCERA was "required by law to implement ... AB 197," plaintiffs had failed to state a cause of action. Plaintiffs filed opposition vigorously disputing both of these points.
In June 2013, after hearing extensive argument, the trial court sustained MCERA's demurrer without leave to amend and entered judgment against plaintiffs.
The crux of this appeal is whether MCERA may eliminate benefits previously treated as compensation earnable from the calculation of the
However, before we consider the constitutional issue, we are obligated to ascertain if the appeal may be decided on some other, nonconstitutional ground. (E.g., Palermo v. Stockton Theatres, Inc. (1948) 32 Cal.2d 53, 66 [195 P.2d 1]; Teachers' Retirement Bd. v. Genest, supra, 154 Cal.App.4th 1012, 1043.) Plaintiffs advance two such claims.
Plaintiffs first attack the trial court's order as procedurally defective because it "does not provide a justification for sustaining the demurrer." If the attack were to succeed, the judgment can be reversed on a nonconstitutional basis. But the attack will not succeed.
In its entirety, the trial court's order read: "Respondents' Demurrer to the Verified Writ Petition is sustained without leave to amend. The court finds the Respondents' actions implementing Govt. Code § 31461, as amended effective January 1, 2013, are proper and that the Public Employees' Pension Reform Act of 2013 is constitutional. The Respondent Board of Retirement has the exclusive authority and responsibility to determine its members `compensation earnable,' which is used to calculate members' retirement allowance, pursuant to Govt. Code § 31461. (See Howard Jarvis Taxpayers' Ass'n. v. Bd. of Supervisors of Los Angeles County (1996) 41 Cal.App.4th 1363, 1373 [49 Cal.Rptr.2d 157], and In re Retirement Cases[, supra,] 110 Cal.App.4th 426, 453.) A statute, once duly enacted, is presumed to be constitutional. [¶] SO ORDERED."
This order was filed on June 19, 2013, and mailed to the parties the following day. On June 24, MCERA mailed plaintiffs notice of entry. The ensuing judgment, which quoted almost all of the order, was entered on June 26, the same day plaintiffs unsuccessfully moved for reconsideration of the order, following which they were rebuffed in their request for extraordinary relief from this court. (Marin Assn. of Public Employees v. Superior Court (Feb. 25, 2014, A139621) [nonpub. opn].) At no time during these proceedings did plaintiffs advise the trial court, or attack the order, on the ground now advanced. By reason of this inaction, the claim was forfeited. (E.g., Code
Even if the claim had been preserved for review, it would not require reversal. California has a statute governing this precise subject, one not cited in plaintiffs' briefs.
So it is incorrect to treat the ruling on a demurrer as akin to a statement of decision, which is only required, upon request, "upon the trial of a question of fact." (Code Civ. Proc., § 632.) But this is clearly what plaintiffs believe is missing from the trial court's order. Instead of "rationaliz[ations]," "general proposition[s]," and "platitude[s]," plaintiffs appear to think the trial court should have provided a point-by-point analysis of each of the legal issues raised by the petition. That belief is patently unreasonable and far exceeds the statutory requirement.
The second nonconstitutional ground for reversal advanced by plaintiffs is that MCERA "did not follow the correct procedural requirements" of Assembly Bill 197 "for excluding payments made to `enhance a member's retirement benefit.'" Again, plaintiffs are not correct.
The Pension Reform Act added section 31542, the pertinent provisions of which provide:
Plaintiffs correctly recognize that these provisions are intended to govern individualized determinations. As plaintiffs describe it: "[T]he focus is on
Plaintiffs' essential position is clearly set out in their opening brief: "[P]ublic employees earn a vested right to their pension benefits immediately
Plaintiffs candidly admit, "[i]n practice, this means that for existing employees, any changes must generally be neutral with regard to the overall benefit provided and cannot represent a net decrease in the pension benefit."
A brief review of principles governing public employee pensions will show that much of plaintiffs' reasoning is not controversial, but their ultimate conclusion cannot be sustained.
Miller continued in its restatement of pension principles: "In Wallace [v. City of Fresno (1954) 42 Cal.2d 180, 183 [265 P.2d 884]], referring to Kern, we again emphasized `that a public pension system is subject to the implied qualification that the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension.'" (Miller, supra, 18 Cal.3d 808, 816; see
Our Supreme Court has repeatedly stated that while pension rights may not be "destroyed," they may be modified prior to the employee's retirement.
In one of the decisions cited in Miller, the Supreme Court stated: "To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages." (Allen v. City of Long Beach (1955) 45 Cal.2d 128, 131 [287 P.2d 765].) It is a onetime variation of this last sentence that is a foundation of plaintiffs' appeal on the constitutional issue.
In 1983, our Supreme Court stated: "A constitutional bar against the destruction of such vested contractual pension rights, however, does not absolutely prohibit their modification. With respect to active employees, we have held that any modification of vested pension rights must be reasonable, must bear a material relation to the theory and successful operation of a pension system, and, when resulting in disadvantage to employees, must be accompanied by comparable new advantages. [Citations.]"
The Supreme Court in the 1983 Allen opinion cited three decisions as support for the quoted proposition. The two Supreme Court decisions cited employed the word "should." (Allen v. City of Long Beach, supra, 45 Cal.2d 128, 131 ["To be sustained as reasonable, alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages"]; see Abbott v. City of Los Angeles, supra, 50 Cal.2d 438, 449 [quoting this sentence from Allen].) It is only a 1969 Court of Appeal decision, which cites the same two Supreme Court decisions, that uses "must." (Lyon v. Flournoy (1969) 271 Cal.App.2d 774, 782 [76 Cal.Rptr. 869] (Flournoy) ["In brief, modifications affecting the earned pension rights of active employees must be reasonable, related to the theory of a sound pension system, and changes detrimental to the individual must be offset by comparable new advantages. (Abbott v. City of Los Angeles, supra, 50 Cal.2d at pp. 447, 449; Allen v. City of Long Beach, supra, 45 Cal.2d at pp. 131-133.)"].)
There is, of course, no bar to the Supreme Court adopting a Court of Appeal's reasoning as its own. Yet there is legitimate reason to question whether that was what the Supreme Court intended in 1983. First, as just shown, only the least authoritative of the three sources cited actually supports the word "must," while the two Supreme Court decisions employ "should." Second, barely a month later, the Supreme Court — speaking though the same justice — filed another decision which used the "should" formulation from the 1955 Allen decision as quoted in Abbott.
But the most persuasive evidence against the Supreme Court intending to impose a quid pro quo standard is circumstantial — the bottom line of who won. The issue in Allen was whether pension payments to retired legislators could be reduced pursuant to new statutory and constitutional language. The trial court had concluded that reduction would be contrary to the contract clauses of both state and federal constitutions. (Allen v. Board of Administration, supra, 34 Cal.3d 114, 118-119.) The Supreme Court reversed, holding that the reduction was not constitutionally improper. There is nothing in the opinion linking the reduction to provision of some new compensating benefit. If the court intended "must" to have a literal meaning, the retirees would have won. They lost.
In light of the foregoing, we cannot conclude that Allen v. Board of Administration in 1983 was meant to introduce an inflexible hardening of the traditional formula for public employee pension modification. Consequently, we do not deem ourselves bound by expressions in Court of Appeal opinions — including our own in In re Retirement Cases, supra, 110 Cal.App.4th 426, 448 — reiterating the Allen language.
In any event, we think there is a "new benefit" provided by the Pension Reform Act. That measure made no change to the definition of "compensation" in CERL, namely section 31460. The change in policy adopted by
Plaintiffs' initial premise, and the centerpiece of their oral argument, is that the moment each individual plaintiff commenced working for a public agency in Marin County, that person acceded to a "vested right" to a pension. To a large extent, that premise is correct. As already established by Miller, the "right" to a pension "vests" when the first portion of wages or salary already earned is deferred by being withheld for a future pension. (See fn. 17 and accompanying text, ante.) But to call a pension right "vested" is to state a truism. As one Court of Appeal sensibly noted, "ALL pension rights are vested" in the sense they cannot be destroyed. (Santin v. Cranston (1967) 250 Cal.App.2d 438, 443 [59 Cal.Rptr. 1].) Until retirement, an employee's entitlement to a pension is subject to change short of actual destruction. That same Court of Appeal aptly — and accurately — characterized that entitlement as only "a limited vested right." (Id. at p. 441.) Even plaintiffs concede there is no talismanic significance to "vested rights" that will prevent legislative modification between hiring and retirement. However, what plaintiffs fail to acknowledge is that in the very authority on which their position is based, our Supreme Court explained just how potent is this governmental power.
Implicit in the formula, however expressed, is that alterations, changes, and modifications do not invariably work to the employee's benefit. In large measure, the judicial history of examining pensions is largely given over to broken promises and changed circumstances. Nevertheless, the basic limits are established.
But there are acceptable changes aplenty that fall short of "destroying" an employee's anticipated pension. "Reasonable" modifications can encompass reductions in promised benefits. (E.g., Miller, supra, 18 Cal.3d 808 [change of retirement age with reduction of maximum possible pension]; Claypool v. Wilson (1992) 4 Cal.App.4th 646 [6 Cal.Rptr.2d 77] [repeal of cost of living adjustments]; Brooks v. Pension Board (1938) 30 Cal.App.2d 118 [85 P.2d 956] [pension reduced prior to retirement from two-thirds to one-half of employee's salary].) Or changes in the number of years service required. (Miller, supra, at p. 818 ["Upon being required by law to retire at age 67 rather than age 70, plaintiff suffered no impairment of vested pension rights since he had no constitutionally protected right to remain in employment until he had earned a larger pension at age 70"]; Amundsen v. Public Employees' Retirement System (1973) 30 Cal.App.3d 856 [106 Cal.Rptr. 759] [change in minimum service requirement].) Or a reasonable increase in the employee's contributions. (§ 31454; International Assn. of Firefighters v. City of San Diego, supra, 34 Cal.3d 292, 300-301; City of Downey v. Board of Administration (1975) 47 Cal.App.3d 621, 632 [121 Cal.Rptr. 295]; cf. Allen v. City of Long Beach, supra, 45 Cal.2d 128, 131 [invalidating "provision raising the rate of an employee's contribution ... from 2 per cent of his salary to 10 per cent"].)
Thus, short of actual abolition, a radical reduction of benefits, or a fiscally unjustifiable increase in employee contributions, the guiding principle is still the one identified by Miller in 1977: "`the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension.'" (Miller, supra, 18 Cal.3d 808, 816, italics added.) As made clear by the 1947 decision quoted in Miller: "an employee may acquire a vested contractual right to a pension but ... this right is not rigidly fixed by the specific terms of the legislation in effect during any particular period [the employee] serves," and "the amount, terms and conditions of the benefits may be altered." (Kern v. City of Long Beach, supra, 29 Cal.2d 848, 855.) Hence the reiteration of reserved legislative power: "`[A] public pension system is subject to the implied qualification that the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits but only to a substantial or reasonable pension.'" (Miller, supra, 18 Cal.3d 808, 816.)
The contract clauses do not foreclose government action which reflects changing concepts of public policy, concomitantly granting government the power to make illegal that which was previously legal. That power has been exercised over a myriad of products and practices, and has not been stymied simply because a contract was in existence when the ban took effect. (E.g., Stone v. Mississippi (1879) 101 U.S. 814 [25 L.Ed. 1079] [prohibition of existing state lottery]; Beer Co. v. Massachusetts (1877) 97 U.S. 25 [24 L.Ed. 989] [state license to produce liquor invalidated by adoption of state prohibition law].) Such a contract might provide for a rate of interest which a statute later makes usurious and invalid, yet there is no contract clause violation. (Griffith v. Connecticut (1910) 218 U.S. 563, 571 [54 L.Ed. 1151, 31 S.Ct. 132].) Or it might be a contract for transporting freight on public highways at a cost below that fixed by a subsequently established utility commission which is statutorily authorized to fix minimum rates. Abrogation or modification of the contract presents no constitutional violation. (Stephenson v. Binford (1932) 287 U.S. 251, 276 [77 L.Ed. 288, 53 S.Ct. 181].) Enacting a new tax or increasing an existing one does not entail constitution exemption of existing contracts. (National Ice etc. Co. v. Pacific F. Exp. Co. (1938) 11 Cal.2d 283, 293-295 [79 P.2d 380]; Western Contracting Corp. v. State Bd. of Equalization (1974) 39 Cal.App.3d 341, 350-351 [114 Cal.Rptr. 227].)
Additional examples could be produced only at the risk of unduly prolonging this opinion. The following is a useful summary: "`The contract clause does not protect expectations that are based upon contracts that are invalid, illegal, [or] unenforceable.... Nor does the contract clause protect expectations which are based upon legal theories other than contract, such as
The dispositive issue is one of degree only. The extent of the new rule of section 31461 is quite modest, as is the scope of the parties' disagreement. The parties accept that the catalyst for the Pension Reform Act was dire
So, whatever moral opprobrium it attached to "pension spiking,"
The very careful examination we have given to the parties' extensive briefing convinces us that plaintiffs are unable to overcome too many fundamental and established principles. Understandably, they focused on what they have lost. This has caused them to lose focus on the essential bilateral nature of the problem. Plaintiffs' insistence on retaining their claimed "vested rights" measured by the former version of section 31461 and Ventura County (see fns. 14 & 22, ante) has hindered their appreciation of how that right is only to a "reasonable" pension, that the public employee "does not have a right to any fixed or definite benefits" that may be "fixed by the specific terms of the legislation during any particular period." Plaintiffs' unbending resistance to the new section 31461 betrays an inability to accept that "statutory language is subject to the implied qualification that the governing body may make modifications and changes in the system." (Kern v. City of Long Beach, supra, 29 Cal.2d 848, 855.) The qualification "is a necessary one since 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." (Id. at pp. 854-855; accord, International Assn. of Firefighters v. City of San Diego, supra, 34 Cal.3d 292, 300-301; Miller, supra, 18 Cal.3d 808, 816.)
Plaintiffs make no real effort to demonstrate why the Pension Reform Act's modification of the definition of compensation earnable does not "bear some material relation to the theory of a pension system and its successful operation" (Allen v. City of Long Beach, supra, 45 Cal.2d 128, 131), or is not a "reasonable modification" of the pension system projected to plunge into a fiscal and actuarial abyss. (See Miller, supra, 18 Cal.3d 808, 816.) Plaintiffs make numerous references to In re Retirement Cases, but they ignore our statement that statutory changes to "the determination of what items were to be included in `compensation earnable ...' ... is not subject to a contract right." (In re Retirement Cases, supra, 110 Cal.App.4th 426, 453.) Perhaps because they believe the 1983 Allen decision requires that there must first be a quid pro quo, plaintiffs do not mention the economic storm clouds that attended enactment of the Pension Reform Act, or how their presence was perceived by the Legislature as a spur to fundamental change. Repeated invocation of the inviolability of their "vested rights" cannot substitute for analysis of just how the change to section 31461 demonstrates that employees will not retire with a "substantial" or "reasonable" pension. (See Betts v. Board of Administration, supra, 21 Cal.3d 859, 863; Miller, supra, 18 Cal.3d 808, 816; Wallace v. City of Fresno, supra, 42 Cal.2d 180, 183; Kern v. City of Long Beach, supra, 29 Cal.2d 848, 855.) Unfortunately, the exercise of that power can be a harsh reminder to employees that "`a public pension system is subject to the implied qualification that the governing body may make reasonable modifications and changes before the pension becomes payable and that until that time the employee does not have a right to any fixed or definite benefits'" (Miller, supra, at p. 816), which can mean that "any one or more of the various benefits ... may be wholly eliminated prior to the time they become payable," so long as "the employee retains the right to a substantial pension" (Packer v. Board of Retirement, supra, 35 Cal.2d 212, 218).
In the circumstances presented, plaintiffs have failed "to make out a clear case, free from all reasonable ambiguity" and "reasonable doubt[]," that they
We emphasize the limited nature of our holding. The Legislature's change to the definition of compensation earnable was expressly made purely prospective by the Pension Reform Act. MCERA's responsive implementation was also explicitly made prospective only. (See fn. 9 and accompanying text, ante.) Neither altered the status of compensation or payments accrued prior to January 1, 2013: what had previously met the old definition of compensation earnable would still be included by MCERA in calculating worker pensions. Nothing in Assembly Bill 197 prevents employers from compensating employees with any of the items or payments specified in subdivision (b) of section 31461, a point on which the parties are unanimous.
Given that this case never cleared the pleading stage, we are 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 MCERA employees. That is a limited issue of legislative power considered in an undisputed factual context.
The judgment is affirmed.
Kline, P. J., and Miller, J., concurred.
The Legislature's amendment of section 31461 had similar motivations: "According to the author, `California's public pension systems'" "`have been tainted by a few individuals who have taken advantage of the system. This is in part due to the '37 Act's very broad and general definition of "compensation earnable" ....[¶] ... [¶]' The author concludes, `This measure will address these abusive practices....' [¶] Supporters state, `AB 340 would eliminate the current ... ability for employees to manipulate their final compensation calculations....'" (Assem. Com. on Public Employees, Retirement and Social Security, Analysis of Assem. Bill No. 340 (2011-2012 Reg. Sess.) as amended Apr. 25, 2011, p. 2; see Sen. Com. on Public Employment & Retirement, Analysis of Assem. Bill No. 340 (2011-2012 Reg. Sess.) as amended June 22, 2011, pp. 4-5 [same].)
With respect to section 31461, the only difference between Assembly Bill 340 and Assembly Bill 197 — both of which were enacted by the Legislature on August 31, 2012, and then signed together by the Governor on September 12, 2012 — is that Assembly Bill 197 also added section 31461, subdivision (c) to codify the caveat noted by the Senate Rules Committee: "The terms of subdivision (b) are intended to be consistent with and not in conflict with the holdings in Salus v. San Diego County Employees Retirement Association (2004) 117 Cal.App.4th 734 [12 Cal.Rptr.3d 86] and In re Retirement Cases (2003) 110 Cal.App.4th 426 [1 Cal.Rptr.3d 790]." (Stats. 2012, ch. 297, § 2.)
Although there is no material difference between the versions of section 31461, subdivision (b) in Assembly Bill 340 and Assembly Bill 197, in the interests of simplicity for this appeal, we will adopt the parties' practice of referring to both measures as Assembly Bill 197, and that designation and the Pension Reform Act will be used interchangeably.
The Pension Reform Act included a similar provision concerning the "pensionable compensation" of members in the Public Employees' Retirement System (PERS). (Stats. 2012, ch. 296, § 15, adding Gov. Code, § 7522.34.) Later in the 2012 session the Legislature adopted a comparable provision for the "creditable compensation" of teachers. (Stats. 2012, ch. 864, § 1, amending Ed. Code, § 22119.2.) As is the case with Government Code section 31461, both of these measures vested the boards administering the respective retirement systems with the authority to exclude "Any other form of compensation" (§ 7522.34, subd. (c)(11) & (12)) and "Any other payments" (Ed. Code, § 22119.2, subd. (c)(9)) from pension calculations. Government Code section 7522.34 is especially noteworthy because, like subdivision (b)(1) of section 31461, it expressly excludes "Any compensation determined by the board to have been paid to increase a member's retirement benefit...." (§ 7522.34, subd. (c)(1).)
Six years later, the grand jury reported that the chickens were coming home to roost, and were in part responsible for current financial difficulties: "During the financial fiasco of 2008 and 2009, the Marin County Employees' Retirement Association's (MCERA) net assets ... declined by ... 25.5% ... due to investment losses. Employer pension costs have increased dramatically.... [¶] ... Although it is tempting to suggest that the cause of the budget problem is high total employee compensation, that is not the acute problem.... [T]he acute problem is unpredictable, rapid variation in compensation — caused at this time by increasing pension costs." (Marin County Civil Grand Jury, Public Sector Pensions: A Perspective (May 31, 2011) p. 1.)
The grand jury noted the county's long-term restructuring plan: "At current levels, public pension systems are not financially sustainable without reform.... Under current actuarial assumptions, it is projected that the County of Marin will experience an approximately 40% increase in employer pension contribution rates in FY 2010-11.... This represents an increased General Fund cost of approximately $11.4 million next fiscal year, the most significant component of the County's estimated $15 million structural gap for FY 2010-11. Employer costs will continue to rise in subsequent years barring a significant rebound in investment earnings." (Marin County Civil Grand Jury, Public Sector Pensions: A Perspective, supra, at p. 7.) The grand jury also noted the county's "Annual Financial Report," which had concluded that employee compensation and pension costs were likely to endure beyond stock market fluctuations: "`Public pensions are ... a significant factor contributing to the projected budget shortfall.... Even with recent stock market gains, pension contributions are expected to increase in the next several years as asset gains and losses are typically smoothed to control rate volatility.'" (Id. at p. 6 & fn. 19.) The grand jury concluded: "The pension plans of all MCERA's Sponsors [i.e., member organizations] are significantly underfunded, primarily due to investment losses. MCERA currently has reserves with a market value of only $1.21 billion.... The present value of benefits for members is $1.93 billion." (Id. at p. 18.)
In a 2015 report, the grand jury noted that the granting of largely unpublicized "pension enhancements ... contributed to the increase of the unfunded pension liability of MCERA; this unfunded liability increased from a surplus of $26.5 million in 2000 to a deficit of $536.8 million in 2013. This increase may expose the citizens of Marin County to additional tax burdens to cover the unfunded costs and may place the future financial viability of the pension plans at significant risk. Additionally, such an impact may impair the governments' ability to provide the broad range of essential services that citizens are expecting; instead those funds may be used to pay for employee pensions." (Marin County Civil Grand Jury, Pension Enhancements: A Case of Government Code Violations and A Lack of Transparency (2015) p. 2.) The report closed with an ominous warning: "Action on this issue should not be delayed, as the effects of ... improperly enhanced pensions grow each year" and "are increasing the payroll" of the governmental entities involved. (Id. at p. 7.)
An attachment to the policy specified the "general pay items that are ... excluded from ... Compensation Earnable by MCERA effective on and after January 1, 2013": "In-kind benefits Converted to Cash (e.g., Waiver for Health Insurance Cash Back, 125 Plan Revision" (see fn. 11 and accompanying text, post); "Payments for Additional Services Rendered Outside of Normal Working Hours (e.g., Standby, Administrative Response, and Call Back, whether overtime or not)"; "Reimbursements (e.g., Tool, Meal, Boot, Cell Phone, License)," "Overtime, Unless FLSA Premium Pay"; "Severance Payments"; "Leave Cash Outs Paid Only at Termination (e.g., Annual, Sick, Floating Holiday, Personal, Comp Time)"; "Lump Sum Payment of Comp Time At Promotion"; "Payments (Not Remuneration for Service or Skills) paid in a Lump Sum or Other Form"; "Executive Bonuses"; "Employer Contributions to Deferred Compensation or Defined Contribution Plans."
MCERA's Board also specified the scope of its action: "[T]he new rules set forth herein regarding the definition of Compensation Earnable shall apply only to MCERA members who retire from MCERA on and after January 1, 2013, and only then as to the portion of their final average compensation periods that occur on or after the effective date of the new statutory exclusions, January 1, 2013."
However, we do note that plaintiffs have an unusual notion of the discretion MCERA may exercise. Based on the Supreme Court's discussion of compensation earnable under section 31461 as it read in 1997 (Ventura County, supra, 16 Cal.4th 483), plaintiffs assert: "CERL retirement boards do not have complete discretion over what can [be] considered compensation earnable. Ventura makes clear that before A.B. 197, compensation paid in cash and which was not overtime was required to be included as compensation earnable. And while it is true that the retirement boards have some discretion to interpret and apply CERL — for example, they have the discretion to include as compensation earnable items not required to be included by CERL [citation] — this discretion is limited by the contours of the statute and the constitution, including the Contracts Clause. Even if it were a discretionary decision for Marin CERA to include these various payments as compensation earnable — which Appellants maintain it was not, because CERL required these payments to be considered compensation earnable — once Marin CERA established their inclusion as part of the pension system, members earned a vested right to the continuation of that benefit."
The Supreme Court's discussion of compensation earnable in Ventura County, as plaintiffs note, antedated enactment of the Pension Reform Act. Given that "[a]n opinion is not authority for a point not raised, considered, or resolved therein" (Styne v. Stevens (2001) 26 Cal.4th 42, 57 [109 Cal.Rptr.2d 14, 26 P.3d 343]), Ventura County would appear to have little, if any, relevance to the scope and meaning of the subsequently amended language of section 31461 we are considering here. The utility of Ventura County is also weakened because none of the words "constitution," "contract," or "impair" were used in the opinion, so it is no authority for an unchanging constitutional dimension to a statute as substantially amended as was section 31461. The permanence plaintiffs attribute to MCERA's exercise of discretion in allowing certain payments to be included in compensation earnable is troubling because it seems to deny MCERA the discretion to change that decision. Plaintiffs also seem to believe that discretion once granted by a statute cannot thereafter be withdrawn. But that is indisputably what the Legislature accomplished with the addition of subdivision (b) to section 31461 and the command that "`Compensation earnable' does not include, in any case" (italics added). At that point — subject to section 31542, subdivision (c), quoted at footnote 5, ante — MCERA's discretion disappeared because, as we have held, there is no discretion to act "contrary to specific statutory command" (Karuk Tribe of Northern California v. California Regional Water Quality Control Bd., North Coast Region (2010) 183 Cal.App.4th 330, 363, fn. 25 [108 Cal.Rptr.3d 40]), and because "the determination of what items were to be included in `compensation earnable ...' ... is not subject to a contract right." (In re Retirement Cases, supra, 110 Cal.App.4th 426, 453.)
Any promises or representations made to plaintiffs could have no validity if contrary to plain statutory language forbidding what plaintiffs wish to have recognized. As we said in 1959, "there is no estoppel to prove illegality." (Holland v. Morgan & Peacock Properties (1959) 168 Cal.App.2d 206, 211 [335 P.2d 769].) Indeed, even if the agreements and understandings had been reduced to writing, this court has recognized that they could not displace clear statutory language or delay its implementation. (See In re Retirement Cases, supra, 110 Cal.App.4th 426, 453 ["the determination of what items [are] to be included in `compensation earnable' ... is not subject to a contract right"], 447 ["`The contractual basis of a pension right is the exchange of an employee's services for the pension right offered by ... statute'" (italics added)].) In these circumstances, MCERA could never have the authority to create a right to receive pension benefits. (E.g., City of San Diego v. Haas (2012) 207 Cal.App.4th 472, 495 [143 Cal.Rptr.3d 438] ["only the [legislative body] has the power to grant employee benefits, and [the retirement association] exceeds its authority when it attempts to `expand pension benefits' beyond those the [legislative body] has granted" (italics omitted)]; cf. Miller, supra, 18 Cal.3d 808, 814 [Legislature's power to control "`the terms and conditions of civil service employment cannot be circumvented by purported contracts in conflict therewith'"]; Retired Employees Assn. of Orange County, Inc. v. County of Orange (2011) 52 Cal.4th 1171, 1176 [134 Cal.Rptr.3d 779, 266 P.3d 287] ["a county may be bound by an implied contract ... if there is no legislative prohibition against such arrangements, such as a statute or ordinance"], 1183 ["as long as there is no statutory prohibition against such an agreement"].) Plaintiffs would have this court elevate private agreement over public policy, frustrating lawfully enacted legislation that in plain effect declared such agreement illegal.
In sum, even if plaintiffs could present allegations establishing a factual basis for a nonconstitutional estoppel (see Medina v. Board of Retirement, supra, 112 Cal.App.4th 864, 871), the legal hurdles for success are insurmountable. This is a situation where the nature of plaintiffs' claim is clear, but there can be no liability on that claim as a matter of law. Accordingly, there could be no prejudicial error in denying plaintiffs an opportunity to amend their complaint to set up an estoppel that would prevent MCERA from implementing and enforcing the new definition of compensation earnable set out in subdivision (b) of section 31461. (See Schonfeldt v. State of California (1998) 61 Cal.App.4th 1462, 1465 [72 Cal.Rptr.2d 464] ["If there is no liability as a matter of law, leave to amend should not be granted"].)
