CalPERS Guards Against Attempts to Use Lawsuit Settlement Payments to Inflate Pensions
February 25, 2016
Communications & Stakeholder Relations
Brad W. Pacheco, Deputy Executive Officer
Contact: Amy Morgan, Information Officer
SACRAMENTO, CA -The California Public Employees' Retirement System (CalPERS) Board of Administration denied the appeal of two City of Riverside police lieutenants who, along with their employer, sought to include settlement pay stemming from a lawsuit in the calculation of their final compensation, thereby inflating the officers' pensions.
The appeal, which the CalPERS Board considered last week after a full hearing, involved police lieutenants Timothy Bacon and Darryl Hurt. In 2010, Bacon and Hurt filed federal lawsuits against their employer, the City of Riverside, alleging that they had been wrongfully passed over for promotion to captain.
The City settled the lawsuits by agreeing to award the lieutenants back pay at the higher rate paid to captains, and by placing the officers on administrative leave for a year (at the higher captain's pay rate), at which point they would officially retire. The City reported the captain's pay, more than $1,800 per month, on top of the officers' base salary of $11, 562.89 per month, as "special salary adjustment pursuant to a settlement" and sought, with the officers, to include this increase for purposes of calculating the officers' pensions. CalPERS staff contended that the additional pay could not be applied toward the officers' pensions because they had never actually performed the duties of a captain, and because they were not actually "promoted" as that term is commonly understood. In addition, the enhanced pay was not provided to similarly situated employees and could not be found on a publicly available pay schedule, as California law requires.
Read more of CalPERS' argument in the Bacon and Hurt appeal (PDF).
The Bacon and Hurt cases were quite similar to the Richard Lewis case that the Board decided at its December 2015 meeting, also after a full hearing. In that case, the City of San Bernardino settled Mr. Lewis's employment discrimination suit, which alleged that the City had wrongfully failed to promote him from fire captain to battalion chief, by agreeing to pay him the difference between those two pay rates indefinitely, even though he was never promoted to the higher position. In that case, the Board also decided that the increased amounts the City paid to Mr. Lewis could not be used to increase his pension.
Read more of CalPERS' argument in the Lewis appeal (PDF).
"The settlement payments in these cases were just that—settlement payments. They were not pay for actual work performed at any level, and hence could not be used to inflate the officers' pensions," said Matthew Jacobs, CalPERS' General Counsel. "We simply cannot allow the pension fund to be used to finance cities' settlements of employee complaints. These cases exemplify CalPERS' efforts to ferret out potential abuse of the System."
For more than eight decades, CalPERS has built retirement and health security for state, school, and public agency members who invest their lifework in public service. Our pension fund serves more than 1.7 million members in the CalPERS retirement system and administers benefits for nearly 1.4 million members and their families in our health program, making us the largest defined-benefit public pension in the U.S. CalPERS' total fund market value currently stands at approximately $279 billion. For more information, visit www.calpers.ca.gov.