FROM: Debby Cherney, Chief Executive Officer
SUBJECT: Alameda County Deputy Sheriff’s Association v. Alameda County Employees Retirement Association - California Supreme Court decision - Implementation of Exclusions Required by the Alameda Decision.
RECOMMENDATION:
title
Adopt SBCERA Resolution No. 2020-6 regarding the implementation of exclusions required by the Alameda decision.
body
BACKGROUND:
On July 30, 2020, the California Supreme Court issued its decision in the matter of Alameda County Deputy Sheriff’s Assn v. Alameda County Employees’ Retirement Association, Cal Supreme Court Case No. S247095 (“Alameda”). On August 6, 2020, the SBCERA Board adopted Resolution No. 2020-5 (“Resolution 2020-5”).
Resolution 2020-5 noted two types of pay codes that had been previously identified by the SBCERA Board as subject to exclusion from compensation earnable, depending on the outcome of the Alameda case. Resolution 2020-5 noted that the Alameda decision concluded that the modification to the definition of Compensation Earnable in Government Code section 31461, enacted as a result of PEPRA and related statutory changes to the County Employees Retirement Law (“CERL”) is constitutional, and that CERL retirement boards may not be contractually bound or estopped by settlement agreements, board resolutions, or other similar actions, from implementing those amendments. The Alameda decision further determined that CERL retirement boards may not include items in compensation earnable that section 31461 requires them to exclude. The “PEPRA Exclusions” as defined by Resolution 2020-5 include standby pay, on call, and call back pay (“payments for additional services rendered outside of normal working hours, whether paid in a lump sum or otherwise”).
The Board, in adopting Resolution 2020-5, directed staff to comply with Alameda’s directives regarding mandatorily excluded pay items which includes the PEPRA Exclusions noted above, effective with the August 2020 retirement benefit payments. A separate Board action item agendized on September 3, 2020, will present the specific revised pay codes for the Board to ratify exclusions from Compensation Earnable in compliance with the Alameda decision for the PEPRA Exclusions. Staff is in the process of identifying affected retirees, calculating future benefit payment reductions, and providing a Notice of Correction Action to the affected retirees. An oral update on the numbers of affected retirees and amounts will be provided to the Board at the September 3, 2020 meeting.
Resolution 2020-5 further noted that consideration of any overpaid amounts to retirees with retirement dates from January 1, 2013 through July 29, 2020, who received PEPRA excluded pay items as part of the calculation of their retirement benefit, would be determined at a later date in accordance with SBCERA’s Benefit Policy No. 24 - Benefit Administration Procedures, applicable federal tax compliance rules, and California law. Staff has worked with fiduciary counsel from the Nossaman firm and tax counsel from Hanson Bridgett and proposes the following corrective actions, subject to any compliance direction from the Internal Revenue Service:
1. Unless so directed by the Internal Revenue Services or a court of competent jurisdiction, no recoupment will be made directly from retirees for overpaid amounts as a result of the PEPRA Exclusions having been included in the calculation of a retiree’s retirement benefit prior to the Alameda decision.
2. Staff shall make a corrective distribution (including any applicable earnings in accordance with federal tax rules) on the overpaid contributions reported on PEPRA Exclusions to retirees, if such retirees were in active member service anytime from January 1, 2013 to July 30, 2020, provided the member’s contributions exceed any retirement benefits payments associated with that portion of the payment that is associated with the PEPRA Exclusions. In the event no contributions associated with the PEPRA Exclusions remain for a retiree, no corrective distribution of contributions shall be made.
3. Regarding SBCERA active and deferred members, staff, as soon as practicable, shall implement a corrective distribution (including any applicable earnings in accordance with federal tax rules) to such members for employee contributions reported and/or associated with PEPRA Exclusions while in active service from January 1, 2013 through the date of implementation of the corrective distribution.
The “Alameda Exclusions” were addressed by the Board in Resolution 2020-5, however Resolution 2020-6 also includes a provision regarding corrective distributions to conform for purposes of federal tax rules. That provision is as follows:
1. A corrective distribution (including any applicable earnings in accordance with federal tax rules) shall also be made to deferred members of contributions that they made on pay codes for the Alameda Exclusions prior to July 30, 2020, provided that such members did not retire by that date and therefore will have the Alameda Exclusions included in the calculation of their retirement allowances from SBCERA.
Proposed Resolution 2020-6, which is attached as Exhibit A, reflects the above proposed actions.
Staff will work with tax counsel to make a future Board recommendation regarding the method of correction with the Internal Revenue Service, in the context of other corrective distributions, federal regulations, and California law. Any amounts that are unable to be collected from SBCERA’s active, deferred and retired members as a result of this corrective action will be collected instead through participating employer payments on the unfunded actuarial accrued liability in accordance with recommendations of SBCERA’s actuary.
BUDGET IMPACT:
The impact on the unfunded liability and plan assets will be determined at a later time and evaluated by SBCERA’s actuary.
STRATEGIC PLANNING GOAL/OBJECTIVE:
Prudent Fiscal Management
STAFF CONTACT:
Debby Cherney
Barbara Hannah
Amy McInerny
Colin Bishop
ATTACHMENTS:
Exhibit A: Proposed Resolution 2020-6