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Tanner v. California Public Employees' Retirement System

California Court of Appeals, Third District, Sacramento

June 28, 2016

JOSEPH TANNER, Plaintiff and Appellant,

         APPEAL from a judgment of the Superior Court of Sacramento County, No. 34201380001492CUWMGDS Shelleyanne W. L. Chang, Judge.

          Law Offices of John Michael Jensen and John Michael Jensen for Plaintiff and Appellant.

          Reed Smith, Harvey L. Leiderman and Jeffrey R. Rieger for Defendants and Respondents.

          Robie, J.

         In this "pension spiking" case, Plaintiff Joseph Tanner sought to overturn a decision of defendant California Public Employees' Retirement System (CalPERS) significantly reducing his expected retirement benefit.

         Specifically, Tanner argues his retirement benefit should be set based on a base salary of $305, 844, which was provided for in his final written contract with the City of Vallejo. The Board of Administration of CalPERS (also a defendant in this action) decided Tanner was not entitled to have his retirement benefit based on that figure. On Tanner's petition for a writ of administrative mandate, the trial court agreed with the board, holding (among other things) that the $305, 844 figure could not be used as Tanner's final compensation for purposes of setting his retirement benefit because it did not qualify as his payrate due to the fact that the figure did not appear on a publicly available pay schedule.

         On Tanner's appeal, we agree with the trial court that neither Tanner's final contract with the city nor a chart prepared by city staff to show how Tanner's final base salary was determined qualified as a publicly available pay schedule for purposes of determining the amount of Tanner's final compensation and, in turn, the amount of his retirement benefit. Accordingly, we affirm.


         By virtue of his employment with a number of California cities over the years, up to and including his employment as city manager of the City of Pacifica, Tanner was a miscellaneous member of CalPERS.

         In November 2006, while still employed by Pacifica, Tanner entered into a written agreement with the City of Vallejo to serve as that city's manager for a term of three years, from January 8, 2007, through January 7, 2010. Under the terms of that agreement, Tanner was to serve initially as a limited term employee not enrolled in CalPERS but was to become a permanent employee and be reinstated in CalPERS on or before March 8, 2007.[1] The agreement provided that Tanner's base annual salary was to be $216, 000, but he was also to receive certain other types of compensation, including (as relevant here) the following:

         1) A monthly automobile allowance of $600 that was to "be converted to base salary after March 8, 2007";

         2) A monthly contribution to a deferred compensation plan equal to 15 percent of his base salary, which the city was to "convert... to base salary upon reinstatement to [Cal]PERS";

         3) 30 days of management leave per year, which was to "be paid as salary";

         4) 240 hours of annual leave per year, with the right to sell back to the city up to 120 hours of accrued leave each year; and

         5) The city's payment of Tanner's share of the required contribution to CalPERS, which, at the city's option, could be "converted to base salary."[2]

         Tanner ended his employment with the City of Pacifica effective January 8, 2007, and began working for the City of Vallejo that same day.

         Vallejo city staff forwarded the November 2006 contract to CalPERS, and CalPERS responded in a letter dated January 26, 2007. CalPERS acknowledged that Tanner's base salary qualified as reportable compensation for purposes of retirement. With respect to the first three items of compensation identified above, however, CalPERS explained that the Government Code provision defining reportable compensation did "not allow for converting additional compensation into base pay or adding non reportable compensation to base pay for retirement purposes. Thus, payments such as management leave credits; automobile allowance; and deferred compensation should not be converted to salary and reported to CalPERS for retirement purposes." With regard to the employer paid member contributions, CalPERS explained that this amount could be reported to CalPERS provided that the city adopted "the appropriate resolution for a group or class of employees" and that the agreement "should be amended to reflect this provision." With regard to the provision for selling back annual leave, CalPERS pointed out that "[t]he City already provides management incentive pay to other management staff, 120 hours per year at their hourly rate of pay, " but the California Code of Regulations "states that employees can not [sic] be granted the option of either taking time off or receiving pay. Therefore, in order for the City Manager's ‘sell back of 120 hours of accrued leave' to qualify as management incentive pay, the option of time off or receiving cash payment must be taken out of the Managers [sic] contract and replaced by a management incentive pay clause similar to that found in the City's Memorandum of Understanding (MOU) for other management staff."

         Following receipt of the letter from CalPERS, city staff undertook to create a new class or group of employees, to be known as the "Council Appointed Executive Staff, " which would consist of the city manager and the city attorney. City staff also drafted a new employment agreement for Tanner that was to be entered into as of March 8, 2007, the date Tanner's employment was to become permanent under the original agreement. Under the new agreement, Tanner's base salary was to be $305, 844. The contract also provided that the city would pay Tanner's portion of the contribution to CalPERS. There were no provisions, however, for an automobile allowance, deferred compensation, management leave, or annual leave sell-back. The March 2007 agreement specifically provided that it superseded the November 2006 agreement and contained a clause declaring that the March 2007 agreement represented the entire agreement of the parties.

         At a meeting on March 27, 2007, the city council authorized the mayor to amend Tanner's employment agreement " ‘to comply with CalPERS regulations' " and authorized the city to pay the member contributions of the two employees in the "Council Appointed Executive Staff."

         As of May 8, 2007, the mayor still had not signed the March 2007 agreement. On that date, the city's human resources operations manager, Debora R. Boutte, sent a memo to the mayor requesting that he authorize the agreement. In part, the memo explained that city staff had amended the employment agreement "to comply with [CalPERS] regulations without changing the total cost of the original employment agreement.... The necessary amendments involved moving the additional costs of the car allowance, deferred compensation, management leave and 1% of the Employment Paid Retirement Contribution be added [sic] to the base [salary] versus being reported separately as additional pay.[3] This change resulted in the base salary going from $216, 000 to $305, 844." The memo was accompanied by a document entitled "City Manager [¶] Salary Computation [¶] March 8, 2007, " which Boutte referred to as a cost analysis, that showed how Tanner's new base salary was determined by adding to the original base salary the values of the automobile allowance, the deferred compensation, the management leave, the employer's share of the CalPERS contribution, and the annual leave sell-back.[4] While the cost analysis showed the new base salary, it did so among numerous other figures.

         Sometime after Boutte sent these materials to the mayor, the mayor signed the March 2007 agreement. Ultimately, CalPERS reinstated Tanner effective March 8, 2007, thus ...

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