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April 1998

Twenty California counties have been dealt a major fiscal setback by a California Supreme Court ruling that extra money received by Ventura County sheriff's deputies can pad their pensions. The ruling allows deputies to take extra money they received for special skills and activities, and cash received in lieu of benefits, and expand the amount of salary used to compute retirement benefits.

The judgment, Ventura County Deputy Sheriffs' Association v. Board of Retirement of Ventura County Employees' Retirement Association, effective last October 1, sent shock waves through local government.

The affected counties participate in retirement systems provided by Government Code sections known as the "1937 Act County Retirement System Law." It provides for various "defined benefit" retirement options generally based upon the employee's highest compensation, multiplied by years of service, and multiplied by a fraction that increases with age at time of retirement. The case impacts almost 200,000 active employees and more than 100,000 retirees, survivors, and persons deferring retirement.

Retirement boards are acting in each of the counties to interpret what impact the Ventura decision will have on their varying compensation practices. The court did not specify what, if any, obligations the counties face to make adjustments retroactive. Lawsuits are already being filed in individual counties regarding both the determination of what additional benefits must be included in compensation and retroactive adjustments.

It may be months before actuarial estimates are available, but preliminary estimates by two counties suggest staggering liabilities:

Mr. Keil is legislative coordinator for the California State Association of Counties. He has focused on employee relations.

Sacramento (approximately 10,000 employees and 5,000 retirees) estimates that non-retroactive application of the Ventura decision will result in an annualized retirement contribution increase of about $3.3 million for the county and $2.1 million for employees, in addition to payment on an unfunded liability of $88 million. Retroactive appli-cation of Ventura could create up to an additional $90 million unfunded liability.

Contra Costa (approximately 7,400 employees and 4,800 retirees) estimates, depending upon compensation decisions yet to be concluded by its retirement board, that prospective unfunded liabilities could range between $13 million and $83 million, and potential retroactive liabilities could range between $29 million and $206 million, plus unspecified additional annual costs.

People who retired prior to October 1, 1997 did so knowing what their retirement benefits would be and what the rules were in terms of calculating benefits. To provide retroactive benefits to retirees would serve as an enormously expensive "windfall" which would mandate comparable reductions of funding to county services. Worst- case scenarios for retroactive liability are so staggering that they threaten the fiscal integrity of the retirement systems and call for legislative overhaul.

In response, Assembly Member Roy Ashburn has introduced AB 2524, sponsored by the California State Association of Counties. The bill would declare legislative intent that the

Ventura decision shall not be applicable to the calculation of any retirement benefit first payable prior to October 1, 1997. Although not compelling to a court of law, statements of legislative intent bear substantial weight in judicial determinations.

If no legislative resolution is forthcoming on retroactivity, our remaining hope is that courts will consider the negative impact on delivery of public services before granting retroactive adjustments or generous new interpretations of what to include in pension calculations.