ALLEN v. BOARD OF ADMINISTRATION OF PUBLIC EMPLOYEES RETIREMENT SYSTEM (1982)

Summary

Respondents, legislators who retired from office prior to the 1967 term or their surviving spouses, sought a writ of mandate directing appellant Board of Administration (“Board”) of the Public Employees' Retirement System to compute their retirement allowances in accordance with Government Code sections 9359.1, subdivision (a), and 9360.9 ¹ without giving effect to section 9359.11 and article IV, section 4 of the California Constitution.

For the reasons stated herein, we conclude that our Supreme Court's decision in Betts v. Board of Administration (1978) 21 Cal.3d 859, 148 Cal.Rptr. 158, 582 P.2d 614 is binding on the case at bench.   Under the doctrine of stare decisis (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 457, 20 Cal.Rptr. 321, 369 P.2d 937), we have no alternative but to follow Betts, supra, and conclude that respondents had a contractual pension expectation to be paid a retirement allowance computed on a cumulative basis using both the fluctuating salary formula set forth in section 9359.1, subd. (a) and the cost of living formula set forth in section 9360.9.   Accordingly, we affirm the trial court's judgment granting the writ of mandate and declaratory relief.

Statement of Facts and Proceedings Below

Respondents are 32 former and retired legislators or surviving spouses of former legislators ² who comprise all or substantially all of a group of former and retired legislators who (a) served in the Legislature during the 1963–1965 terms commencing January 1, 1963 (many of whom also served during terms prior to the 1963 term), (b) left office and retired prior to the commencement of the 1967 term which began on January 1, 1967, and (c) are members of the Legislators' Retirement System (“LRS”).

Pursuant to section 9353, the appellant Board is the statutory administrator of LRS.

During respondents' incumbency in the Legislature, the retirement allowance available to retired members of LRS was governed by section 9359.1, subdivision (a), of the Legislators' Retirement Law (“LRL”) (§§ 9350, et seq.).   This section provided (and still provides) in pertinent part as follows:  “The retirement allowance ․ [for a legislative member] ․ is an annual amount equal to five percent (5%) of the compensation payable, at the time payments of the allowance fall due, to incumbent Members of the Senate or Assembly, multiplied by ․ [years of service not to exceed fifteen years] ․”  (Emphasis added.)   Amendments to this section in 1961 and 1963 increased the retirement allowance by adding the additional sum of 2 percent and then 3 percent of the compensation payable for years of service in excess of 15 years.

Under the “fluctuating” formula set forth in section 9359.1, subdivision (a), a retired legislator's monthly allowance would be adjusted periodically to reflect changes in the salary payable to current incumbent members of the Legislature.

In 1963, during respondents' incumbency, the Legislature added section 9360.9 to LRL, which provides for automatic annual adjustment of retirement allowances in accordance with a formula designed to reflect upward changes in the cost of living.

At the November 8, 1966, general election, California voters ratified an extensive partial revision of the State Constitution which appeared on the ballot as Proposition 1–A.   In accordance with Proposition 1–A, article IV, section 4, of the California Constitution became effective on January 1, 1967, a date subsequent to respondents' retirements.   For purposes of computing the retirement allowances of legislators who had retired prior to the commencement of the 1967 term, the amendment purports to limit the salary on which the allowances are based to $500.00 per month.   Also effective January 1, 1967, the Legislature added section 9359.11 to the LRL in anticipation of the aforesaid constitutional revision.   Section 9359.11 had the same effect as the above constitutional revision and provides as follows:

“Any contrary provisions of Section 9359.1 notwithstanding, in computing the retirement allowance of a legislator member of the Legislators' Retirement System whose service as a legislator ended prior to the term commencing in 1967, the salary to which the applicable formula shall be applied shall be five hundred dollars ($500) per month, and any increase in salary of legislators above such amount shall be disregarded for such purpose.”

The effect of article IV, section 4, and section 9359.11, if applicable to respondents, is to substitute a “fixed” system of computation of the retirement allowance frozen at a salary of $500 per month in place of the prior “fluctuating” system set forth in section 9359.1, subdivision (a).   Appellant Board has and continues to calculate respondents' retirement allowances pursuant to article IV, section 4, and section 9359.11, basing their allowances on a fixed monthly salary of $500.00 rather than applying the fluctuating formula reflecting the salary payable to current incumbent legislators, as provided by section 9359.1, subdivision (a).

In 1978, respondents filed claims with the Board and with the State Board of Control seeking recalculation of their retirement allowances in accordance with both the fluctuating and cost of living formulae set forth in sections 9359.1, subdivision (a), and 9360.9, respectively, and without giving effect to section 9359.11 and article IV, section 4.   The State Board of Control rejected respondents' claims.   Subsequently, respondents were afforded an Administrative Hearing pursuant to the Administrative Procedure Act (§ 11370 et seq.).   Despite the Board's contention to the contrary, the administrative law judge ruled that the Board has jurisdiction to recalculate respondents' retirement allowances and issued an interlocutory order on jurisdiction.   The Board later vacated the order of the administrative law judge and issued an Order on Jurisdiction ruling that the Board “lacks jurisdiction and authority to grant the application of Respondents to recalculate their retirement allowances.”

Subsequently, respondents petitioned the court below for a writ of mandate.   Appellant cross-complained for a declaratory relief seeking a decree that article IV, section 4 of the state's Constitution and section 9359.11 are constitutional and that respondents' retirement allowances must be computed in accordance with these provisions.

The trial court granted judgment in favor of respondents and ordered the requested writ of mandate and declared that article IV, section 4 and section 9359.11 could not be constitutionally applied to respondents.   Appellant appeals from the entry of said judgment.

Appellant's Contentions on Appeal

Appellant's contentions on appeal can be summarized as follows:

1. Mandamus under either Code of Civil Procedure section 1094.5 or 1085 is an inappropriate remedy in the instant case.

2. The case at bench is sui generis and therefore Betts v. Board of Administration has no application.

3. Respondents did not have a reasonable expectation of receiving multiple cost-of-living retirement allowances.   Instead, respondents' expectations were to receive a retirement allowance as provided by the 1966 amendments to the law.

Discussion

The Trial Court Properly Granted Mandamus

The Board contends that under article III, section 3.5, subdivision (a), of the state Constitution, it has no power, as an administrative agency, “[t]o declare a statute unenforceable, or refuse to enforce a statute, on the basis of it being unconstitutional unless an appellate court has made a determination that such statute is unconstitutional․”  Instead, the Board concedes that declaratory relief is an appropriate remedy.

 While article III, section 3.5, subdivision (a), prohibits a state agency from declaring a statute unconstitutional, this provision is inapplicable to the facts in the instant case.   Respondents do not claim, and there is no necessity to determine, that either section 9359.11 or article IV, section 4, is unconstitutional.   Rather, the judgment provides that, because respondents' rights to the fluctuating and cost of living formulae were earned and vested prior to the enactment of these sections, they may not be constitutionally applied to them.³

 Appellant's contention is simply without merit.   Code of Civil Procedure section 1085 provides for mandamus “to compel the performance of an act which the law enjoins, or a duty resulting from an office, trust, or station․”  Respondents correctly assert that they may test whether the Betts decision applies to them by way of mandamus.   In Betts, supra, and Lyon v. Flournoy (1969) 271 Cal.App.2d 774, 76 Cal.Rptr. 869, under almost identical procedural situations, mandamus was held to lie.

Betts v. Board of Administration Is Applicable to the Instant Case and Determines Respondents' Contractual Pension Expectations

Bert A. Betts served as Treasurer of the State of California from 1959 to 1967, and, as an elected state constitutional officer, was a member of LRS pursuant to section 9355.4.   During Betts' incumbency, the retirement allowance for state constitutional officers was set forth in section 9359.1, subdivision (b).   This provision was similar to the provision for legislators set forth in section 9359.1, subdivision (a), which was a “fluctuating” amount, computed by multiplying 5 percent of the salary of the present incumbent holding the office which the pensioner last held prior to retirement, times the pensioner's number of years of service.   In 1963, the Legislature added section 9360.9 to provide for an automatic annual increase of pensions in accordance with the increase in cost of living.   Thus, from January 1964 until Betts left office January 1967, both the “fluctuating” salary formula and the cost of living formula were in effect, providing two simultaneously applicable formulae for computing the amount of pensions payable under LRL.

In 1974, after Betts left office but before his retirement in 1976, the Legislature amended section 9359.1, subdivision (b), to change the method of computing pensions for elected constitutional officers.   Pursuant to the amended section 9359.1, subdivision (b), a “fixed” salary formula was substituted in place of the prior “fluctuating” salary formula.   Thus, the retirement allowance became an annual amount equal to 5 percent of the highest compensation actually received by the retired officer during his term of office (rather than that received by the present incumbent office holder), multiplied by the pensioner's number of years of service.   The highest salary received by Betts as Treasurer was $21,499;  in 1969, the Treasurer's salary was increased to $35,000.

In 1976, Betts retired because of disability and applied for his pension.   The Board ruled that Betts' pension should be computed under the 1974 amendment on the basis of Betts' highest salary in office, $21,499, rather than under the then current salary of $35,000.   Betts petitioned for a writ of mandate directing the Board to compute his retirement allowance on the basis of the $35,000 salary payable to the then incumbent State Treasurer.

Our Supreme Court concluded in Betts that the 1974 amendment substituting the “fixed” formula for the “fluctuating” formula could not constitutionally be applied to Betts “because the amendment withdraws benefits to which he earned a vested contractual right while employed.”  (Betts v. Board of Administration, supra, 21 Cal.3d at p. 867, 148 Cal.Rptr. 158, 582 P.2d 614.)   In so holding, our Supreme Court stated:

“A long line of California decisions has settled the principles applicable to the problems herein presented.   A public employee's pension constitutes an element of compensation, and a vested contractual right to pension benefits accrues upon acceptance of employment.   Such a pension right may not be destroyed, once vested, without impairing a contractual obligation of the employing public entity․”  (Id., at p. 863, 148 Cal.Rptr. 158, 582 P.2d 614.)

“The Board [appellant herein] urges that 1963 amendments to the pension plan provide the necessary offsetting advantage in this case.   In that year, the Legislature added section 9360.9, which requires automatic annual adjustment of pension benefits to reflect upward changes in the cost of living.   Each January 1, under this statute, the previous year's benefit is multiplied by that year's average increase in the Bureau of Labor Statistics cost-of-living indices for San Francisco and Los Angeles, respectively, using 1954 as the base year.   The product of this calculation becomes the basis of the benefit payable for the ensuing year.

“Thus, the Board argues, one ‘cost of living’ formula was simply replaced by another;  petitioner, it urges, had no reasonable expectation when he left office that he would enjoy the ‘double windfall’ of the cost-of-living index formula provided by section 9360.9 plus the ‘fluctuating’ benefit adjustment, the increasing salary scale, mandated by the pre-1974 version of section 9359.1.   Under the circumstances of this case, the Board's contention cannot be sustained.

“In asserting that termination of the ‘fluctuating’ system was reasonable here, the Board relies heavily on Lyon v. Flourhoy (1969) 271 Cal.App.2d 774 [76 Cal.Rptr. 869]․[4]

“․ In contrast to Lyon, in the instant case, the 1963 enactment of section 9360.9 occurred during petitioner's term as Treasurer, which ran from 1959 to 1967;  the ‘fluctuating’ system of benefit computation was also in effect during this entire period.   An employee's contractual pension expectations are measured by benefits which are in effect not only when employment commences, but which are thereafter conferred during the employee's subsequent tenure.

“․ we conclude that the prior version of section 9359.1 together with section 9360.9, enacted in 1963, form the basis by which petitioner's reasonable pension expectations must be measured.   For four years, petitioner provided his services under a statutory scheme which simultaneously included both computation methods․

“We fully recognize that the effect of our holding is that petitioner thereby receives the benefit of a double increment of increase, a troubling result.   We can only observe that the Legislature must have intended to provide such benefits to constitutional officers serving between 1963 and 1974 because it left in effect both of the formulae during that 11-year period.

“We therefore conclude that the 1974 amendment to section 9359.1 cannot constitutionally be applied to petitioner, because the amendment withdraws benefits to which he earned a vested contractual right while employed.   No ‘comparable new advantages' to petitioner appear in the plan which can offset the detriment he has suffered by replacement of a ‘fluctuating’ system of benefit computation with a ‘fixed’ system.   Petitioner is therefore entitled to have his basic retirement allowance computed on the basis of section 9359.1 as it read when he left office in 1967.”  (Betts, supra, 21 Cal.3d at pp. 865–868, 148 Cal.Rptr. 158, 582 P.2d 614.)

Like Betts, respondents served in the Legislature during the period when both the “fluctuating” formula provided by section 9359.1, subdivision (a), and the cost of living formula provided by section 9360.9 were simultaneously in force.   Thus, “the 1963 enactment of section 9360.9 cannot be deemed a ‘comparable new advantage’ ⁵ offsetting the detriment represented by” the subsequently enacted article IV, section 4 of the California Constitution and section 9359.11.

Each of the respondents retired on a date prior to January 1, 1967, the effective date of article IV, section 4, and section 9359.11.   If these 1966 provisions are applicable to respondents, they would impose a detriment on respondents by withdrawing benefits—that is, the advantage conferred by a “fluctuating” system—to which they had earned vested contractual rights during their service in office.

 Such rights were vested, matured pension rights, and were protected by the Contract Clauses of the United States and California Constitutions and could not be divested or impaired by the subsequent enactment of a state constitutional amendment or legislative enactment.  (See Olson v. Cory (1982) 134 Cal.App.3d 85, 96–97, 184 Cal.Rptr. 325;  Frank v. Board of Administration, (1976) 56 Cal.App.3d 236, 242, 128 Cal.Rptr. 378;  Lyon v. Flournoy, supra, 271 Cal.App.2d at p. 782, 76 Cal.Rptr. 869.)

Respondents' Participation in the Legislative Process Is Irrelevant and Does Not Bar Their Action Herein

 Appellant's contention that some of the respondents who themselves had the power to create or modify their own pension rights should not be allowed to contest their own votes by court action.   Appellant makes this contention without citing any authority for this proposition, and thereby attempts to distinguish the instant case from Betts.   We cannot agree with appellant's contention.

At the time each of the respondents retired on or before December 31, 1966, the LRL provided for a “fluctuating” formula for computing their retirement allowances and for an automatic annual adjustment of retirement allowances in accordance with a formula designed to reflect changes in the cost of living.

Appellant points to the fact that 28 of the respondents voted in 1963 for the cost of living increases set forth in section 9360.9 and that 18 of the respondents voted in favor of placing Proposition 1–A on the November 8, 1966 ballot.   Appellant then argues that “[a] legislative majority, which modifies the terms of its own employment contract with the public, should not be heard ․ to complain they were impairing their own contracts.”   However, appellant does not suggest what should be done about those respondents who voted against such measures or those who did not vote at all.

In essence, appellant argues that because of respondents' participation in the legislative process leading up to the enactments mentioned above, “[i]t is absurd to say that by any objective standards, [respondents had] a ‘reasonable expectation’ ․ to expect ․ to obtain multiple cost-of-living adjustments.”   Although appellant argues that an “objective standard” applies, it impliedly suggests that respondents' pension rights depend on a subjective test focused on each of the respondent's voting record.   Appellant would at least deprive those respondents of the fluctuating formula provided in section 9359.1 if they voted in favor of placing Proposition 1–A on the ballot or in favor of enacting section 9359.11.

 Appellant's contention is without merit.   It is a well established rule that vested pension rights, including contractual pension expectations, cannot depend on a subjective standard but must be measured by an objective standard and that such rule applies to all employees similarly situated.   Betts makes it clear that an individual's “contractual pension expectations” do not turn upon his or her subjective beliefs, but rather “[a]n employee's contractual pension expectations are measured by benefits which are in effect ․ when employment commences, ․ [and] which are thereafter conferred during the employee's subsequent tenure.”  Betts, supra, 21 Cal.3d at p. 866, 148 Cal.Rptr. 158, 582 P.2d 614.  Lyon v. Flournoy, supra, 271 Cal.App.2d 774, 779, 782, 76 Cal.Rptr. 869, makes it clear that all public employees, including legislators, are entitled to have their vested pension rights protected by the Contract Clause of the Federal Constitution.

Furthermore, none of the respondents served in the legislature after December 31, 1966.   Thus, none of the respondents obtained a significant, if not the major, compensation benefit provided to legislators by Proposition 1–A, namely, a salary increase to $16,000 per year.   In effect, it could be argued that the legislators who continued in office after 1966 sought to gain voter approval for their salary increases after 1966 and the ability to make annual adjustments in salary, subject to certain limitations, at the expense of the respondents who were retiring by representing to the voters that respondents' retirement would be based on a fixed salary of $6,000 per year as adjusted by the cost of living formula set forth in section 9360.9.   Viewing the respondents' position in this light, we cannot say that their position is any different from former Treasurer Betts'.

Disposition

We are deeply disturbed by our decision that Betts is determinative of this appeal insofar as it requires cumulative application of both the fluctuating salary formula set forth in section 9359.1, subdivision (a), and of the cost of living formula set forth in section 9360.9.   But Betts so holds;  it states in this respect that there shall be “a double increment of increase.”

The doctrine of stare decisis compels us to follow our Supreme Court's decision in Betts regardless of our desire to do so.   The rule of stare decisis is absolute and there are no exceptions.  (Auto Equity Sales, Inc. v. Superior Court (1962) 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937.)   Nevertheless, we feel compelled to indicate our concern that the application of the Betts decision to the present appeal would lead not only to a “troubling result” but a result which we cannot conceive of having been within the contemplation of the Legislature at the time it enacted the above mentioned statutes.

Betts holds that the former Treasurer was entitled to a cost of living adjustment applied to a fluctuating base allowance equal to a percentage of the current incumbent's salary—a double and cumulative escalation.⁶  We recognize that Betts, supra, 21 Cal.3d at page 867, 148 Cal.Rptr. 158, 582 P.2d 614, concludes “that the Legislature must have intended to provide such benefits.”   However, we are of a contrary view that it is more likely that the Legislature did not intend such a result.   Simply stated, it seems that the Legislature would have intended that the cost of living adjustment apply only to Betts' salary while in office (a single escalator) and not be added to and applied also to the future salary of an incumbent office holder (a double and cumulative escalator).⁷  The result of the cumulative escalation is a retirement allowance which bears no reasonable relationship to the increase in the cost of living, and therefore cannot legitimately be characterized as a cost-of-living increase.⁸

The effect of applying Betts to the instant appeal is to grant respondents a retirement allowance which far exceeds their salaries as former part-time legislators and which may approach and, in some instances, exceed three times the current incumbent legislator's salary.

Betts holds that this is the required result because such were his contractual expectations.   But, the contractual pension expectations of Betts might well have been to receive the benefits of both the fluctuating salary formula and the cost of living formula but absent the cumulative effect by adding them together.   It seems to us that Betts' contractual pension expectations would have been fulfilled if he were simply paid the higher of (1) 40 percent of the current incumbent's salary, or (2) 40 percent of his highest salary while in office enhanced by the cost of living formula set forth in section 9360.9.⁹

But, as stated above, we are compelled by Auto Equity Sales, Inc. to apply the Betts decision to this appeal.   Accordingly, we affirm the judgment entered below.

FOOTNOTES

1.   Hereinafter all references shall be to the Government Code unless otherwise indicated.

2.   According to respondents' brief, respondents' class is limited to those few persons (or their deceased spouses) who served in the Legislature while both the fluctuating formula set forth in section 9359.1, subdivision (a) (originally enacted in 1949), and the cost of living formula set forth in section 9360.9 (originally enacted in 1963) were in effect.  (These formulas will be discussed further infra.)   At oral argument, respondents represented that this class is limited to these approximately 32 persons and will not increase in number by more than a few persons by reason of a ruling in their favor.For convenience, we will refer to respondents in this opinion as the former legislators although some of these persons are now deceased and their surviving spouses have acquired benefits under LRS.

3.   The administrative law judge ruled that “[t]he resolution of issues posed do not necessarily require the determination of [the] constitutionality of any provision.   The entire legal resolution may rest upon the application of the raised provisions and not their constitutionality.   In effect Article III, Section 3.5 of the California Constitution does not prevent a State administrative body from determining that a particular amendment to a pension system may not be applied to a particular participant because such application would be unconstitutional.  (See Yick Wo v. Hopkins (1886) 118 U.S. 356 [6 S.Ct. 1064, 30 L.Ed. 220] ․)”

4.   In Lyon v. Flournoy, supra, 271 Cal.App.2d 774, 76 Cal.Rptr. 869 the petitioner's decedent had retired from the Legislature in 1955 and commenced drawing a monthly retirement allowance.   At the time of the decedent Lyon's retirement and for more than ten years thereafter, the salary for members of the Legislature was only $500 per month.   Lyon's retirement allowance and his widow's allowance following his death was computed on the basis of this salary.   Repeated attempts to liberalize salaries of the legislators by constitutional amendment were rejected by the voters until 1966 when Proposition 1–A was passed (which authorized the Legislature to set its own salaries and validated a statute fixing salaries at $16,000 per year, beginning January 1, 1967).Lyon's widow contended that her husband had earned a “vested right” to computation of benefit, on the basis of the salary provided by Proposition 1–A.   The Third District Court of Appeal rejected this claim, observing that Lyon's widow had already been compensated for the hardship caused by a 12-year salary freeze by the 1963 enactment of section 9360.9 which established a cost of living adjustment in the allowance.   The Court of Appeal concluded that Lyon had no ‘reasonable expectation’ that while in office he would enjoy a double cost of living formula.In Betts, supra, our Supreme Court stated that the Lyon case was an “unusual fact situation which was historically unique.”  (21 Cal.3d 865, 148 Cal.Rptr. 158, 582 P.2d 614).   The Betts decision further states that “[i]n Lyon, ․ after the members retirement, the cost-of-living formula in effect during his active service was replaced by another.   The Court of Appeal was therefore entirely correct in saying that the decedent had earned no contractual expectation while in office that he would receive the benefits of both systems [9359.1(a) and 9360.9].”  (Emphasis in original.) 

5.   On the necessity of changes in a pension plan which result in disadvantages to employees which must be accompanied by comparable new advantages, see Allen v. City of Long Beach (1955) 45 Cal.2d 128, 131, 287 P.2d 765.

6.   According to appellant, Betts' retirement allowance for the year 1982 is $59,976 which is computed as follows:  8 years of service at 5 percent per year times the current incumbent's State Treasurer's salary (8 x 5% x $42,400) equals a $17,000 base allowance.   This base allowance is augmented by the additional sum of that base allowance times the cost of living adjustment set forth in section 9360.9, or $17,000 x 252.8% (1982 cost of living factor) which equals $42,976, slightly more than the incumbent's salary.This allowance is roughly twice Betts' highest annual salary while in office of $21,499.

7.   Admittedly, the salary of the current incumbent must be increasing and not decreasing for this double and cumulative escalation to occur.   However, this is certainly a reasonable assumption in view of the almost unbroken line of inflation since the Great Depression some 50 years ago.

8.   For example, assuming that one of the respondent's service as a legislator was 20 years, then the 1982 retirement allowance would be computed pursuant to Betts as follows:  15 years x 5% per year x $28,110.50 (current incumbent's salary) or $21,082.88 plus 5 years x 3% per year x $28,110.50 or $4,216.57 = $25,299.45, the base allowance under section 9359.1, subdivision (a), or the fluctuating salary.   This sum of $25,299.45 is augmented by the cost of living adjustment which is computed by applying thereto the 1982 cost of living factor under section 9360.9 or 252.8% ($25,299.45 x 252.8%) or $63,957.01.   The retirement allowance would be the total of these two figures or $89,256.46 ($25,299.45 plus $63,957.01)!We have learned that respondent Allen's service in the Legislature was 21 years and so his allowance would be even greater than calculated above.

9.   Applying this rationale to a hypothetical legislator with 20 years of service, prior to 1967, the retirement allowance would be the higher of the two amounts computed below:(1) 15 years x 5% x $28,110.50 (current incumbent's salary) or $21,082.88 plus 5 years x 3% x $28,110.50 or $4,216.57 = $25,299.45(2) 15 years x 5% x $6,000 (highest annual salary while in office) or $4,500 plus 5 years x 3% x $6,000 or $900 = $5,400 base allowance.  $5,400 plus $5,400 x 252.8% or $13,651.20 = $19,051.20

LUI, Associate Justice.

KLEIN, P.J., and POTTER, J., concur.