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International Assn. of Firefighters v. City of San Diego (1983) :: :: Supreme Court of California Decisions :: California Case Law :: California Law :: US Law :: Justia
Justia › US Law › Case Law › California Case Law › Cal. 3d › Volume 34 › International Assn. of Firefighters v. City of San Diego (1983)
International Assn. of Firefighters v. City of San Diego (1983)
Bruce Cornblum, Popko, Cornblum & McLean and Popko & Cornblum for Plaintiff and Appellant. [34 Cal. 3d 295]
City has operated a retirement pension plan on behalf of its employees since 1923. Prior to 1955, the plan provided for a flat rate of contribution [34 Cal. 3d 296] from employees. In 1955 City amended its charter to provide for a new retirement system in which contributions of employees and City to the retirement fund are computed upon the basis of actuarial advice designed to estimate the funding needed to accrue a guaranteed retirement allowance upon retirement. The retirement allowance in question is equal to 1/50 of the employee's highest average compensation, multiplied by the number of years he or she is employed, with an additional increment for retirement after age 50.
In response to the 1978 rate increase, plaintiff filed this lawsuit on behalf of its members, seeking to invalidate the increase. Rejecting plaintiff's contrary claims, the trial court found that the retirement system neither guaranteed employees a fixed percentage rate of contribution to the retirement fund nor required that any rate increases be matched by increased benefits. It also found that the Board was justified in considering current economic conditions in respect to inflation in recalculating employees' contributions and that its rate increase was arrived at in good faith and was within reasonable limits. The trial court nonetheless concluded that the Board was estopped from increasing the employees' contribution rate because of certain statements in a retirement system handbook which had been distributed to employees. According to the trial court's reading, the handbook represented that safety members' contribution rate would never be increased unless additional benefits were provided to them. It is undisputed that no such benefits accompanied the rate increase at issue. [34 Cal. 3d 297]
By city ordinance adopted pursuant to the charter, the Board is authorized to provide a "normal retirement allowance" for "members" and "safety members." (San Diego Mun. Code, art. 4, § 24.0401; unless otherwise indicated, all further section references are to that code and article.) A "safety member" in this context is defined as a "uniformed member of the Fire Department of the City of San Diego employed since July 1, 1946 [34 Cal. 3d 298] ...." (§ 24.0103, subd. f.) The trial court and the parties construe this definition reasonably to cover any such firefighter first employed by City after July 1, 1946.
Actuarial evaluations of the assets and liabilities of the retirement system are required annually; more comprehensive actuarial investigations of such factors, together with the mortality, service and compensation experience of members and persons receiving benefits, must be made at least every five years; and the rate of interest being earned by the retirement fund must be [34 Cal. 3d 299] determined "from time to time." (§ 24.0901.) Defendants assert, without contradiction, that the data to be considered in these investigations are mortality rates, retirement fund earnings, and the anticipated compensation of employees throughout their careers.
In summary, it would appear that a safety member's normal retirement allowance is a sum equal to 1/50 of his final compensation, multiplied by his years of service. Such allowance is to be funded by actuarially determined contributions of the member and City. The member's contributions are designed to be sufficient to accrue one-half of the allowance, based on actuarial tables for mortality, fund earnings and employee compensation. The other half is funded by City's contributions, which are to be substantially equal to those of members and must, in any event, be sufficient when combined with member contributions to equal the final retirement allowance. [34 Cal. 3d 300] Periodically, contribution rates may be revised in accordance with actuarial reevaluation of the relevant factors.
Plaintiff nonetheless contends that the increase in the rate of employee contributions ordered by the Board without any corresponding benefit to employees somehow illegally destroyed vested pension rights of its members. (Any employee rights actually vested are expressly protected under City's plan. (§ 24.0102.)) [2] In support of its contention, plaintiff cites the well settled principle that: "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." (Betts v. Board of Administration (1978) 21 Cal. 3d 859, 863 [148 Cal. Rptr. 158, 582 P.2d 614]; see Kern v. City of Long Beach (1947) 29 Cal. 2d 848, 853 [179 P.2d 799].)
[3] Of course, we have repeatedly observed that even such "vested contractual pension rights may be modified prior to retirement for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system. [34 Cal. 3d 301] (Wallace v. City of Fresno [1954] 42 Cal. 2d 180, 184 ...; Packer v. Board of Retirement [1950] 35 Cal. 2d 212, 214 ...; Kern v. City of Long Beach [1947] 29 Cal. 2d 848, 854-855 ...." (Allen v. City of Long Beach (1955) 45 Cal. 2d 128, 131 [287 P.2d 765].) Nonetheless, "[s]uch modifications must be reasonable," and to be sustained as such, "alterations of employees' pension rights must bear some material relation to the theory of a pension system and its successful operation, and changes in a pension plan which result in disadvantage to employees should be accompanied by comparable new advantages. [Citations.]" (Ibid.) Further, "it is advantage or disadvantage to the particular employes whose own contractual pension rights, already earned, are involved which are the criteria by which modifications to pension plans must be measured ...." (Abbott v. City of Los Angeles (1958) 50 Cal. 2d 438, 449 [326 P.2d 484].)
In Allen, supra, we found impermissible the same city's attempt to substitute a fixed retirement pension, frozen at the level of a retired employee's highest salary, for an existing pension, which had been allowed to fluctuate to reflect changes in the salary schedule of the current occupant of his position, and to make other changes disadvantageous to the retired employee without providing commensurate advantages. (45 Cal.2d at pp. 131, 133.) We found that the city's purpose in so modifying the plan of seeking to have its pension system more nearly coincide with a state pension plan provided for similar employees bore "no relation to the functioning and integrity of the pension system" so modified and constituted "no justification for materially reducing the vested contractual rights earned by" the employees before the changes were adopted. (Id., at p. 133.) (While we did not describe all of the provisions of the pension plan which would identify all the actual contractual rights vested in the employees in Kern, we infer that the plan did not by its terms permit the city's unilateral substitution of [34 Cal. 3d 302] the fixed retirement benefit for the fluctuating one or the other disadvantageous modifications instituted there.)
Plaintiff's argument that the raising of its members' contribution rate impaired their rights rests upon the erroneous assumption that such members had a vested right to a fixed contribution rate. That argument is based upon [34 Cal. 3d 303] that provision of the retirement system which declares that a safety member's rate of contribution "shall be based on age ... at the time of entrance into the system." (§ 24.0301, subd. 1.) Plaintiff would have us construe that provision to mean that such a member's rate of contribution is fixed forever at the level of his initial contribution. That construction seems unreasonable. To "base" is not to "fix permanently." In our view, the language relied upon by plaintiff does no more than identify an employee's age as one factor which determines his rate of contribution in light of the then operative actuarial factors concerning mortality, retirement fund earnings and compensation increases, as determined by the actuary and approved by the Board, and upon the basis of which the actuary and the Board are to calculate the contributions necessary to generate the employee's ultimate retirement allowance. The employee's age at the time of entry into the system obviously is relevant to a number of factors which are crucial to benefit calculations under the system, including the number of years he will be able to serve under the system before his normal retirement age, and, therefore, to both his ultimate retirement allowance and the contributions which will be necessary actuarially under the system's formula to accrue his one-half of that allowance. Further, there is no express provision in the retirement system purporting to freeze the rate of employee contributions. On the contrary, the system does explicitly provide for both setting and revising of employee contribution rates upon the basis of the actuarial information and revisions thereto.
Nor does plaintiff challenge the trial court's findings that the specific change in actuarial assumptions involved in the instant case was justified economically and that the 3 1/2 percent increase in safety member contributions ordered by the Board was both reasonable and reached in good faith. We agree that City's actuarially based retirement system authorized the modification in the safety members' contribution rate ordered here. [34 Cal. 3d 304]
We need not decide whether estoppel otherwise would be applicable to this case, because we conclude that the trial court erred in finding that the handbook misrepresented the retirement plan to safety members in the manner suggested. Informing each safety member that his rate of contribution will not change "with his age" simply assures him that his increasing age will not itself cause his rate to increase; it does not tell him that such rate will never change for any other reason. This view is corroborated by that portion of the answer quoted above which avers: "This is not to say, however, that all rates could not be adjusted at some future time ...." Further, the remainder of that qualifying sentence can most reasonably be construed simply to give two examples of other factors whose change could result in adjustment of "all rates," namely, "changes in benefit provisions" and [34 Cal. 3d 305] "increased earnings of the Retirement Fund." The sentence does not necessarily mislead a safety member to believe that his rate of contribution could change only if accompanied by a corresponding benefit. In summary, the question and answer inform the reader that his rates will not change simply because he grows older, and the answer's supplementary information identifying other factors which could cause those rates to change would not reasonably induce him to believe that they were the only other relevant factors that could affect his rates. Finding no misrepresentation of defendants' retirement plan in the handbook issued to the safety members, we have no occasion to consider whether the remaining elements necessary to raise an estoppel were present here.
On that issue, however, I find it difficult to agree that the representations in the handbook were not -- unintentionally, to be sure -- misleading. It is difficult to interpret the quoted answer fn. 1 as not saying that the percentage rate of contribution will remain unchanged, except for future adjustments to reflect changes in benefits or increased earnings. fn. 2 [34 Cal. 3d 306]
Even if the handbook's statement was misleading, however, additional considerations are relevant here. This court has frequently cautioned "that an estoppel will not be applied against the government if to do so would effectively nullify 'a strong rule of policy, adopted for the benefit of the public ....'" (City of Long Beach v. Mansell (1970) 3 Cal. 3d 462, 493 [91 Cal. Rptr. 23, 476 P.2d 423].) This principle is applicable to public employees' pensions. (Longshore v. County of Ventura (1979) 25 Cal. 3d 14, 28-29 [157 Cal. Rptr. 706, 598 P.2d 866].)
In Betts v. Board of Administration (1978) 21 Cal. 3d 859, 863 [148 Cal. Rptr. 158, 582 P.2d 614], this court noted that "[a] long line of California decisions" has settled the constitutional principles applicable to public employees' pension rights. "The pension provisions of a city charter are an indispensable part of the contract of employment between a city and its employees, creating a right to pension benefits as an integral part of compensation payable under such contract, which vests upon acceptance of employment." (Abbott v. City of San Diego (1958) 165 Cal. App. 2d 511, 517 [332 P.2d 324]. Accord Kern v. City of Long Beach (1947) 29 Cal. 2d 848, 852 [179 P.2d 799]; Dryden v. Board of Pension Commrs. (1936) 6 Cal. 2d 575, 579 [59 P.2d 104].)
Nonetheless, once vested, pension rights may still be modified. "An employee's vested contractual pension rights may be modified prior to retirement [34 Cal. 3d 307] for the purpose of keeping a pension system flexible to permit adjustments in accord with changing conditions and at the same time maintain the integrity of the system. [Citations.] Such modifications must be reasonable, and it is for the courts to determine upon the facts of each case what constitutes a permissible change." (Allen v. City of Long Beach (1955) 45 Cal. 2d 128, 131 [287 P.2d 165].) A change is "reasonable" if the "alterations of employees' pension rights ... bear some material relation to the theory of a pension system and its successful operation, and ... [any] disadvantage to employees [is] accompanied by comparable new advantages." (Ibid.)
Further, in Abbott v. City of Los Angeles (1958) 50 Cal. 2d 438, 449 [326 P.2d 484], the court made it clear that modifications to pension plans which result in general, overall benefits do not necessarily meet the constitutional standard of "reasonableness." "[I]t is advantage or disadvantage to the particular employes [sic] whose own contractual pension rights, already earned, are involved which are the criteria by which modifications to pension plans must be measured ...." (Ibid., italics added.)
Using these principles, the courts have consistently invalidated increases in employee contribution rates which have not been accompanied by commensurate benefits. For example, in Allen, supra, 45 Cal. 2d 128, this court struck down an increase in employee contribution rates adopted by the City of Long Beach. The court found that the new rate "obviously constitute[d] a substantial increase in the cost of pension protection to the employee without any corresponding increase in the amount of the benefit payments he [would] be entitled to receive upon his retirement." (Id., at p. 131.)
Similarly, in Wisley v. City of San Diego (1961) 188 Cal. App. 2d 482 [10 Cal. Rptr. 765], the court held that gradual increases in the contribution rates of employees over a period of years were unconstitutional. Wisley affirmed the trial court's conclusion that "the maximum amount that could legally be deducted from the employees' gross pay was that percentage which was in effect at the time each of the individual plaintiffs was originally employed." (Id., at p. 485.) Significantly, the court did not invalidate the city's application of the increased contribution rates to employees who had entered the system after the new rates had been adopted. Nor did the court find constitutionally infirm the variation in rates paid by the employees. It was the increase in the rates by the city for employees already in the system that was held unconstitutional. (See also Abbott v. City of Los Angeles, supra, 50 Cal.2d at pp. 447-455.)
These rules, if followed by this court, would mandate a finding that the increase in the rates of employee contributions to the City's retirement system [34 Cal. 3d 308] violated the contract clauses of the federal and state Constitutions. The solvency or financial viability of the pension system was not a factor in the decision to raise the rates. The City stipulated that the decision of the administering board to raise the rates bore "no relationship to any unfunded liability of the system." Further, Robert Logan, city retirement officer and retirement board secretary, testified that the plan was financially sound. Sixty-three percent of the benefits already accumulated could have been paid if the plan were to be discontinued. In fact, many of the previous modifications in the employee contribution rates since 1955 had been decreases resulting from increased earnings of the fund.
Moreover, the majority's distinction would permit a city to circumvent the principles established by Kern (supra, 29 Cal.2d 848) and its progeny by simply enacting flexible ordinances allowing modifications in the rates of contribution and the calculation of retirement benefits. For example, a city that enacts a pension system permitting its administrative board to revise [34 Cal. 3d 309] the formula for calculating retirement benefits would be free to substitute a fixed pension for a flexible one. Even if such a modification were disadvantageous to the city's employees, it would be constitutionally permissible. Under the majority's approach, the modification would have been made "pursuant to the charter and ordinances which delineate [the] retirement system and prescribe the employees' vested rights." (Maj. opn. at p. 303.)
The City's contention that the new safety members should not bear the burden of paying higher contribution rates than those members already in the system when both groups will receive equal benefits upon retirement was expressly rejected by this court in Allen. There, the defendant city contended that the increased employee contribution rates were necessary to ameliorate "personal problems" which would be created by differences in pension costs and benefits among employees who performed the same job. The Allen court's words were clear and precise. "Such purposes, however [34 Cal. 3d 310] beneficial to the city, bear no relation to the functioning and integrity of the pension system established for persons employed prior to [the enactment of the amendments], and constitute no justification for materially reducing the vested contractual rights earned by plaintiffs prior to the time [the amendment] was adopted." (Id., at p. 133, italics added.)
FN 1. "Q. As a member grows older does his rate of contribution change with his age? [¶] A. No. The percentage rate of contribution at which a member begins contributing is computed to remain unchanged. This is not to say however, that all rates could not be adjusted at some future time to reflect either changes in benefit provisions of the system or increased earnings of the Retirement Fund."
FN 2. There is one additional factor, not mentioned in the court's opinion. The handbook did contain a statement reading as follows: "The following information is furnished in the hope that it may aid your understanding of your retirement system. The information given here is general in nature, and is not intended to answer every detailed question regarding the system .... You are urged to contact the Retirement Office if you have any questions regarding your benefits or membership status in the system." If there was a misrepresentation, I doubt whether this boilerplate disclaimer would neutralize it.
FN 1. Article 4, section 24.0903 of the San Diego Municipal Code provides: "On the basis of any and all of such investigations, evaluations and determination [as described in section 24.0901], the Board shall adopt such mortality, service, and other tables as it deems necessary and make such revisions in rates of contribution of members as it deems necessary to provide the benefits for which the rates for normal contributions are required to be calculated. The decision of the Board of Administration on matters covered by this section, if arrived at in good faith, shall be conclusive."
FN 2. Abbott v. City of San Diego, supra, 165 Cal.App.2d at page 518.
FN 3. Abbott v. City of Los Angeles, supra, 50 Cal.2d at page 455.