Opinion ID: 1359056
Heading Depth: 2
Heading Rank: 4

Heading: characterization of the special payment

Text: The special payment is described as follows in the pension agreement. The Special Payment is the payment for the first three full calendar months following the month in which retirement occurs, but it does not apply in the case of a permanent incapacity retirement or a deferred vested pension. It is a lump sum equal to 13 weeks of vacation pay, reduced by any regular vacation pay received for the year of retirement or for an earlier year if the participant is not entitled to vacation in the year of retirement. Under the basic labor agreement a participant entitled to vacation which he has not taken by the time of retirement does not receive that vacation or vacation pay if he is eligible for the Special Payment, but no deduction will be made from the Special Payment for such vacation. Any pensioner who is reemployed shall not, upon subsequent retirement, be eligible for a Special Payment if he received a Special Payment upon his initial retirement. For each month to which the Special Payment does not apply, the pension is the Regular Pension. For the purpose of determining the Special Payment, vacation pay shall be adjusted to exclude the Cost-of-Living Adjustment included in the base hourly or salary rates other than the first Cost-of-Living Adjustment included in the base hourly or salary rates subsequent to April 30, 1974, except that such vacation pay adjustment shall not apply to vacation pay for any weeks of regular vacation to which the participant was or would have been entitled in the year of retirement or for an earlier year if the participant is not entitled to vacation in the year of retirement. The amount of the special payment is calculated according to a formula which distinguishes between workers who retire with accrued vacation time and those who retire with none. Specifically, the pension agreement provides for calculation of the amount of the special payment as follows: Special Payment 3.2 (a) The amount of special payment for a participant who was entitled to receive a vacation in the year of retirement or who would have been entitled to receive a vacation in the year of retirement except for such retirement shall be calculated as follows: (1) The number of weeks of vacation to which the participant was or would have been entitled will be determined. (2) The number determined in (1) above shall be subtracted from 13. (3) The number determined in (1) above shall be multiplied by the participant's vacation pay. (4) The result determined in (2) above shall be multiplied by the participant's adjusted vacation pay. (5) The amounts calculated in (3) and (4) above shall be added together and then reduced by all vacation pay the participant received in such year. (b) The amount of special payment for a participant not in any event entitled to vacation in the year of retirement shall be calculated under the formula established in (a) above as though the participant had retired in the year in which he was last entitled to a vacation. (c) The special payment shall be payable for the first three full calendar months following the month in which retirement occurs. Such special payment shall be made in a lump sum within the first full calendar month following the month in which retirement occurs or within the month following the month in which application for pension is made, whichever is later. .... .... .... .... .... .... . (e) As used in this Agreement the word `vacation' means the vacation provided under the vacation section of the Basic Agreement, `vacation pay' means the pay for a week of vacation calculated as provided in the vacation section of the Basic Agreement and `adjusted vacation pay' means the vacation pay reduced by the amount of such pay which results from a Cost-of-Living Adjustment other than the first Cost-of-Living Adjustment included in the base hourly or salary rates subsequent to April 30, 1974. Thus all retiring employees, other than those who retire on disability or who qualify for a deferred vested pension, [5] receive the special payment. However, for some retiring employees, the special payment consists, in large part, of accrued vacation pay. For others, those who are ineligible for vacation or who have used all available vacation time prior to retirement, the special payment appears to be a sort of retirement bonus, calculated with reference to the rate of vacation pay, but otherwise unrelated to the employee's actual eligibility for vacation. For example, employees are generally entitled to 13 weeks of adjusted vacation pay as the special payment. But an employee who was entitled to five weeks of vacation in the year of retirement but had taken none would receive this five weeks of vacation pay plus only eight weeks of adjusted vacation pay as special payment. Had the same employee actually taken five weeks of vacation in the retirement year, the special payment would consist only of the eight weeks of adjusted vacation pay. [6] Whether the special payment does or does not include accrued vacation pay in any individual employee's case, it is always paid out of the pension trust fund. And, in all cases, payment of the regular pension is delayed for three full calendar months after retirement. (6a) Based on the mechanics of its calculation, petitioners argue that the special payment is really vested vacation pay under another label. But, as to an employee with no accrued vacation at the time of retirement, this is obviously inaccurate. The special payment is calculated by reference to a pay rate labelled adjusted vacation pay, but there is no further similarity between the special payment and actual vacation pay. Under the terms of the pension agreement, the special payment is payable to all employees eligible for an immediate pension regardless of their vacation eligibility status. Even employees with no accrued, unpaid vacation time are eligible to receive it. As to these workers, the special payment consists essentially of 13 weeks of pay allocable to the first 13 weeks of retirement. The payment is described as a type of pension payment in the pension agreement, [7] and it is paid out of the pension fund. Thus the special payment is labelled a pension payment, is paid out of the pension fund, and is paid upon retirement to all eligible employees regardless of vacation status. In short, as to retiring workers with no accrued vacation the entire special payment appears to be a type of pension, retirement pay or other similar periodic payment ... based on ... previous work, within the terms of section 1255.3 and the federal statute. Petitioners' argument is more persuasive, however, as regards workers who actually retire with accrued vacation time. For such workers, as noted above, a sizeable portion of the special payment actually consists of vacation pay which was earned but not paid for services performed prior to termination of employment within the terms of section 1265.5. (7) Generally, the right to vacation pay is nonforfeitable and such pay will be paid to the employee on the termination of his employment for any reason, on his retirement, or on his death to his heirs or estate. (28 Ops.Cal.Atty.Gen. 40, 42 (1956).) Indeed, Labor Code section 227.3 provides that, upon termination, vested vacation time shall be paid as wages and that an employment contract or employer policy shall not provide for forfeiture of vested vacation time upon termination. And this court has determined that the right to paid vacation vests as the employee's labor is rendered. ( Suastez v. Plastic Dress-Up Co. (1982) 31 Cal.3d 774, 780-781 [183 Cal. Rptr. 846, 647 P.2d 122, 33 A.L.R.4th 254].) Kaiser workers who leave after at least 10 years continuous service but prior to age 50 (and who are not therefore entitled to receive the special payment upon retirement) may take their accrued vacation pay after the termination of their employment and  if they are otherwise eligible for unemployment compensation  can suffer no offset under the terms of section 1265.5. By contrast, those older workers eligible for the special payment are required, under the terms of the pension agreement, effectively to forfeit their accrued vacation pay in order to receive a precisely equivalent amount from the pension fund. [8] It is important to note that, with reference to this accrued vacation pay, these older employees receive nothing more than their younger co-workers upon retirement. Rather, they receive the same amount of accrued vacation pay they would have received if they were ineligible for a pension. In effect, the 13-week special payment pension they would otherwise have received (i.e., if they had retired with no vacation eligibility) is offset, week-for-week, to account for their accrued vacation pay. (6b) Under these circumstances, we consider it contrary to the statutorily expressed policy of the California Legislature to treat the accrued vacation pay component of the special payment as a pension for purposes of the offset mandated in section 1255.3. Nor do we consider the Board's approach to be required by federal law. The federal enactment was clearly intended to apply to those receiving retirement pay. As noted above, accrued vacation is ordinarily payable upon termination whether the departing employee quits, is fired, retires or dies. Accrued vacation pay cannot therefore appropriately be viewed as retirement pay. Thus, a strict construction of the federal statute suggests that the offset need not apply to accrued vacation pay even when, as in this case, a collective bargaining agreement characterizes such pay as part of the employee's pension payment. (8) Petitioners argue, alternatively, that the entire special payment should be considered severance pay and therefore exempt from offset under the provisions of section 1265. We do not find this theory persuasive. Section 1265 provides, in pertinent part: Notwithstanding any other provisions of this division, payments to an individual under a plan or system established by an employer who makes provisions for his employees generally, or for a class or group of his employees, for the purpose of supplementing unemployment compensation benefits shall not be construed to be wages or compensation for personal services under this division and benefits payable under this division shall not be denied or reduced because of the receipt of payments under such arrangements or plans. This section has been interpreted to encompass the payment of severance pay or dismissal pay paid pursuant to a collective bargaining agreement. ( Powell v. California Dept. of Employment (1965) 63 Cal.2d 103 [45 Cal. Rptr. 136, 403 P.2d 392]; Citroen Cars Corp. v. Unemployment Ins. Appeals Bd. (1980) 107 Cal. App.3d 945 [165 Cal. Rptr. 924].) But the special payment described in this pension agreement is not for the purpose of supplementing unemployment compensation benefits, nor is it designed to compensate workers who are involuntarily unemployed. On the contrary, the special payment is payable only to those workers who qualify to receive an immediate pension. Laid-off Kaiser workers who are ineligible for a pension or who qualify only for a deferred payment pension do not receive the special payment at all. By the same token, all Kaiser workers who qualify for payment of an immediate pension are entitled to receive the special payment regardless of the circumstances of their termination (i.e., whether they are laid off or retire voluntarily). Thus, the special payment does not appear to fall within the scope of compensatory payments envisioned by section 1265. (9) Finally, petitioners argue that the special payment cannot be considered a pension under the terms of 26 United States Code section 3304(a)(15) and section 1255.3 because, in certain respects, the terms of the pension agreement pertinent to the special payment violate substantive provisions of the Employment Retirement Income Security Act of 1974 (ERISA). One of petitioners' arguments on this issue is rendered moot by our determination that that part of the special payment equivalent to accrued vacation pay should not be considered pension pay under the terms of section 1255.3. Another of petitioners' arguments is that, because the pension agreement specifies that the special payment can be paid only once in each worker's lifetime even if the employee resumes his employment with Kaiser and leaves again, receipt of the special payment is equivalent to a forefeiture of benefits forbidden under ERISA provisions. We question the logic of the assertion that payment of benefits is equivalent to forfeiture of benefits. In any case, we find petitioners' underlying premise  that the special payment cannot be considered retirement pay if the terms governing its administration do not comply with ERISA provisions  unpersuasive. Neither the federal pension offset provision nor its state equivalent makes any reference to ERISA coverage or requirements. Thus, there is no indication that Congress or the Legislature intended that the issue whether or not employee benefit payments should be considered retirement pay for the purpose of reducing unemployment insurance benefits should be resolved on the basis of whether or not such payment plans complied with ERISA requirements. In our view, this issue is simply irrelevant to resolution of the question before us. (6c) We conclude that that portion of the special payment which is not equivalent to accrued vacation pay is properly considered a pension payment for purposes of reducing unemployment benefits under section 1255.3. That part of the special payment equivalent to accrued vacation pay, however, must be exempted from the statutory offset provision.