In the California Public Employees’ Pension Reform Act of 2013 (PEPRA; Stats. 2012, ch. 296, § 28; Gov. Code, § 7522 et seq.), the Legislature imposed new limits on the types and amounts of employee compensation that county retirement systems may use as a basis to calculate retirement benefits of covered public employees.  (Alameda County, supra, 9 Cal.5th at pp. 1059–1063; Gov. Code, § 31461, subd. (b) (section 31461).)  The purpose of these limits was to reduce the practice of “pension spiking” — that is, “the manipulation of an employee’s pattern of work and pay to produce inflated compensation earnable during the final compensation period” which, in turn, results in greater pension obligations for participating counties.  (Alameda County, at p. 1061.)

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This case concerns one of these limits:  Under PEPRA, the pension calculation for certain public employees now must exclude payments an employee receives for unused vacation or other leave “in an amount that exceeds that which may be earned and payable in each 12-month period during the final average salary period, regardless of when reported or paid.”  (§ 31461, subd. (b)(2) (section 31461(b)(2)).)  In Alameda County, we described one function of this provision as preventing employees from effectively doubling the amount of cashed out leave time they would ordinarily be able to receive in a single calendar year, under annual limits set by the terms of employment, by designating a final compensation year that straddles two calendar years.  (Alameda County, supra, 9 Cal.5th at pp. 1062–1063.)  This description was not essential to our holding in Alameda County, which primarily concerned PEPRA’s constitutionality.  Nonetheless, the retirement system in Ventura County proposed to implement the law as Alameda County described it.  Now, facing opposition from county employees, the retirement system seeks confirmation that the opinion’s understanding of section 31461(b)(2) is correct.

Reading the relevant statutory text in light of the purposes it was meant to achieve, we now confirm what we said about section 31461(b)(2) in Alameda County:  Under PEPRA, a public employee’s retirement benefit calculation may not include cashed out leave time in excess of the applicable annual limit set by the terms of employment, even though the employee has designated a final compensation period that straddles two or more calendar years.

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https://www4.courts.ca.gov/opinions/documents/S283978.PDF

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