We begin by noting the parties' briefing in this appeal utilized an excessive amount of acronyms. For the sake of clarity, and to avoid our opinion looking like alphabet soup, we have not adopted the parties' acronyms and when appropriate selected descriptive abbreviations when referring to the parties, legal authority, and policies.
Approximately 40 years ago, Orange County employed all education-related employees, i.e., teachers and principals. These employees were all members of the Orange County Employee's Retirement System (County Retirement System). This is а public pension system and independent government entity, which administers a retirement system for Orange County's officers and employees. The Orange County Board of Supervisors (the Board) created the County Retirement System in 1945, pursuant to Government Code section 31450 et seq., also referred to as the County Employees Retirement Law of 1937 (Retirement Law).
On July 1, 1977, the Board passed a resolution transferring " 'duties and functions of an educational nature' " to Employer. Employer is a public education organization. Its chief executive officer administers the budget and pays the costs of employment, including retirement benefits. Currently, this job is held by Al Mijares, thе Orange County Superintendent of Schools.
Along with the 1977 resolution, the Board entered into an agreement with Employer regarding the terms of transfer (Transfer Agreement). Pursuant to the Transfer Agreement, the Board gave educational employees the option of becoming a member of the California Public Employee's Retirement System (CalPERS) or remaining with the County Retirement System. The employees who selected CalPERS would never again be eligible to enroll in the County Retirement System. A small number of employees elected to remain members of the County Retirement System.
Employer was required to make yearly contributions to the County Retirеment System. The parties agree the payment consists of two components described in section 31453.5, as follows: (1) the normal contribution rate, calculated each fiscal year to fund the employee's expected benefits attributed to that year; and (2) the Unfunded Actuarial Accrued Liability (the
Two years later, in 2015, the County Retirement System created the Declining Employer Payroll Policy (the 2015 Policy), after it determined Employer had not contributed enough to completely fund its employees' benefits. Employer's complaint described how the policy came about. In March 2015, staff from the County Retirement System informed Employer it owed money due to the Unfunded Liability attributable to 22 retired members still receiving benefits. At a public hearing the following month, the County Retirement System's actuary discussed what options were available to collect the Unfunded Liability from Employer. The County Retirement System's chief executive officer, Steve Delaney, recommended that the board members create a policy "for employers who implicitly withdraw from [the County Retirement System] due to declining payroll." Delаney proposed the policy should "allocate [the Unfunded Liability] based on [a] pro-rate share of actuarial accrued liability," set payments in a fixed dollar amount "with a true-up process for future [Unfunded Liability]." The County Retirement System's board unanimously approved Delaney's proposed policy.
Employer claimed it tried to ask questions about how the Unfunded Liability was being calculated and was told the issue could be raised at the next County Retirement System's board meeting. At the June 2015 meeting, Employer asked if it could be granted additional time to research the policy further. The County Retirement System's board adopted the 2015 Policy but postponed taking action on the contribution schedule until a further meeting. Concerns about the 2015 Policy were discussed during a meeting held in October 2015, where Employer explained its theory the 2015 policy was unlawful. In December 2015, the County Retirement System asked Employer to "provide assurances that it would pay the $ 3.3 million" and make its first payment in July 2016.
Instead of providing assurances, Employer filed a lawsuit seeking declaratory relief that the 2015 Policy "create[d] an impermissible, unlawful retroactive effect and [was] therefore invalid." It sought an order enjoining the County Retirement System from enforcing its new 2015 Policy. The County Retirement System filed а cross-complaint also seeking declaratory relief. It asserted Employer was legally required to make the requested contribution,
The County Retirement System filed a motion for judgment on the pleadings (JOP). Employer filed an opposition. The
DISCUSSION
"Because a motion for [JOP] is similar to a general demurrer, the standard of review is the same. [Citation.] We treat the pleadings as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. When leave to amend is not given, we determine whether the complaint states a cause of action and whether the defect can reasonably be cured by amendment. If it can be cured, the trial court has committed reversible error. Otherwise, we affirm. The burden of рroof is squarely on the plaintiff. [Citation.] The judgment of dismissal will be affirmed if it is proper on any grounds stated in the motion, whether or not the trial court relied on any of those grounds. [Citation.]" ( Baughman v. State of California (1995)
I. Applicable Law
To evaluate the parties' arguments it his helpful to provide some background information about the County Retirement System's authority and financial responsibilities. Public employees "have a contractual right to an actuarially sound retirement system." ( Board of Administration v. Wilson (1997)
The Retirement Law provides the County Retirement System "is funded by both County and employee-member contributions. (§§ 31580-31607, 31639-31639.85.)" ( County of Alameda v. Board of Retirement (1988)
As mentioned, the rate of contribution has two components, described in section 31453.5 as the normal contribution
II. Retroactivity
The first reason Employer believes the 2015 Policy is unlawful is that it "retroactively increased [Employer's] liability from zero to $ 3.3 million."
The trial court determined this argument lacked merit because Employer failed to explain what exactly was being applied retroactively. It recognized the County Retirement System's board assessed the Unfunded Liability two years after the last employee retired, but this fact would not make the assessment retroactive. We agree.
As described above, an employee's retirement date does not trigger a duty to cаlculate an Employer's Unfunded Liability obligation to 22 retired employees. Nor does the Employer's obligation to pay the $ 3.3 million Unfunded Liability originate from the events of 1977 (when some but not all county employees transferred to a different retirement system called CalPERS). Employer's retroactivity argument fails to acknowledge an Unfunded Liability does not represent " ' "a debt that is payable today." [Citation.]' " ( Orange, supra,
In this case, Employer has 22 retired employees who are members of the County Retirement System and currently collecting their retirement benefits. The calculated Unfunded Liability applies to them prospectively in these benefits. There is no dispute the County Retirement System has a responsibility to adjust and seek additional member contributions to provide retired employees their benefits without reduction. It performed its duty to conduct
On a final note, we will briefly address Employer's claim that the last sentence of section 31453, subdivision (a), expressly forbids any retroactive assessments. It states, "No adjustment shall be included in the new rates for time prior to the effective date of the revision." The phrase must be read in context and has no relevance to this appeal.
III. Authority to Request Contribution
The second reason Employer believes the 2015 policy is unlawful is that the Retirement Law does not permit the County Retirement System to collect additional funds from an "inаctive employer." Employer maintains there are only two statutory provisions that authorize the County Retirement System to seek additional contributions. The first relates to "ongoing employers" who have payroll relating to employees who are members of the County Retirement System. (§ 31453.5.) The second statute covers Employers who have "withdrawn" from the pension plan. (§ 31564.2.)
A. No Official Withdrawal
We begin by analyzing section 31564.2, subdivision (a), which grants the County Retirement System authority to assess unfunded actuarial liability from a withdrawn employer. Specifically, it provides, "If a district's participation in the retirement system is terminated pursuant to the provisions of [s]ection 31564, the district shall remain liable to the retirement system for the district's share of any unfunded actuarial liability of the system which is attributable to the officers and employees of the district who either have retired or will retire under the retirement system." The rest of the statute provides the formula used to calculate the unfunded actuarial liability and clarifies "[t]he funding of the retirement benefits for the employees of a withdrawing agency is solely the responsibility of the withdrawing agency or the board of supervisors." (§ 31564.2, subd (d).)
Section 31564 explains how employees may withdraw from the County Retirement System. "All officers and employees of any district who have
In the case before us, some of Employer's employees transferred their membership from the County Retirement System to CalPERS. This transfer came about due to the Board's 1977 resolution to transfer educational duties to Employer, not due to a section 31564.2 petition written by employees asking to withdraw from the County Retirement System. Transferring the employees' benefits was authorized by the terms of a Transfer Agreement made between the Board and Employer. Thus, in this case, the transfer to a different retirement system did not require any further action by the employees or Employer, i.e., a written withdrawn petition described in section 31564. We agree with Employer's assertion section 31564 and 31564.2 are not applicable.
Before continuing our analysis, it is worth noting these provisions provide a withdrawing employer "shall remain liable" for any Unfunded Liability relating to their retired employees. Employer offers no logical reason why, or what public policy would be satisfied, to release it from this liability simply because a different procedure/process was used to facilitate its eventual withdrawal from the County Retirement System. We can think of no public policy or legislative goal achieved by distinguishing Employer from a withdrawing employer, when both have Unfunded Liability relating to their retired employees.
B. Ongoing Employers
Employer asserts the only other statutory provision relating to Unfunded Liability applies to "ongoing employers" who have payroll relating to a participating employee/member in the County Retirement System. (Citing § 31453.5.) Employer asserts it is no longer an ongoing employer because all of its employees, who were members of the County Retirement System, have retired. It maintains the Legislature has not yet written a statute to impose Unfunded Liability on an "inactive employer," creating a "legislative gap."
We disagree with this interpretation of section 31453.5, which we conclude broadly applies to both active and inactive employers who have retired employees currently receiving benefits from the County Retirement System. Section 31453.5 provides: "Notwithstanding [s]ection 31587, and in accordance with [s]ection 31453 or 31510.1, the board may determine county or district contributions on the basis of a normal contribution rate which shall
Section 31453.5 clearly describes two ways an employer pays into the County Retirement System. The first sentence of section 31453.5 refers to the "normal contribution rate" and provides a methodology to calculate this sum. The second sentence discusses payment of any deficit, i.e., the Unfunded Liability. (Ibid. ) This sentence does not suggest how the deficit should be calculated. It only describes the debt repayment assistance of amortization.
To support Employer's argument section 31453.5 did not authorize the County
Employer bases these definitions on section 31453.5's methodology for сalculating a "normal contribution rate." It explains that because a "normal contribution rate" is based on a percentage of payroll, the entire statute only applies to "ongoing employers." Employer insists we must treat the statute's payroll methodology, used to calculate one form of a payment, as a reason to significantly limit application of the entire statute to only certain kinds of employers. This construction would require us to ignore statutory language and essentially rewrite the statute to make the two payment obligations conditional on an employer's current payroll status. This we cannot do.
"Under settled canons of statutory construction, in construing a statute we ascertain the Legislature's intent in order to effectuate the law's purpose. [Citation.] We must look to the statute's words and give them 'their usual and ordinary meaning.' [Citation.] 'The statute's plain meaning controls the court's interpretation unless its words are ambiguous.' [Citations.] 'If the statutory language permits more than one reasonable interpretation, courts may consider other aids, such as the statute's purpose, legislative history, and public policy.' [Citation.]" ( Imperial Merchant Services, Inc. v. Hunt (2009)
Moreover, " ' "[p]ension legislation must be liberally construed and applied to the end that the beneficent results of such legislation may be
We begin by analyzing Employer's statutory construction that forms the legal premise of its argument. Employer asserts section 31453.5 provides the "normal contribution rate" must always be calculated as a percentage of payroll, making "payroll" a prerequisite for paying contributions into the County Retirement System. The usual and ordinary meaning of the statute's words do not support this interprеtation. Section 31453.5 provides "the board may determine ... contributions on the basis of a normal contribution rate which shall be computed" as a "percentage of compensation." (§ 31453.5.) "Courts routinely construe the word 'may' as permissive and words like 'shall' or 'must' as mandatory. [Citations.]" ( Jones v. Catholic Healthcare West (2007)
The court in Orange, supra,
Employer's theory does not take into consideration section 31453.5's description of the two payments, and other provisions in the statutory scheme expressly recognize the normal contribution rate is independent from the Unfunded Liability. To begin with, the first sentence of section
For example, the Legislature enacted several provisions (sections 31453, 31453.5, and 31453.6) addressing Unfunded Liability. It recognized the need to address the possibility of future financial difficulties and contemplated periodic corrective measures to address a shortfall in funding for retirement benefits. "[U]nderfunding can occur for a number of reasons and '[a]ctuarial methodology is designed to address and consider unforeseen events on a regular basis so as to ensure the financial integrity of the retirement system.' Indeed, [Retirement Law] itself requires that each actuary for the retirement system conduct a formal actuarial valuation 'within one year after the date on which any system ... becomes effective, and thereafter at intervals not to exceed three years.' (§ 31453; see also § 31454.) The actuary is therefore required to conduct a new valuation of the retirement system at least every three years and determine the extent to which prior assumptions must be changed." ( In re Retirement Cases, supra, 110 Cal.App.4th at pp. 459-460,
In addition, section 31453.6 authorizes the County Retirement System to "adopt a funding period of 30 years to amortize unfunded accrued actuarial obligations" unless amortization would "subject the fund to аn unsound financial risk." This option is not available for payment of the normal contribution rate each fiscal year.
Employеr's narrow construction of section 31453.5 is also at odds with our Constitution's provision giving the County Retirement System broad authority over sound actuarial funding of employee retirement benefits. Our Constitution grants "plenary authority and fiduciary responsibility for investment of moneys and administration of the system" to the retirement boards of public pension and retirement systems. ( Cal. Const., art. XVI, § 17.) Specifically, the Constitution mandates that the County Retirement System's board has "the sole and exclusive fiduciary responsibility over the assets of the ... retirement system" and must "administer the system in a manner that will assure prompt delivery of benefits and related services to the participаnts and their beneficiaries." ( Cal. Const., art. XVI, § 17, subd. (a).)
We appreciate these provisions were enacted in 1992 after the Legislature and Governor raided the county's retirement funds for other budget shortfalls. ( City of San Diego v. San Diego City Employees' Retirement System (2010)
Here, the County Retirement System's actuary predicted there was going to be a $ 3.3 million deficit with respect to Employer's 22 retired employees, and established a 20 year payment plan to help Employer amortize the Unfunded Liability. We conclude the County Retirement System had the authority to
IV. Leave to Amend
In the last paragraph of Employer's retrоactivity argument, it asserts the court granted the motion for JOP without allowing Employer to conduct discovery regarding the County Retirement System's conduct towards several other similarly situated employers. It explained
The record shows Employer did not seek a continuance to conduct further discovery and amend its complaint. Additionally, Employer's opposition to the motion for JOP did not include a request for discovery or assert additional time was needed. At the hearing, Employer's counsel argued the matter should have been decided with a better developed record in a motion for summary judgment. He did not ask for additional time to conduct discovery, he simply suggested additional discovery would further develop potential due process claims. He certainly did not argue discovery would have supported Employer's claim the 2015 Policy was impermissibly retroactive, which is the point now being raised on appeal. For these reasons, we conclude the issue is waived. We cannot fault the trial court for failing to permit additional discovery if Employer did not specifically request this relief. In addition, in its briefing on appeal Employer does not explain how additional evidence about other employers would have proven the Unfunded Liability was retroactively applied to Employer. We agree with the trial court that the County Retirement System had authority to request payment of the $ 3.3 million Unfunded Liability pursuant to both its plenary power ( Cal. Const. art. XVI, § 17 ) and section 31453.5.
The judgment is affirmed. Respondent shall recover its costs on appeal.
WE CONCUR:
IKOLA, J.
GOETHALS, J.
Notes
All further statutory references are to the Government Code.
In the reporter's transcript of the hearing, counsel represented the entities were the Cypress Sanitation District and Capistrano Beach Parks and Recreation.
In this appeal, employer's reply brief presents a new argument (in a footnote), that it should have been given leave to amend because any disparate treatment would support an equal protection claim. It is now well settled, "we need not [and do not] consider new issues raised for the first time in a reply brief in the absence of good cause...." (In re Marriage of Ackerman (2006)